##### 









SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549




---

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 2002

Commission file number 000-23520

Quintiles Transnational Corp.


(Exact name of registrant as specified in its
charter)


|                         |  |                                            
|------------------------ |  | -------------------------------------------
|North Carolina           |  | 56-1714315                                 
|(State of incorporation) |  | (I.R.S. Employer
    Identification Number)

|                                                            |  |           
|----------------------------------------------------------- |  | ----------
|4709 Creekstone Drive, Suite 200
    Durham, North Carolina |  | 27703-8411
|(Address of principal executive
    office)                 |  | (Zip Code)

Registrants telephone number, including
area code:

(919) 998-2000


Securities registered pursuant to
Section 12(b) of the Act:

None.


Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, $.01 par value per share (and
Rights Attached Thereto)

(Title of Class)


Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.    Yes þ    No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment of this
Form 10-K. o

The aggregate market value of the
registrants Common Stock at January 31, 2003 held by
those persons deemed by the registrant to be non-affiliates was
approximately $1,403,887,942.

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Act).    Yes þ    No o

The aggregate market value of the
registrants Common Stock at June 28, 2002 held by
those persons deemed by the registrant to be non-affiliates was
approximately $1,326,362,282.

As of January 31, 2003 (the latest
practicable date), there were 118,011,642 shares of the
registrants Common Stock, $.01 par value per share,
outstanding.

Documents Incorporated by Reference

Portions of the definitive Proxy Statement to be
delivered to shareholders in connection with the 2003 Annual
Meeting of Shareholders are incorporated by reference into Part
III.



---






Quintiles Transnational 2002 Annual
Report  1




---



##### 



QUINTILES TRANSNATIONAL CORP.

FORM 10-K ANNUAL REPORT

INDEX

|         |          |  |                                                                                          |      |  |    | 
|-------- | -------- |  | ---------------------------------------------------------------------------------------- | ---- |  | -- | 
|         |          |  |                                                                                          | Page
|         |          |  |                                                                                          |     
|PART I   |          |  |                                                                                          |      |  |   
|         | Item 1.  |  | Business                                                                                 |      |  | 3  | 
|         | Item 2.  |  | Properties                                                                               |      |  | 19 | 
|         | Item 3.  |  | Legal Proceedings                                                                        |      |  | 19 | 
|         | Item 4.  |  | Submission of Matters to a Vote of Security
    Holders                                  |      |  | 20 | 
|        
|PART II  |          |  |                                                                                          |      |  |   
|         | Item 5.  |  | Market for Registrants Common Equity and
    Related Stockholder Matters                |      |  | 20 | 
|         | Item 6.  |  | Selected Financial Data                                                                  |      |  | 21 | 
|         | Item 7.  |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operation |      |  | 22 | 
|         | Item 7a. |  | Quantitative and Qualitative Disclosures about
    Market Risk                           |      |  | 45 | 
|         | Item 8.  |  | Financial Statements and Supplementary Data                                              |      |  | 46 | 
|        
|PART III |          |  |                                                                                          |      |  |   
|         | Item 9.  |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure |      |  | 89 | 
|         | Item 10. |  | Directors and Executive Officers of the Registrant                                       |      |  | 89 | 
|         | Item 11. |  | Executive Compensation                                                                   |      |  | 89 | 
|         | Item 12. |  | Security Ownership of Certain Beneficial Owners
    and Management                       |      |  | 89 | 
|         | Item 13. |  | Certain Relationships and Related Transactions                                           |      |  | 89 | 
|         | Item 14. |  | Controls and Procedures                                                                  |      |  | 89 | 
|        
|PART IV  |          |  |                                                                                          |      |  |   
|         | Item 15. |  | Exhibits, Financial Statement Schedules, and
    Reports on Form 8-K                     |      |  | 90 | 



2  Quintiles
Transnational 2002 Annual Report




---



##### 



PART I

Information set forth in this Annual Report on
Form 10-K contains various forward looking
statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Forward looking
statements represent our judgment concerning the future and are
subject to risks and uncertainties that could cause our actual
operating results and financial position to differ materially.
Such forward looking statements can be identified by the use of
forward looking terminology such as may,
will, expect, anticipate,
estimate, believe, continue,
or target or the negative thereof or other
variations thereof or comparable terminology.

We caution you that any such forward looking
statements are further qualified by important factors that could
cause our actual operating results to differ materially from
those in the forward looking statements, including without
limitation, uncertainties arising in connection with the process
of our Board of Directors special committee, including the
possibility that our operations may be adversely affected by the
impact of the process on our employees or customers, that
transactions recommended by our Board of Directors following the
special committee process will not be approved or completed,
that litigation may continue, and that, in the case of a sale of
our company, investors might no longer be able to freely trade
our shares on the public market. Uncertainty pending the outcome
of the special committees process, as well as the result
of that process, could impact our results of operations and
financial condition in ways that we are not able to predict.
Additional uncertainties that could cause our actual operating
results to differ materially from those in the forward looking
statement include the risk that the market for our products and
services will not grow as we expect, the risk that our PharmaBio
Development transactions will not generate revenues, profits or
return on investment at the rate or levels we expect or that
royalty revenues under our PharmaBio Development arrangements
may not be adequate to offset our upfront and on-going expenses
in providing sales and marketing services or in making milestone
and marketing payments, our ability to distribute backlog among
project management groups and match demand to resources, our
actual operating performance, variation in the actual savings
and operating improvements resulting from previous
restructurings, our ability to maintain large customer contracts
or to enter into new contracts, changes in trends in the
pharmaceutical industry, the ability to operate successfully a
new line of business, the risk that Verispan, our joint venture
with McKesson Corporation relating to the informatics business,
will not be successful, and liability risks associated with our
business which could result in losses or indemnity to others not
covered by insurance. See Risk Factors below for
additional factors that could cause actual results to differ.

Item 1.     Business

General

We are a market leader in providing a full range
of integrated product development and commercial development
solutions to the pharmaceutical, biotechnology and medical
device industries. We also provide market research solutions and
strategic analyses to support healthcare decisions and
healthcare policy consulting to governments and other
organizations worldwide. Supported by our extensive information
technology capabilities, we provide a broad range of contract
services to help our customers reduce the length of time from
the beginning of development to peak sales of a new drug or
medical device.

Our product development group is one of the
largest contract research organizations, or CROs, globally, with
particular strength in Phase II and Phase III clinical
trials, but with a presence in each phase of the drug
development life cycle and major geographic region. Our
commercial services group is one of the largest contract sales
organizations, or CSOs, and the only one with the ability to
provide these services worldwide. We serve customers needs
by offering a suite of services that carries their products from
the preclinical phase all the way through to post-launch. Our
PharmaBio Development group allows us to leverage our CSO and
CRO expertise in combination with our financial resources to
partner with customers in specialty pharmaceutical or
co-promotion roles. We



Quintiles Transnational 2002 Annual
Report  3




---



##### 



interact with our pharmaceutical and
biotechnology customers at many points, seeking to serve all of
our customers pharmaceutical outsourcing needs.


We were founded in 1982 by Dr. Dennis
Gillings to offer biostatistics and data management services to
the pharmaceutical industry. We have continued over time to
expand the scope of our services and geographic presence to
support the needs of our customers on a worldwide basis. As part
of this strategy, we completed approximately 39 acquisitions
over the past seven years to expand or strengthen our services.
While our acquisition rate has slowed in recent years, with six
completed over the past three years, we have focused our efforts
on reorganizing our operating units, creating new ways of
marketing and selling our services and moving our informatics
business to a joint venture. In addition, through the formation
of our PharmaBio Development group in 2000, we have begun to
pursue strategic alliances with our customers which pair the
services of our commercial services and product development
groups with funding support for our customers. As part of our
normal course of business, we also evaluate opportunities to
acquire specific products and/or marketing rights to products.

Over the past two years, we have implemented a
global strategic plan that we believe will allow us to meet the
changing needs of our customers and increase our opportunity for
growth. Our strategy is built on the following initiatives:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Implementing strategic
    alliances.Through our PharmaBio
    Development group, we are pursuing strategic alliances with
    customers in which we combine the services of our commercial
    services and product development groups with funding support for
    our customers. In appropriate circumstances, we may also acquire
    the rights to receive royalties or commissions based on sales of
    the customers product.                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Leveraging technology and
    information.We are focusing on
    leveraging our technology to increase the value of our services
    to our customers and to increase our own efficiency. For
    example, our commercial services group is using our iQLearning
    Network to deliver Internet based programs such as eCME and
    E-detailing products to supplement office visits and allow us to
    reach doctors who are not easily accessed. At the same time, we
    are able to leverage our recruitment services across the
    iQLearning Network to drive down our costs. Our product
    development group is focusing on gaining operating efficiency in
    data management by eliminating duplicate offices and shifting
    capabilities to low-cost, high quality regions and eventually
    through the use of secure Internet links.
|
| |  | Realigning business
    development.We are moving towards a
    business development strategy which focuses on specific
    customers to acquire a better understanding of the whole of that
    customers needs. We may achieve this understanding by
    acquiring some of the customers infrastructure, bringing
    along with it a relationship with the customer. In other cases,
    we may expand existing customer relationships into preferred
    provider relationships, such as by forming long-term clinical
    development alliances designed to enable the customer to boost
    efficiencies in its drug development programs.                                                                                                                                                                                                       
|
| |  | Hiring and retaining quality
    employees.Our employees are our
    business, and we are dedicated to strengthening and stabilizing
    our workforce.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Creating efficiencies through shared service
    centers and near real-time human resources
    management.We believe we can create
    operational efficiencies by centralizing our finance and human
    resources functions in professional services centers that we
    established regionally in the United States and Europe.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

Services

We provide globally integrated contract research,
sales, marketing and healthcare policy consulting and health
information management services to the worldwide pharmaceutical,
biotechnology, medical device and healthcare industries. We
currently operate in three reportable segments: product
development, commercial services, and PharmaBio Development. Our
product



4  Quintiles
Transnational 2002 Annual Report




---



##### 



development services include a full range of
services focused on helping our customers through the
development and regulatory approval of a new drug or medical
device. Our commercial services, operating under our Innovex
brand-name, focus on helping our customers achieve commercial
success for a new product or medical device. Our commercial
services group offers sales force deployment and specialized
marketing support services and also provides healthcare policy
research and management consulting services, which emphasize
improving the quality, availability and cost-effectiveness of
healthcare. Our PharmaBio Development group was created in 2000
to help enable us to better capitalize on the success of new
pharmaceutical product launches by entering into partnering
alliances with our customers. In certain circumstances,
PharmaBio Development will also acquire the rights to develop
and market pharmaceutical products. Prior to May 2002, when we
formed Verispan, our joint venture with McKesson Corporation, we
operated a fourth reportable segment comprised of our
informatics group. Note 26 of the notes to our consolidated
financial statements includes financial information regarding
each segment.


We currently provide our customers with a
continuum of services which span our three segments. We believe
that the broad scope of our services allows us to help our
customers rapidly assess the viability of a growing number of
new drugs, cost-effectively accelerate development of the most
promising drugs, launch new drugs to the market quickly and
evaluate their impact on healthcare. The following discussion
describes our service offerings in greater detail.

Product Development Offerings

Our largest business segment, the product
development group, competes in the CRO industry. Our product
development group provides a wide range of products and services
to customers in the pharmaceutical, biotechnology, and medical
device industries. The group offers global expertise in drug
development from early compound analysis through regulatory
submission. Our capabilities span preclinical and toxicology
testing and all phases of clinical testing. Our product
development segment is divided into two groups: Early
Development and Laboratory Services, which focuses on early
stage pharmaceutical development and laboratory services for the
later phases, and Clinical Development Services, which
specializes in later stage clinical trials.



| |                                              
| | ---------------------------------------------
| | Early Development and Laboratory
    Services

Preclinical
services.Our preclinical unit
provides customers with a wide array of early development
services. These services are designed to produce the data
required to identify, quantify and evaluate the risks to humans
resulting from the manufacture or use of pharmaceutical and
biotechnology products. Such services include general
toxicology, carcinogenicity testing, pathology, efficacy and
safety pharmacology, bioanalytical chemistry, drug metabolism
and pharmacokinetics. During 2001, we opened a safety
pharmacology unit in Kansas City, Missouri. The development of
this capability in the United States during 2002, in combination
with our Edinburgh, Scotland unit has allowed us to provide full
service safety pharmacology to our U.S. customers while further
strengthening our global position.

Formulation, manufacturing and packaging
services.We offer services in the
design, development, analytical testing and commercial
manufacture of pharmaceutical dose forms. We provide study
medications for preclinical and clinical studies along with
necessary good manufacturing practice, or GMP, chemistry,
manufacturing and controls, or CMC, and regulatory
documentation. In 2002, we began construction of a new GMP
sterile clinical supplies manufacturing facility in Kansas City,
Missouri. Medications for use in clinical (both pre- and
post-marketing) studies are packaged, labeled and distributed
globally. These services can expedite the drug development
process because clinical trials are often postponed by delays in
the manufacture of study drug materials.

Phase I
services.Phase I clinical
trials involve testing a new drug on a limited number of healthy
individuals. Our Phase I services include dose ranging,
bioavailability/bioequivalence



Quintiles Transnational 2002 Annual
Report  5




---



##### 



studies, pharmacokinetic/pharmacodynamic
modeling, first administration to humans, multiple dose
tolerance, dose effect relationship and metabolism studies.


Centralized clinical trial
laboratories.Our centralized
laboratories provide globally integrated clinical laboratory
services to support all phases of clinical trials with
facilities in the United States, Europe, South Africa and
Singapore. Services include the provision of protocol-specific
study materials, customized lab report design and specimen
archival and management for study sponsors. In addition to
providing comprehensive safety and efficacy testing for clinical
trials, our centralized laboratories allow for global
standardization of clinical testing, database development and
electronic data transfer and provide direct electronic
integration of laboratory data into safety and efficacy reports
for new drug application, or NDA, submissions.



| |                              
| | -----------------------------
| | Clinical Development Services

Clinical trial
services.We offer comprehensive
clinical trial services throughout the lifecycle of a product.
In addition to Phase I through III studies, which are the
basis for obtaining initial regulatory approval for drugs and
medical devices, we provide expertise in the development and
execution of Phase IIIb and IV studies, which includes drug
safety, regulatory affairs, clinical trial supplies, central
laboratory services, quality assurance, health economics, data
management and biostatistics. On a global basis, our employees
are aligned with key customers to provide a full-range of
management and scientific services tailored to their specific
requirements.

We coordinate our offerings through a
customer-centric project management structure. We have over 200
project managers with Phase II-IV drug development and
medical device experience spanning the therapeutic areas of the
central nervous system, cardiovascular, oncology, infectious,
allergic and respiratory diseases as well as within therapeutic
areas of endocrinological, gastroenterological, genitourinary,
musculoskeletal diseases, and stroke, with respect to clinical
trials. Other specialized offerings include development services
in neonatal, pediatric and adolescent care. Our project
management processes and training are based on the Project
Management Institute standard. Because of our global presence
and ability to coordinate clinical staff to service customers on
an international basis, we are experienced in managing trials
involving several thousand patients at hundreds of sites
concurrently in the Americas, Europe, the Asia-Pacific region
and South Africa.

We provide our customers with one or more of the
following core clinical trial services:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Study design.We
    assist our customers in preparing the study protocol and
    designing case report forms, or CRFs. The study protocol defines
    the medical issues to be examined, the number of patients
    required to produce statistically valid results, the period of
    time over which they must be tracked, the frequency and dosage
    of drug administration and the study procedures. A studys
    success often depends on the protocols ability to predict
    the requirements of the applicable regulatory authorities and to
    meet the commercial needs for a successful launch.
|
| | Investigator
    recruitment.During clinical trials,
    the drug is administered to patients by physicians, referred to
    as investigators, at hospitals, clinics or other sites. We have
    access to several thousand investigators who have conducted our
    clinical trials worldwide.                                                                                                                                                                                                                                                                                                                
|
| | Patient recruitment.We assist our customers in recruiting patients to participate in
    clinical trials through investigator relationships, media
    advertising, use of web-based techniques and other methods. We
    also help to ensure patients are retained for the duration of
    the studies.                                                                                                                                                                                                                                                                                                       
|
| | Study monitoring.We
    provide study monitoring services which include investigational
    site initiation, patient enrollment assistance, and data
    collection and clarification. Site visits help to assure the
    quality of the data, which are gathered according to good
    clinical practice, or GCP, and International Conference on
    Harmonization, or ICH, regulations and guidelines, and to meet
    the sponsors and regulatory agencies requirements
    according to the study protocol.                                                                                             
|
| | Clinical data management and biostatistical
    services.We have extensive experience
    in the creation and statistical analysis of scientific databases
    for all phases of the drug development                                                                                                                                                                                                                                                                                                                                                                                                          



6  Quintiles
Transnational 2002 Annual Report




---



##### 



| |                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | process. These databases include customized
    databases to meet customer-specific formats, integrated
    databases to support NDA submissions and databases in accordance
    with ICH guidelines.

Regulatory affairs
services.We provide comprehensive
medical and regulatory services for our pharmaceutical and
biotechnology customers. Our medical services include medical
oversight of studies, review and interpretation of adverse
experiences, medical writing of reports and study protocols and
strategic planning of drug development programs. Regulatory
services for product registration include regulatory strategy
design, document preparation, publishing, consultation and
liaison with various regulatory agencies. Our regulatory affairs
professionals help to define the steps necessary to obtain
registration as quickly as possible. We are able to provide such
services in numerous countries to meet our customers needs
to launch products in multiple countries simultaneously.

Late phase clinical
studies.Designed to build physician
awareness, develop marketing messages, drive product usage, and
deepen customers understanding of physician practices and
product-adoption patterns, our late phase clinical services
include consulting customers on Phase IIIb and
Phase IV clinical trials, clinical experience trials, and
patient registries. We provide post-marketing safety
surveillance programs and measure treatment satisfaction and
quality of life to help accelerate the commercialization
process. This group also offers specialized reimbursement
support services and patient assistance programs to facilitate
coverage and payment for treatment, utilizing our proprietary
new technologies. In 2002, we integrated our Quintiles Late
Phase services into our product development line of business to
bridge clinical development and product commercialization.

Medical device
services.We offer medical device
services similar to our offerings for the development and
introduction of pharmaceutical products. Our core medical device
services include identification of regulatory requirements in
targeted markets; global clinical study design, planning,
management and monitoring, including data management and
statistical analysis of report preparations; preparation of
regulatory filings and compliance with regulatory requirements
for market access and long range planning for product launches,
including pricing strategies.

Commercial Services Offerings

We provide our customers a comprehensive range of
specialized pre-launch, launch, and post-launch fee-for-service
contract sales and strategic marketing services. Our commercial
services group includes our Quintiles Integrated Strategic
Services business and our Commercialization business. By
expanding the traditional paradigm of
commercialization beyond contract sales to encompass
contract marketing and other services, our commercial services
group has enhanced our competitive position. This group delivers
integrated strategic and tactical solutions in sales and
marketing across the product life cycle for pharmaceutical,
biotechnology, and medical device companies as well as for other
entities across the healthcare spectrum. In the United States,
the integration of core services through our iQLearning.com web
portal provides physicians with a broad range of educational
resources and services available 24 hours a day, seven days a
week. In addition, we provide strategic health and human
services consulting for customers including hospitals, long-term
care facilities, foundations, managed care organizations,
employers, the military and federal and state governments.

We entered the contract sales organization
industry in 1996 when we acquired Innovex, a U.K.-based company
with global operations, and grew the business organically as
well as through acquisitions. We continue to operate our CSO
business under the Innovex brand. We have specialist therapeutic
expertise in the areas of cardiovascular, central nervous
system, gastrointestinal, womens health, endocrinology,
allergy-respiratory, anti-infectives, and oncology.



| |                                             
| | --------------------------------------------
| | Quintiles Integrated Strategic
    Solutions

Strategic marketing
services.Our expert consultants
support pharmaceutical, biotechnology and medical device product
commercialization through a continuum of services. We begin in
the



Quintiles Transnational 2002 Annual
Report  7




---



##### 



conceptualization phase of development with
strategic market research. Through a combination of secondary
data and qualitative primary research, we assist customers in
making development decisions. Once a product proceeds to
large-scale clinical trials, this group creates product
positioning, pricing and formulary access/ reimbursement
strategies based on extensive primary research with providers,
patients, payors and other administrative decision-makers.
Finally, in support of product marketing at launch, we create
health economic models to justify price to formulary
decision-makers, and, post-launch, we track actual product costs
and outcomes through medical claims data, medical records and
patient interviews. The combination of these services provides
our customers with the marketing, economic and reimbursement
support they need to help to maximize commercial potential at
each stage of the product lifecycle.


Healthcare policy research and
consulting.Our management
consulting services focus on improving the quality, availability
and cost-effectiveness of healthcare in the highly regulated and
rapidly changing healthcare industry. These services include
corporate strategic planning and management, program and policy
development, financial and cost-effectiveness analyses,
evaluation design, microsimulation modeling and data analysis.
They represent the core competencies of The Lewin Group, an
internationally recognized management consulting firm with more
than three decades of experience solving problems for
organizations in the public, non-profit and private sectors.

Regulatory and compliance
consulting.We supply regulatory
and compliance consulting services to the pharmaceutical and
biotechnology, medical device development and manufacturing
industries. Services include global regulatory consulting,
quality systems and engineering and validation. We assist
companies in preparing for the United States Food and Drug
Administration, or the FDA, interactions, including inspections
and resolution of enforcement actions; complying with current
GMP, GCP and Quality Systems regulations; meeting process and
software validation requirements; and bringing new medical
devices to market.

Strategic medical
communications.Our strategic
medical communications group offers a range of pre-launch,
launch, and post-launch services, beginning in the early stages
of product development and continuing until the product reaches
peak penetration. Services include communications strategies and
planning, product positioning and branding, opinion leader
development, faculty training, symposia, continuing medical
education programs, promotional programs, sponsored
publications, new media-based programs, patient education and
clinical experience programs (e.g., patient starter programs and
compliance programs). As early as Phase I and Phase II
clinical trials, we can begin to disseminate scientific
information and develop and present educational forums to help
gain opinion leader support for a new drug.



| |                            
| | ---------------------------
| | Commercialization Offerings

Our customized sales and marketing services are
designed to accelerate the commercial success of pharmaceutical,
biotechnology, veterinary and other health-related products.

Contract
sales.Highly skilled,
web-integrated primary care, specialty, and innovative
promotional alternative sales teams provide our customers with a
flexible resource which is able to respond quickly and
effectively to a changing marketplace at a variable cost to the
customer. We provide our customers with a variety of staffing
options, including direct hire, flexible work arrangement, leave
of absence, and strike force arrangements (in which
a team is deployed to a particular territory to capitalize on a
market niche opportunity). We use a proprietary review process
and a variety of techniques, including our extensive
computerized databases and candidate referrals, to recruit
candidates for our contract sales teams. Our training and
development services integrate traditional and web-based
services. Our contract sales unit helps our customers design or
revamp their existing sales programs to meet marketplace demands.

Customers may contract for dedicated or
syndicated sales teams. When dedicated teams are deployed, we
take on a primary management role or a supporting role to the
customers field management, depending on the
customers needs. In certain circumstances, dedicated teams
may be



8  Quintiles
Transnational 2002 Annual Report




---



##### 



transferred to the customer for an additional
placement fee included in the contract. Our syndicated teams
promote a number of non-competing drugs for different customers
simultaneously. We always maintain direct management of our
syndicated sales teams.


Marketing
services.We provide customized
product marketing services for pharmaceutical and biotechnology
companies designed to influence the decisions of patients and
physicians and accelerate the acceptance of drugs into treatment
guidelines and formularies. We assess markets, conduct research,
develop strategies and tactics, assist in discussions with
regulatory bodies, identify distribution channels and coordinate
vendors in every region of the country. Our industry experts,
with experience in many therapeutic areas, can provide marketing
insight into a wide range of geographic markets while working to
optimize commercial success.

Internet-based sales and marketing
services.Innovex e-Health
Solutions Group, launched in October 2001, provides
Internet-based sales and marketing services for the
pharmaceutical, biotechnology and medical device industries. The
groups first product, iQLearning.com, was launched in
January 2002. iQLearning.com is an Internet service portal that
further expands our range of healthcare information resources
and services to physicians in the United States and currently
has a membership of more than 90,000 United States physicians.
The groups second and third products were launched in
August 2002. The eOP product is an online process for
identifying key opinion leaders within designated specialty
areas utilizing the iQLearning service portal. Our third product
is the iQBroadband program, which leverages the iQLearning
service portal to provide state-of-the-art live net meeting
software and high speed Internet connectivity for live sales
presentations, speaker training meetings and web-based symposia.
The group also brought the full capability of the iQLearning
service portal to Innovex in the fourth quarter of 2002 by
delivering online training and messaging to a contract sales
force.

In the United Kingdom, in partnership with
Synigence Plc, we have developed a number of services which
utilize web enabled technology to support the pharmaceutical
industrys marketing programs. These include both live and
virtual e-detailing. Innovex UK in collaboration with Synigence
Plc can now gain access to a significant number of primary care
physicians within the United Kingdom via a secured network
system.

Health management
services.We also provide teams of
healthcare professionals, including nurses, pharmacists and
physicians, who are dedicated to assisting customers with
disease-management issues. Our health management services offer
customized clinical solutions to bridge the gap between the
clinical and commercial phases of product development and to
provide expertise across a broad range of pre-launch, launch and
post-launch opportunities. We believe that our clinical and
promotional expertise, commercial orientation and international
experience enable us to tailor these programs to meet the
diverse needs of the global pharmaceutical industry across a
wide range of disciplines and local market conditions.

Training.In
various countries around the world we offer industry specific
training to professionals working in retail pharmacy,
manufacture, distribution, regulatory, sales and marketing. The
training in many instances is outcomes based, covers both
knowledge and skills, and may be delivered via the Internet or
email, as well as hard copy.

PharmaBio Development Offerings

Our PharmaBio Development group works with our
other service groups to enter into strategic transactions that
we believe will position us to explore new opportunities and
areas for potential growth. PharmaBio Development has entered
into a series of similarly structured transactions that
typically involve providing funding to the customer, either
through direct payments or loans. In some cases, the loans are
convertible into capital stock of the customer. We also may
invest in the customers capital stock, and sometimes we
receive warrants to purchase shares of our customers
capital stock. This funding may be used by the customer to help
pay for the services provided by us through our product
development or commercial services groups. In addition, the
customer may agree to pay us royalties or commissions based on
sales of the customers product. At the end of



Quintiles Transnational 2002 Annual
Report  9




---



##### 



2001, we expanded this business model to include
the acquisition of rights to market products. We believe this
business model adds value for pharmaceutical and biotechnology
companies. Pharmaceutical companies gain additional resources in
support of their new and/or existing products, and biotechnology
companies gain capital and services. This model allows us to
expand on the traditional fee-for-service model of our core
business by using available cash to create the potential for a
greater return on a customer relationship by direct investment,
allowing us to take advantage of our customers growth, or
participating in a product revenue stream that may depend in
part on how successful we are in providing our services with
regard to the product. Overall, our ultimate revenues and
operating income from these transactions depends on the
performance of the customers capital stock or of its
product, which in some cases has not yet been approved by the
FDA. We created PharmaBio Development in 2000, and have since
entered into multiple transactions that have opened new channels
of business for us.




| |                
| | ---------------
| | Business Models

PharmaBio Development works within the following
targeted investment models:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Risk-Based
    Commercialization.Risk-based
    commercialization investments include transactions in which
    PharmaBio Development funds some or all of a customers
    cost for Innovexs commercialization services in exchange
    for product royalty rights. In such transactions, we receive
    from our customers the right to royalties on the sales of the
    products covered by the agreements. Our compensation for the
    sales force may be reflected in the royalties we receive, or it
    may be in addition to such royalties on a fee-for-service basis.
    We use a variety of contract structures in our risk-based
    commercialization transactions. Certain transactions may include
    contractual minimum and/or maximum royalty amounts. In other
    instances, we may have no guaranteed minimum royalty. Regardless
    of the structure, we always seek to earn financial returns
    commensurate with the risks of the transaction. In addition to
    providing superior operational excellence, we believe that the
    key factors in the success of such transactions are sound
    marketing and scientific research on the products, solid
    financial due diligence on our partners, and sound contracting.
|
| |  | Specialty Pharmaceutical
    Products.PharmaBio Development also
    acquires the rights to market pharmaceutical products. We
    arrange for the manufacture of, and directly market, a number of
    dermatology compounds, including SolarazeTM and
    ADOXATM, through our Bioglan Pharmaceuticals Company
    subsidiary. PharmaBio Development also has acquired the rights
    to several other products in Europe, via licensing or
    distribution agreements, which involve a variety of up-front or
    ongoing payments to the licensors. In these arrangements, third
    parties manufacture the products for us and Innovex sells the
    products. In all of these instances, PharmaBio Development
    recognizes the revenues from the sales of these pharmaceutical
    products.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |   | From time to time our PharmaBio Development group
evaluates the purchase or license of marketing rights to other
products. Any such investments we may make likely will not
represent a commitment to a particular therapeutic area; rather,
under this model, we will rely on our due diligence to confirm
that the purchase of the rights to a single product can be
successfully marketed without the strength and support of an
integrated therapeutic capability.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Strategic
    Investments.PharmaBio Development
    makes a variety of strategic investments, including direct
    investments in both marketable and non-marketable equities,
    debt, and indirect investments through such vehicles as venture
    capital funds. In some cases, PharmaBio Development makes
    investments in connection with risk-based commercialization
    agreements, such as its arrangements with Columbia Laboratories,
    Inc. and Discovery Laboratories, Inc. In other instances
    PharmaBio Development may make its investments as independent
    transactions. As of December 31, 2002, PharmaBio
    Development had a total of $111 million in such
    investments, including $65 million of investments in
    marketable equities and $46 million of                                                                                                                                                                                                                                                                                                                                                                                                                                                              



10  Quintiles
Transnational 2002 Annual Report




---



##### 



| |   |                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | investments in non-marketable equity securities
    and loans. PharmaBio Development actively manages this
    portfolio, and makes trading decisions as well as investments.                                                                                                                           
|
| |  | Risk-Based Development
    Services.In such transactions,
    PharmaBio Development would fund some or all of the clinical
    development services costs on behalf of a partner in exchange
    for royalty rights in the product. We have not consummated any
    risk-based development transactions.

Recent
Strategic Alliances

PharmaBio Development entered into the following
transactions during 2002.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In January 2002, we entered into an agreement
    with Kos Pharmaceuticals, Inc. to commercialize in the United
    States Koss treatments for cholesterol disorders,
    Advicor® and Niaspan®. We provide a dedicated sales
    force at our own expense who, in combination with Koss
    sales force, will commercialize Advicor® and Niaspan®
    for two years. In return, we received warrants to purchase
    shares of Koss common stock at an agreed price. We will
    receive commissions, subject to a minimum and maximum amount
    over the life of the agreement, based on net sales of the
    product from 2002 through 2006.                                                                                        
|
| |  | During the second quarter of 2002, we finalized
    an agreement with a large pharmaceutical customer to market
    pharmaceutical products in Belgium, Germany and Italy. We will
    provide, at our own expense, sales and marketing resources over
    the five-year life of the agreement, in return for which the
    customer will pay us royalties on product sales in excess of
    certain baselines. Subsequent to December 31, 2002, we
    exercised our rights to terminate this contract in Germany.                                                                                                                                                                                                                        
|
| |  | In July 2002, we entered into an agreement with
    Eli Lilly and Company to support its commercialization efforts
    for CymbaltaTM in the United States. In return for
    providing sales representatives and making marketing and
    milestone payments to Lilly, we will receive a percentage of
    sales over the five-year service period followed by a royalty
    over the subsequent three years.                                                                                                                                                                                                                                                                                                                             
|
| |  | In July 2002, we entered into an agreement with
    Columbia Laboratories, Inc. to assist them in the U.S.
    commercialization of the following womens health products:
    ProchieveTM 8%, ProchieveTM4%,
    Advantage-S® and RepHreshTM. Under the terms of
    the agreement, we purchased shares of Columbia common stock. We
    also will pay Columbia four quarterly payments, which commenced
    in the third quarter of 2002, in exchange for royalties on the
    sales of the four Columbia products for a five-year period
    beginning in the first quarter of 2003. In addition we will
    provide to Columbia, at Columbias expense on a
    fee-for-service basis, a sales force to commercialize the
    products.
|
| |  | In December 2002, we entered into an agreement
    with a large pharmaceutical customer to market two products in
    Belgium. Under the terms of the agreement, we acquired the
    marketing and distribution rights to one of the products and
    entered into a distribution agreement for the other product.                                                                                                                                                                                                                                                                                                                                                                                                                         

We review many candidates for strategic alliances
under our PharmaBio Development business models, and in addition
to the transactions already under way, we are continually
evaluating new strategic possibilities, including opportunities
to acquire rights to market additional pharmaceutical products,
and we may enter into additional transactions in the future.

Informatics Offerings

Prior to May 2002, we had a fourth segment,
consisting of our informatics services. Our informatics group
provided a broad range of knowledge-rich products and services
for use by the pharmaceutical, biotechnology, and medical and
surgical device industries, and healthcare provid-



Quintiles Transnational 2002 Annual
Report  11




---



##### 



ers, payors and patients to improve the quality
of care and to efficiently manage the delivery of care at
multiple points along the continuum of healthcare delivery.


In May 2002, we completed the formation of our
healthcare informatics joint venture, Verispan, with McKesson.
The joint venture is designed to leverage the operational
strengths of the healthcare information businesses of each
company. We are equal co-owners of a majority of the equity of
Verispan with McKesson with a portion of the equity in Verispan
owned or to be issued to key providers of de-identified
healthcare data in exchange for the data. We contributed the net
assets of our informatics group and funded $10 million to
Verispan.

Several major data providers have contracted to
provide de-identified prescription or medical data to the joint
venture. Verispan has licensed its data products to McKesson and
us for use in our respective core businesses. Under the license
arrangement, we continue to have access to Verispans
commercially available market information and products, at no
further cost to us, to enhance service to and partnering with
our customers.

Customers and Marketing

We coordinate our business development efforts
across our service offerings through integrated business
development functions, which direct the activities of business
development personnel in each of our U.S. locations, as well as
other key locations throughout Europe, Asia-Pacific, Canada and
Latin America.

For the year ended December 31, 2002,
approximately 43.1% of our net service revenue from external
customers was attributed to operations in the United States and
56.9% to operations outside the United States. Please refer to
the notes to our consolidated financial statements included in
Item 8 of this Form 10-K for further details regarding
our foreign and domestic operations. Approximately 42.5%, 41.1%,
and 36.4% of our net revenue was attributed to our clinical
development services in 2002, 2001 and 2000, respectively;
approximately 25.8%, 32.6% and 37.7% of our net revenue was
attributed to our commercialization services in 2002, 2001 and
2000, respectively; and approximately 17.3%, 15.4% and 14.3% of
our net revenue was attributed to our early development and
laboratory services in 2002, 2001 and 2000 respectively. Neither
our integrated strategic services, our commercial rights and
royalties, nor our informatics services accounted for more than
10% of our net revenue in any of these years. ENVOY, our former
electronic data interchange unit, is accounted for as a
discontinued operation as a result of its sale to WebMD in May
2000; therefore, the results of ENVOY through the date of sale
are not included in our net revenue and are reported separately.

In the past, we have derived, and may in the
future derive, a significant portion of our service revenue from
a relatively limited number of major projects or customers. As
pharmaceutical companies continue to outsource large projects
and studies to fewer full-service providers, the concentration
of business could increase. We may experience concentration in
2003 and in future years. Aventis S.A. accounted for
approximately 11%, 11% and 10% of our consolidated net service
revenue in 2002, 2001 and 2000, respectively.

Competition

The market for our product development services
is highly competitive, and we compete against traditional CROs
and the in-house research and development departments of
pharmaceutical companies, as well as universities and teaching
hospitals. Among the traditional CROs, there are several hundred
small, limited-service providers, several medium-sized firms,
and only a few full-service companies with global capabilities.
Consolidation among CROs likely will result in greater
competition among the larger contract research providers for
customers and acquisition candidates.



12  Quintiles
Transnational 2002 Annual Report




---



##### 



Our primary CRO competitors include Covance Inc.,
PPD Inc. and PAREXEL International Corp. Competitive factors for
product development services include:




| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | previous experience,                                                                                            
|
| |  | medical and scientific experience in specific
    therapeutic areas,                                            
|
| |  | the quality of contract research,                                                                               
|
| |  | speed to completion,                                                                                            
|
| |  | the ability to organize and manage large-scale
    trials on a global basis,                                    
|
| |  | the ability to manage large and complex medical
    databases,                                                  
|
| |  | the ability to provide statistical and regulatory
    services,                                                 
|
| |  | the ability to recruit investigators,                                                                           
|
| |  | the ability to integrate information technology
    with systems to improve the efficiency of contract research,
|
| |  | an international presence with strategically
    located facilities and                                         
|
| |  | financial viability and price.                                                                                  

In our commercial services, we compete against
the in-house sales and marketing departments of pharmaceutical
companies and other contract sales organizations in each country
in which we operate. We also compete against national consulting
firms offering healthcare consulting and medical communications
services, including boutique firms specializing in the
healthcare industry and the healthcare departments of large
firms. Our primary CSO competitors in the United States include
Ventiv Health and Professional Detailing, Inc. Outside of the
United States, we typically compete against single country or
regionally-focused commercial service providers. The primary
competitive factors affecting commercial services are the proven
ability to quickly assemble, train and manage large qualified
sales forces to handle broad scale launches of new drugs and
price. Competitive factors affecting healthcare consulting and
medical communications services include experience, reputation
and price.

Because our PharmaBio Development group custom
tailors its risk-based service solutions to meet our
customers financial and strategic needs, it is more
difficult to assess its potential competitors. Theoretically, a
financing party could choose to fund such risk-based
commercialization or development efforts, as does PharmaBio
Development. However, such a group would have to contract with
third parties for the provision of services. We are aware that
several commercial service firms, such as Ventiv Health and
Professional Detailing, Inc., have entered into risk-based
commercialization transactions. Our PharmaBio Development group
has a large number of competitors for specialty pharmaceutical
products. The key competitive factors for PharmaBio Development
include access to capital, the quality of the services provided
by our other business units in connection with PharmaBio
Developments transactions, and the ability to perform
detailed and accurate scientific, strategic, and financial due
diligence prior to completing transactions.

Competitors for our informatics services included
IMS Health Incorporated and NDC.

Notwithstanding all these competitive factors, we
believe that the synergies arising from integrating product
development services with commercial services, supported by
global operations and information technology differentiate us
from our competitors.

Employees

As of January 31, 2003, we had approximately
15,548 full-time equivalent employees, comprised of
approximately 5,422 in the Americas, 8,114 in Europe and Africa
and 2,012 in the Asia-Pacific region. As of January 31,
2003, our product development group had 8,696 full-time
equivalent employees, our commercial services group had 6,180
full-time equivalent employees, and



Quintiles Transnational 2002 Annual
Report  13




---



##### 



our PharmaBio Development group had 94 full-time
equivalent employees. In addition, 578 full-time equivalent
employees were in our centralized operations/ corporate office.


Backlog and Net New Business
Reporting

We report backlog based on anticipated net
revenue from uncompleted projects which have been authorized by
the customer, through a written contract or otherwise. Once work
begins on a project, net revenue is recognized over the duration
of the project. Using this method of reporting backlog, at
December 31, 2002, backlog was approximately
$1.7 billion, as compared to approximately
$2.0 billion at December 31, 2001. The backlog at
December 31, 2002 includes approximately $87 million
of backlog related to services contracted from our service
groups, primarily commercialization, in connection with the
strategic alliances forged by our PharmaBio Development group.
Backlog does not include any product revenues, royalties and
commissions related to our commercial rights.

Net new business, which is anticipated net
revenue from contracts which we entered into during the period
and adjusted for contracts which were cancelled during the
period, for the twelve months ended December 31, 2002 was
$1.2 billion, including $79 million of internal
service contracts. Net new business for our product development
and commercial services groups during this same period was
$795 million and $451 million, respectively.

We believe that backlog may not be a consistent
indicator of future results because it can be affected by a
number of factors, including the variable size and duration of
projects, many of which are performed over several years.
Additionally, projects may be terminated by the customer or
delayed by regulatory authorities. Moreover, the scope of work
can change during the course of a project. If our product
revenues, royalties and commissions related to our commercial
rights increase, an increasing proportion of our revenues will
not be reflected in our reported backlog.

Potential Liability

In conjunction with our product development
services, we contract with physicians to serve as investigators
in conducting clinical trials to test new drugs on human
volunteers. Such testing creates risk of liability for personal
injury to or death of volunteers, particularly to volunteers
with life-threatening illnesses, resulting from adverse
reactions to the drugs administered. Although we do not believe
we are legally accountable for the medical care rendered by
third party investigators, it is possible that we could be held
liable for the claims and expenses arising from any professional
malpractice of the investigators with whom we contract or in the
event of personal injury to or death of persons participating in
clinical trials. In addition, as a result of our Phase I
clinical trial facilities, we could be liable for the general
risks associated with a Phase I facility including, but not
limited to, adverse events resulting from the administration of
drugs to clinical trial participants or the professional
malpractice of Phase I medical care providers. We also
could be held liable for errors or omissions in connection with
the services we perform through each of our service groups. For
example, we could be held liable for errors or omissions or
breach of contract if one of our labs inaccurately reports or
fails to report lab results. We believe that some of our risks
are reduced by one or more of the following:
(1) indemnification provisions and provisions seeking to
limit or exclude liability contained in our contracts with
customers and investigators, (2) insurance maintained by
customers and investigators and by us and (3) various
regulatory requirements, including the use of institutional
review boards and the procurement of each participants
informed consent to participate in the study. The contractual
indemnifications generally do not fully protect us against
certain of our own actions such as negligence. Contractual
arrangements are subject to negotiation with customers and the
terms and scope of any indemnification or limitation or
exclusion of liability may vary from customer to customer and
from trial to trial. Additionally, financial performance of
these indemnities is not secured. Therefore, we bear the risk
that the indemnifying party may not have the financial ability
to fulfill its indemnification obligations. We maintain
professional liability insurance that covers worldwide
territories in which we currently do business and includes drug
safety issues as well as data processing errors and omissions.
We could be materially and adversely



14  Quintiles
Transnational 2002 Annual Report




---



##### 



affected if we were required to pay damages or
bear the costs of defending any claim outside the scope of or in
excess of a contractual indemnification provision or beyond the
level of insurance coverage or in the event that an indemnifying
party does not fulfill its indemnification obligations. For
example, we are among the defendants in a purported class action
by participants in an Alzheimers study seeking to hold us
liable for alleged damages to the participants arising from the
study. Our insurance carrier to whom we paid premiums to cover
this type of risk has since filed suit against us seeking to
rescind the insurance policies or to have coverage denied for
some or all of the claims arising from the Alzheimers
study litigation. We believe these claims are without merit and
intend to contest them vigorously. See Legal
Proceedings.


Our efforts to acquire the rights to
commercialize and sell pharmaceutical products also expose us to
potential liabilities typically associated with pharmaceutical
companies. For example, we could face product liability claims
in the event users of any of the products we market or
distribute now, or in the future, experience negative reactions
or adverse side effects or in the event any of these products
causes injury, is found to be unsuitable for its intended
purpose or is otherwise defective. While we believe we currently
have adequate insurance in place to protect against these risks,
we may nevertheless be unable to satisfy any claims for which we
may be held liable as a result of the use or misuse of products
which we manufacture or sell. These risks may be augmented by
certain risks relating to our outsourcing of the manufacturing
and distribution of these products or any pharmaceutical product
rights we may acquire in the future. For example, as a result of
our decision to outsource the manufacturing and distribution of
SolarazeTM, we are unable to directly monitor quality
control in the manufacturing and distribution processes.

Government Regulation

Our preclinical, laboratory and clinical trial
supply services are subject to various regulatory requirements
designed to ensure the quality and integrity of the data or
products of these services. The industry standard for conducting
preclinical laboratory testing is embodied in the good
laboratory practice, or GLP, regulations. The requirements for
facilities engaging in clinical trial supplies preparation,
labeling and distribution are set forth in the current good
manufacturing practices, or cGMP, regulations. GLP and cGMP
regulations have been mandated by the FDA and the Department of
Health in the United Kingdom, and adopted by similar regulatory
authorities in other countries. GLP and cGMP stipulate
requirements for facilities, equipment, supplies and personnel
engaged in the conduct of studies to which these regulations
apply. The regulations require adherence to written,
standardized procedures during the conduct of studies and the
recording, reporting and retention of study data and records. To
help assure compliance, we have established quality assurance
programs at our preclinical, laboratory and clinical trial
supply facilities which monitor ongoing compliance with GLP and
cGMP regulations by auditing study data and conducting regular
inspections of testing procedures. Our clinical laboratory
services, to the extent they are carried out in the United
States, are subject to the requirements of the Clinical
Laboratory Improvement Amendments of 1988.

GCP regulations and guidelines contain the
industry standard for the conduct of clinical research and
development studies. The FDA and many other regulatory
authorities require that study results and data submitted to
such authorities be based on studies conducted in accordance
with GCP provisions. These provisions include:



| |   |                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | complying with specific regulations governing the
    selection of qualified investigators,                                                                                       
|
| |  | obtaining specific written commitments from the
    investigators,                                                                                                                
|
| |  | ensuring the protection of human subjects by
    verifying that Institutional Review Board or independent Ethics
    Committee approval and patient informed consent are obtained,
|
| |  | instructing investigators to maintain records and
    reports,                                                                                                                    
|
| |  | verifying drug or device accountability,                                                                                                                                          



Quintiles Transnational 2002 Annual
Report  15




---



##### 





| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | reporting of adverse events,                                                      
|
| |  | adequate monitoring of the study for compliance
    with GCP requirements and     
|
| |  | permitting appropriate regulatory authorities
    access to data for their review.

Records for clinical studies must be maintained
for specified periods for inspection by the FDA and other
regulators. Significant non-compliance with GCP requirements can
result in the disqualification of data collected during the
clinical trial. We are also obligated to comply with regulations
issued by national and supra-national regulators such as FDA and
the European Medicines Evaluation Agency, or EMEA. By way of
example, these regulations include FDAs regulations on
electronic records and signatures (21 CFR Part 11)
which set out requirements for data in electronic format
supporting any submissions made to FDA and EMEAs Note For
Guidance Good Clinical Practice for Trials on Medicinal
Products in the European Community.

We write our standard operating procedures
related to clinical studies in accordance with regulations and
guidelines appropriate to the region where they will be used,
thus helping to ensure compliance with GCP. Within Europe, we
perform our work subject to the European Community Note for
Guidance Good Clinical Practice for Trials on Medicinal
Products in the European Community. Studies to be
submitted to the EMEA must meet the requirements of the
ICH  GCP. In addition, FDA regulations and guidelines
serve as a basis for our North American standard operating
procedures. Our offices in the Asia-Pacific region have
developed standard operating procedures in accordance with their
local requirements and in harmony with our North American and
European operations.

Our commercial services are subject to detailed
and comprehensive regulation in each geographic market in which
we operate. Such regulation relates, among other things, to the
distribution of drug samples, the qualifications of sales
representatives and the use of healthcare professionals in sales
functions. In the United States our commercial services are
subject to the Prescription Drug Marketing Act, or PDMA, with
regard to the distribution of drug samples. In the United
Kingdom, they are subject to the Association of the British
Pharmaceutical Industry Code of Practice for the Pharmaceutical
Industry, which prescribes, among other things, an examination
that must be passed by sales representatives within two years of
their taking up employment. We follow similar regulations which
are in effect in the other countries where we offer commercial
services.

Our United States laboratories are subject to
licensing and regulation under federal, state and local laws
relating to hazard communication and employee right-to-know
regulations, the handling and disposal of medical specimens and
hazardous waste and radioactive materials, as well as the safety
and health of laboratory employees. All of our U.S. laboratories
are subject to applicable federal and state laws and regulations
relating to the storage and disposal of all laboratory specimens
including the regulations of the Environmental Protection
Agency, the Nuclear Regulatory Commission, the Department of
Transportation, the National Fire Protection Agency and the
Resource Conservation and Recovery Act. The use of controlled
substances in testing for drugs of abuse is regulated by the
United States Drug Enforcement Administration, or the DEA. For
example, accounting for drug samples that contain controlled
substances is subject to regulation by the DEA. Some of our
facilities have been audited by the DEA. In one case, the DEA
indicated that it found that we miscounted certain drugs. While
no final audit report or action has been taken, the DEA could
pursue one or more courses of action, including a re-audit of
the facility, the assessment of civil fines, or, in extreme
cases, criminal penalties. The regulations of the United States
Department of Transportation, the Public Health Service and the
Postal Service apply to the surface and air transportation of
laboratory specimens. Our laboratories also are subject to
International Air Transport Association regulations, which
govern international shipments of laboratory specimens.
Furthermore, when the materials are sent to a foreign country,
the transportation of such materials becomes subject to the
laws, rules and regulations of such foreign country. Our
laboratories outside the United States are subject to applicable
national laws governing matters such as licensing, the handling
and disposal of medical specimens, hazardous waste and
radioactive materials, as well as the health and safety of
laboratory employees.



16  Quintiles
Transnational 2002 Annual Report




---



##### 



In addition to its comprehensive regulation of
safety in the workplace, the United States Occupational Safety
and Health Administration has established extensive requirements
relating to workplace safety for healthcare employers whose
workers may be exposed to blood-borne pathogens such as HIV and
the hepatitis B virus. These regulations, among other things,
require work practice controls, protective clothing and
equipment, training, medical follow-up, vaccinations and other
measures designed to minimize exposure to chemicals, and
transmission of blood-borne and airborne pathogens. Furthermore,
certain employees receive initial and periodic training to
ensure compliance with applicable hazardous materials
regulations and health and safety guidelines. Although we
believe that we are currently in compliance in all material
respects with such federal, state and local laws, failure to
comply could subject us to denial of the right to conduct
business, fines, criminal penalties and other enforcement
actions.

Our disease management and healthcare information
management services relate to the diagnosis and treatment of
disease and are, therefore, subject to substantial governmental
regulation. In addition, the confidentiality of patient-specific
information and the circumstances under which such
patient-specific records may be released for inclusion in our
databases or used in other aspects of our business are heavily
regulated. Legislation has been proposed at both the state and
federal levels that may require us to implement security
measures that could involve substantial expenditures or limit
our ability to offer some of our products and services.

The Health Insurance Portability and
Accountability Act of 1996, or HIPAA, requires the use of
standard transactions, privacy and security standards and other
administrative simplification provisions and instructs the
Secretary of Health and Human Services, or HHS, to promulgate
regulations implementing these standards in the United States.
Final rules requiring standardized electronic transactions of
health information were published by the Secretary in August
2000. The initial compliance deadline was October 16, 2002,
but a covered entity may file for an extension until
October 16, 2003.

On December 28, 2000, the Secretary issued
the final rule on Standards for Privacy of Individually
Identifiable Health Information to implement the privacy
requirements for HIPAA. These regulations, as amended on
August 14, 2002, generally (1) impose standards for
covered entities transmitting or maintaining protected data in
an electronic, paper or oral form with respect to the rights of
individuals who are the subject of protected health information;
and (2) establish procedures for (a) the exercise of
those individuals rights, (b) the uses and disclosure
of protected health information by the covered entity, and
(c) the methods permissible for de-identification of health
information. The effective date of the final rule was
April 14, 2001 and, unless properly extended by Congress or
the current Administration, the compliance date is
April 14, 2003. The final regulation for the HIPAA security
standards is to be issued in the Federal Register on
February 20, 2003.

We are not a covered entity under the
HIPAA Standards for Privacy of Individually Identifiable Health
Information (also known as the HIPAA Privacy Rule). We do
receive identifiable health information from various sources,
including from investigators on research studies who are covered
entities or who are employed by covered entities. In order for
covered entities to disclose identifiable health information to
us for research purposes, there must be an applicable permission
under the HIPAA Privacy Rule. Depending on the facts, the
possible permissions include where a patient signs an
authorization; an institutional review board waives the
authorization requirement; the review of the information is
conducted under specific conditions preparatory to research or
with respect to decedents; or the information is stripped of
direct identifiers and is disclosed to us pursuant to a limited
use agreement. Covered entities may also provide
deidentified health information to us. We are
engaged in ongoing communications with HIPAA covered entities
from whom we receive identifiable health information with
respect to coordination of disclosure of such information to us
and the covered entities compliance with the HIPAA Privacy
Rule. Based on our communications with our investigators and
other covered entities from whom we receive identifiable health
information, we believe that we will continue to be able to
obtain such information, consistent with requirements of the
Privacy Rule. However, if the covered entities do not understand
the



Quintiles Transnational 2002 Annual
Report  17




---



##### 



permissions for disclosure of information for
research purposes, it is possible that they could object to
providing identifiable health information to us, which could
have an adverse effect on our ability to obtain such information
in a timely manner for our business operations relating to
research.


The impact of such legislation and regulations
relating to identifiable health information in the United States
cannot be predicted. Other countries have or are in the process
of putting privacy laws into place. For instance, the European
Data Protection Directive applies standards for the protection
of all personal data, not just health information, in the
European Union (EU) and requires the EU member states to enact
national laws implementing this Directive. Such legislation or
regulations could materially affect our business.

Available Information

We maintain a Web site at the address
www.quintiles.com. We are not including the information
contained on our Web site as a part of, or incorporating it by
reference into, this Annual Report on Form 10-K. We make
available free of charge through our Web site our Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K, and amendments to these
reports, as soon as reasonably practicable after we
electronically file such material with, or furnish such material
to, the Securities and Exchange Commission. We did not file any
such reports, or amendments thereto, between November 14,
2002 and December 31, 2002.

EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below is certain information with
respect to each of our executive officers who serve in such
capacities as of the filing date of this Form 10-K. There
are no family relationships between any of our directors or
executive officers.

|                   |  |     |    |                           |  |                                                                              
|------------------ |  | --- | -- | ------------------------- |  | -----------------------------------------------------------------------------
|Name               |  | Age |    | Position with the Company
|                   |  |     |    |                          
|Dennis B. Gillings |  |     | 58 |                           |  | Chairman                                                                     
|Pamela J. Kirby    |  |     | 49 |                           |  | Chief Executive Officer                                                      
|James L. Bierman   |  |     | 50 |                           |  | Executive Vice President and Chief Financial
    Officer                     
|John S. Russell    |  |     | 48 |                           |  | Executive Vice President, General Counsel and
    Head Global Human Resources

Dennis B. Gillings, Ph.D.founded the Company in 1982 and has
served as Chairman of the Board of Directors since its inception
and as Chief Executive Officer from its inception until
April 2001.

Pamela J. Kirby, Ph.D.became the Companys Chief
Executive Officer in April 2001. Previously, she served as Head
of Global Strategic Marketing and Business Development
department of the Pharmaceuticals Division of
F. Hoffmann-La Roche Ltd. in Basel, Switzerland.
Dr. Kirby served from 1996 until 1998 as global commercial
director with British Biotech plc, a drug development company.
Dr. Kirby is a director of Smith & Nephew, plc.

James L. Biermanwas
appointed Chief Financial Officer in February 2000.
Mr. Bierman joined the Company in June 1998 as Senior Vice
President of Corporate Development and had global responsibility
for all mergers, acquisitions, strategic investments, and joint
ventures. Prior to joining the Company, Mr. Bierman spent
22 years with Arthur Andersen LLP, working with a
diversified base of companies solving complex business problems,
whether operational, financial, or accounting-related in nature.

John S. Russellserves as Executive Vice President and
General Counsel and Head Global Human Resources. He also serves
as the Corporate Secretary and directs the Companys
government relations. Mr. Russell joined the Company in
1998 after 12 years in private practice as a partner in the
Raleigh office of the Moore and Van Allen law firm, where he was
head of the Corporate Practice group.



18  Quintiles
Transnational 2002 Annual Report




---



##### 



Item 2.     Properties

As of January 31, 2003 we had approximately
109 offices located in 48 countries. Our executive headquarters
is located adjacent to Research Triangle Park, North Carolina.
We maintain substantial offices serving our product development
group in Durham, North Carolina; Kansas City, Missouri; Smyrna,
Georgia; Bracknell, England; Irene, South Africa; Tokyo, Japan;
and Singapore. We also maintain substantial offices serving our
commercial services group in Parsippany, New Jersey; Falls
Church, Virginia; Hawthorne, New York; Marlow, England, and
Tokyo, Japan. We own facilities that serve our product
development group in Lenexa, Kansas; Kansas City, Missouri;
Riccarton, Scotland; Bathgate, Scotland; Glasgow, Scotland;
Livingston, Scotland; Freiburg, Germany; and Pretoria, South
Africa. We also own a facility in Gotenba City, Japan, which is
subject to a mortgage, that serves our product development and
commercial services groups. All of our other offices are leased.
We believe that our facilities are adequate for our operations
and that suitable additional space will be available when needed.

Item 3.     Legal
Proceedings

On January 26, 2001, a purported class
action lawsuit was filed in the State Court of Richmond County,
Georgia, naming Novartis Pharmaceuticals Corp., Pharmed Inc.,
Debra Brown, Bruce I. Diamond and Quintiles Laboratories
Limited, one of our subsidiaries, on behalf of 185
Alzheimers patients who participated in drug studies
involving an experimental drug manufactured by defendant
Novartis and their surviving spouses. The complaint alleges
claims for breach of fiduciary duty, civil conspiracy, unjust
enrichment, misrepresentation, Georgia RICO violations,
infliction of emotional distress, battery, negligence and loss
of consortium as to class member spouses. The complaint seeks
unspecified damages, plus costs and expenses, including
attorneys fees and experts fees. The parties are in
the discovery phase of the litigation. We believe the claims to
be without merit and are defending the suit vigorously.

On January 22, 2002, Federal Insurance
Company and Chubb Custom Insurance Company filed suit against
us, Quintiles Pacific, Inc. and Quintiles Laboratories Limited,
two of our subsidiaries, in the United States District Court for
the Northern District of Georgia. In the suit, Chubb, our
primary commercial general liability carrier, and Federal, our
excess liability carrier, seek to rescind the policies issued to
us for coverage years 2000-2001 and 2001-2002 based on an
alleged misrepresentation by us on our policy application.
Alternatively, Chubb and Federal seek a declaratory judgment
that there is no coverage under the policies for some or all of
the claims asserted against us and our subsidiaries in the
litigation described in the prior paragraph and, if one or more
of such claims is determined to be covered, Chubb and Federal
request an allocation of the defense costs between the claims
they contend are covered and non-covered claims. We have filed
an answer with counterclaims against Federal and Chubb in
response to their complaint. Additionally, we have amended our
pleadings to add AON Risk Services as a counterclaim defendant,
as an alternative to our position that Federal and Chubb are
liable under the policies. We believe the allegations made by
Federal and Chubb are without merit and are defending this case
vigorously.

In October 2002, seven purported class action
lawsuits were filed in Superior Court, Durham County, North
Carolina by shareholders seeking to enjoin the consummation of a
transaction proposed by Pharma Services Company, a newly formed
company wholly owned by Dennis B. Gillings, Ph.D., to acquire
all of our outstanding shares for $11.25 per share in cash. All
of the lawsuits were subsequently transferred to the North
Carolina Business Court. The lawsuits name as defendants
Dr. Gillings, other members of our Board of Directors, our
company and, in some cases, Pharma Services Company. The
complaints allege, among other things, that the directors
breached their fiduciary duties with respect to the proposal.
The complaints seek to enjoin the transaction proposed by Pharma
Services Company, and the plaintiffs seek to recover damages. On
November 11, 2002, a special committee of our Board of
Directors announced its rejection of the proposal by Pharma
Services Company and its intention to investigate strategic
alternatives available to us for purposes of enhancing
shareholder value, including the possibility of a sale of our
company and alternatives that would keep us independent and
publicly owned. On January 6, 2003, the North



Quintiles Transnational 2002 Annual
Report  19




---



##### 



Carolina Business Court entered a Case Management
Order consolidating all seven lawsuits for all purposes and
staying the lawsuits until March 29, 2003 or until we
provide notice of a change-of-control transaction involving our
company. Based upon our preliminary review, we believe the
lawsuits are without merit and intend to defend them vigorously.


We are currently a party to other legal
proceedings incidental to our business. While management
currently believes that the ultimate outcome of these
proceedings, individually and in the aggregate, will not have a
material adverse effect on our consolidated financial
statements, litigation is subject to inherent uncertainties.
Were an unfavorable ruling to occur, there exists the
possibility of a material adverse impact on the results of
operations of the period in which the ruling occurs.



|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

Not applicable.

PART II



|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters

Market Prices

Our common stock is traded on The Nasdaq Stock
Market under the symbol QTRN. The following table
shows, for the periods indicated, the high and low sale prices
per share on The Nasdaq Stock Market, based on published
financial sources.

|                                 |  |      |        |     |  |   |        | 
|-------------------------------- |  | ---- | ------ | --- |  | - | ------ | 
|Calendar Period                  |  | High |        | Low
|                                 |  |      |        |    
|Quarter ended March 31, 2001     |  | $    | 22.875 |     |  | $ | 14.688 | 
|Quarter ended June 30, 2001      |  |      | 26.050 |     |  |   | 15.000 | 
|Quarter ended September 30, 2001 |  |      | 25.500 |     |  |   | 12.450 | 
|Quarter ended December 31, 2001  |  |      | 18.900 |     |  |   | 13.610 | 
|Quarter ended March 31, 2002     |  |      | 19.300 |     |  |   | 14.680 | 
|Quarter ended June 30, 2002      |  |      | 17.700 |     |  |   | 11.300 | 
|Quarter ended September 30, 2002 |  |      | 12.457 |     |  |   | 8.350  | 
|Quarter ended December 31, 2002  |  |      | 12.360 |     |  |   | 7.650  | 

As of February 18, 2003, there were
approximately 30,000 beneficial owners of our common stock,
including 2,159 holders of record.

Dividend Policies

We have never declared or paid any cash dividends
on our common stock. We do not anticipate paying any cash
dividends in the foreseeable future, and we intend to retain
future earnings for the development and expansion of our
business.

Recent Sales of Unregistered
Securities

During the three months ended December 31,
2002, options to purchase 6,000 shares of our common stock were
exercised at an average exercise price of $4.3175 per share in
reliance on Rule 701 under the Securities Act of 1933. We
granted such options prior to becoming subject to the
requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, pursuant to our Non-qualified
Employee Incentive Stock Option Plan.



20  Quintiles
Transnational 2002 Annual Report




---



##### 





|        |                                         
|------- | ----------------------------------------
|Item 6. | Selected Consolidated Financial
    Data

The selected Consolidated Statement of Operations
Data set forth below for each of the years in the three-year
period ended December 31, 2002 and the Consolidated Balance
Sheet Data set forth below as of December 31, 2002 and 2001
are derived from our audited consolidated financial statements
and notes thereto as included elsewhere herein. The selected
Consolidated Statement of Operations Data set forth below for
the years ended December 31, 1999 and 1998, and the
Consolidated Balance Sheet Data set forth below as of
December 31, 2000, 1999 and 1998 are derived from our
consolidated financial statements not included herein. During
2000, we completed the sale of our electronic data interchange
unit, ENVOY Corporation, and as such the results of ENVOY, for
all periods presented, have been reported separately as a
discontinued operation in the consolidated financial statements.
The selected consolidated financial data presented below should
be read in conjunction with our audited consolidated financial
statements and notes thereto and Managements
Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere herein.

|                                                                                                                                       |                                                            |                                       |           |         |  |      |           |         |   |      |           |         |   |   |           |         |  |   |           |         | 
|-------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ------------------------------------- | --------- | ------- |  | ---- | --------- | ------- | - | ---- | --------- | ------- | - | - | --------- | ------- |  | - | --------- | ------- | 
|                                                                                                                                       |                                                            |                                      
|                                                                                                                                       |                                                            | Year Ended December 31,              
|                                                                                                                                       |                                                            |                                      
|                                                                                                                                       |                                                            | 2002                                  |           | 2001    |  | 2000 |           | 1999    |   | 1998
|                                                                                                                                       |                                                            |                                       |           |         |  |      |           |         |   |     
|                                                                                                                                       |                                                            |                                      
|                                                                                                                                       |                                                            | (in thousands, except per share data)
|Gross revenues                                                                                                                         |                                                            | $                                     | 1,992,409 |         |  | $    | 1,883,912 |         |   | $    | 1,871,077 |         |   | $ | 1,830,365 |         |  | $ | 1,418,788 |        
|Income (loss) from continuing operations
    before income taxes                                                                       |                                                            |                                       | 123,660   |         |  |      | (262,496  | )       |   |      | (51,005   | )       |   |   | 115,910   |         |  |   | 125,567   |        
|Income (loss) from continuing operations                                                                                               |                                                            |                                       | 81,664    |         |  |      | (175,873  | )       |   |      | (34,174   | )       |   |   | 73,168    |         |  |   | 85,643    |        
|Income (loss) from discontinued operation,
    net of income taxes                                                                     |                                                            |                                       |          |         |  |      |          |         |   |      | 16,770    |         |   |   | 36,123    |         |  |   | 2,926     |        
|Extraordinary gain from sale of discontinued
    operation, net of income taxes                                                        |                                                            |                                       |          |         |  |      | 142,030   |         |   |      | 436,327   |         |   |   |          |         |  |   |          |        
|Cumulative effect on prior years (to
    December 31, 2001) of changing to a different method of
    recognizing deferred income taxes |                                                            |                                       | 45,659    |         |  |      |          |         |   |      |          |         |   |   |          |         |  |   |          |        
|Net income (loss) available for common
    shareholders                                                                                |                                                            | $                                     | 127,323   |         |  | $    | (33,843   | )       |   | $    | 418,923   |         |   | $ | 109,291   |         |  | $ | 88,569    |        
|                                                                                                                                       |                                                            |                                       |           |         |  |      |           |         |   |      |           |         |   |   |           |         |  |   |           |        
|Basic net income (loss) per share:                                                                                                     |                                                            |                                       |           |         |  |      |           |         |   |      |           |         |   |   |           |         |  |   |           |        
|                                                                                                                                       | Income (loss) from continuing operations                   |                                       | $         | 0.69    |  |      | $         | (1.49   | ) |      | $         | (0.29   | ) |   | $         | 0.64    |  |   | $         | 0.82    | 
|                                                                                                                                       | Income (loss) from discontinued operation                  |                                       |           |        |  |      |           |        |   |      |           | 0.14    |   |   |           | 0.32    |  |   |           | 0.03    | 
|                                                                                                                                       | Extraordinary gain from sale of discontinued
    operation |                                       |           |        |  |      |           | 1.20    |   |      |           | 3.76    |   |   |           |        |  |   |           |        | 
|                                                                                                                                       | Cumulative effect of change in accounting
    principle    |                                       |           | 0.39    |  |      |           |        |   |      |           |        |   |   |           |        |  |   |           |        | 
|                                                                                                                                       |                                                            |                                       |           |         |  |      |           |         |   |      |           |         |   |   |           |         |  |   |           |        
|                                                                                                                                       | Basic net income (loss) per share                          |                                       | $         | 1.08    |  |      | $         | (0.29   | ) |      | $         | 3.61    |   |   | $         | 0.96    |  |   | $         | 0.85    | 
|                                                                                                                                       |                                                            |                                       |           |         |  |      |           |         |   |      |           |         |   |   |           |         |  |   |           |        
|Diluted net income (loss) per share:                                                                                                   |                                                            |                                       |           |         |  |      |           |         |   |      |           |         |   |   |           |         |  |   |           |        
|                                                                                                                                       | Income (loss) from continuing operations                   |                                       | $         | 0.69    |  |      | $         | (1.49   | ) |      | $         | (0.29   | ) |   | $         | 0.63    |  |   | $         | 0.77    | 
|                                                                                                                                       | Income (loss) from discontinued operation                  |                                       |           |        |  |      |           |        |   |      |           | 0.14    |   |   |           | 0.31    |  |   |           | 0.03    | 
|                                                                                                                                       | Extraordinary gain from sale of discontinued
    operation |                                       |           |        |  |      |           | 1.20    |   |      |           | 3.76    |   |   |           |        |  |   |           |        | 
|                                                                                                                                       | Cumulative effect of change in accounting
    principle    |                                       |           | 0.39    |  |      |           |        |   |      |           |        |   |   |           |        |  |   |           |        | 
|                                                                                                                                       |                                                            |                                       |           |         |  |      |           |         |   |      |           |         |   |   |           |         |  |   |           |        
|                                                                                                                                       | Diluted net income (loss) per share                        |                                       | $         | 1.07    |  |      | $         | (0.29   | ) |      | $         | 3.61    |   |   | $         | 0.94    |  |   | $         | 0.80    | 
|                                                                                                                                       |                                                            |                                       |           |         |  |      |           |         |   |      |           |         |   |   |           |         |  |   |           |        
|Weighted average shares outstanding:                                                                                                   |                                                            |                                       |           |         |  |      |           |         |   |      |           |         |   |   |           |         |  |   |           |        
|                                                                                                                                       | Basic                                                      |                                       |           | 118,135 |  |      |           | 118,223 |   |      |           | 115,968 |   |   |           | 113,525 |  |   |           | 104,799 | 
|                                                                                                                                       | Diluted                                                    |                                       |           | 118,458 |  |      |           | 118,223 |   |      |           | 115,968 |   |   |           | 115,687 |  |   |           | 110,879 | 

|                                                                |  |                                      |           |      |  |      |           |      |  |      |           |  |  |   |           |  |  |   |           | 
|--------------------------------------------------------------- |  | ------------------------------------ | --------- | ---- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- |  |  | - | --------- | 
|                                                                |  |                                     
|                                                                |  | As of December 31,                  
|                                                                |  |                                     
|                                                                |  | 2002                                 |           | 2001 |  | 2000 |           | 1999 |  | 1998
|                                                                |  |                                      |           |      |  |      |           |      |  |     
|                                                                |  |                                     
|                                                                |  | (in thousands, except employee data)
|Cash and cash equivalents                                       |  | $                                    | 644,284   |      |  | $    | 565,063   |      |  | $    | 330,214   |  |  | $ | 191,653   |  |  | $ | 128,621   | 
|Working capital, excluding discontinued
    operation(1)        |  |                                      | 568,473   |      |  |      | 617,552   |      |  |      | 308,684   |  |  |   | 78,039    |  |  |   | 197,005   | 
|Total assets                                                    |  |                                      | 2,152,083 |      |  |      | 1,947,740 |      |  |      | 1,961,578 |  |  |   | 1,607,565 |  |  |   | 1,171,777 | 
|Long-term debt and capital leases including
    current portion |  |                                      | 40,574    |      |  |      | 37,866    |      |  |      | 38,992    |  |  |   | 185,765   |  |  |   | 193,270   | 
|Shareholders equity                                            |  | $                                    | 1,598,386 |      |  | $    | 1,455,088 |      |  | $    | 1,404,706 |  |  | $ | 991,759   |  |  | $ | 646,132   | 
|Full-time equivalent employees                                  |  |                                      | 15,801    |      |  |      | 17,639    |      |  |      | 18,060    |  |  |   | 20,496    |  |  |   | 16,732    | 



---



| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | (1) Working capital of discontinued operation was
    $36.0 million in 1999 and $42.4 million in 1998.



Quintiles Transnational 2002 Annual
Report  21




---



##### 





|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operation

Overview

Quintiles Transnational Corp. helps improve
healthcare worldwide by providing a broad range of professional
services, information and partnering solutions to the
pharmaceutical, biotechnology and healthcare industries. Based
on industry analyst reports, we are the largest company in the
pharmaceutical outsourcing services industry as ranked by 2002
revenues. The revenues of the second largest company were over
$1.1 billion less than our 2002 revenues.

In May 2002, we completed the formation of our
previously announced healthcare informatics joint venture,
Verispan, with McKesson, which is designed to leverage the
operational strengths of the healthcare information businesses
of each company. We are equal co-owners of a majority of the
equity of Verispan with McKesson. Verispan has licensed data
products to McKesson and us for use in our core businesses.
Under the license arrangement, we continue to have access to
Verispans commercially available market information and
products, at no further cost to us, to enhance our service
delivery to and partnering with our customers.

On October 14, 2002, we announced that
Pharma Services Company, a newly formed company owned by our
Chairman of the Board and Founder, made a non-binding proposal
to acquire all of our outstanding shares for a cash price of
$11.25 per share. In response to the proposal, our Board of
Directors established a special committee of independent
directors to act on our behalf with respect to the proposal or
alternatives in the context of evaluating what is in our best
interest and the best interest of our shareholders. On November
11, 2002, the special committee announced its rejection of the
proposal by Pharma Services Company and its intention to
investigate strategic alternatives available to us for purposes
of enhancing shareholder value, including the possibility of a
sale of our company and alternatives that would keep us
independent and publicly owned. Uncertainty pending the outcome
of the special committees process, as well as the result
of that process, could impact our results of operations and
financial condition in ways that we are not able to predict.

Results of Operations

We adopted Emerging Issues Task Force Issue 01-14
on January 1, 2002, as required. This new accounting
guidance requires us to report reimbursed service costs as part
of service revenues. Our reimbursed service costs include such
items as payments to investigators and travel expenses for our
clinical monitors and sales representatives. Historically, we
have not reported these reimbursed service costs as service
revenues since we do not earn a profit on these costs. In
accordance with this new accounting guidance, we have
reclassified reimbursed service costs to service revenues for
all periods presented. However, it was impracticable to identify
and reclassify certain prior period commercialization reimbursed
service costs and, accordingly, historical results have not been
restated for these costs. These commercialization reimbursed
service costs totaled approximately $60.4 million for the
year ended December 31, 2002.



| |                                                                            
| | ---------------------------------------------------------------------------
| | Year Ended December 31, 2002 Compared
    with Year Ended December 31, 2001

Gross revenues for the year ended
December 31, 2002 were $1.99 billion versus
$1.88 billion for the year ended December 31, 2001.
Gross revenues include service revenues, revenues from
commercial rights and royalties and revenues from investments.
Net revenues exclude reimbursed



22  Quintiles
Transnational 2002 Annual Report




---



##### 



service costs. Reimbursed service costs may
fluctuate due, in part, to the payment provisions of the
respective service contract. Below is a summary of revenues (in
thousands):


|                                |  |      |           |      |  |   |           | 
|------------------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                                |  | 2002 |           | 2001
|                                |  |      |           |     
|Service revenues                |  | $    | 1,868,324 |      |  | $ | 1,857,509 | 
|Less: reimbursed service costs  |  |      | 399,650   |      |  |   | 263,429   | 
|                                |  |      |           |      |  |   |           | 
|Net service revenues            |  |      | 1,468,674 |      |  |   | 1,594,080 | 
|Commercial rights and royalties |  |      | 110,381   |      |  |   | 25,792    | 
|Investments                     |  |      | 13,704    |      |  |   | 611       | 
|                                |  |      |           |      |  |   |           | 
|Total net revenues              |  | $    | 1,592,759 |      |  | $ | 1,620,483 | 
|                                |  |      |           |      |  |   |           | 



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Service revenues were $1.87 billion for 2002
    compared to $1.86 billion for 2001. Service revenues less
    reimbursed service costs, or net service revenues, for 2002 were
    $1.47 billion, a decrease of $125.4 million or (7.9%)
    over net service revenues of $1.59 billion in 2001.
    Included in net service revenues for 2002 was $20.3 million
    from our informatics group as compared to $58.2 million from
    that group for 2001. Our informatics group was transferred to a
    joint venture during May 2002, therefore revenues for this group
    are not included in our net service revenues since the date of
    transfer. Net service revenues for 2002 were positively impacted
    by approximately $15.2 million due to the effect of foreign
    currency fluctuations. The positive foreign currency fluctuation
    due to the weakening of the US Dollar relative to the euro and
    the British pound was partially offset by the strengthening of
    the US Dollar relative to the South African Rand and the
    Japanese yen. Using a constant exchange rate for each period,
    net service revenues decreased $140.6 million or (8.8%).
    Net service revenues increased in the Asia Pacific region
    $29.4 million or 18.0% to $193.2 million, which was
    negatively impacted by $2.2 million due to the effect of
    foreign currency fluctuations. Net service revenues increased
    $67.9 million or 11.5% to $658.7 million in the Europe and
    Africa region, which was positively impacted by
    $18.2 million due to the effect of foreign currency
    fluctuations. Net service revenues decreased $222.7 million
    or (26.5%) to $616.8 million in the Americas region
    primarily as a result of the decline in the commercial services
    group revenues.                                                                                                                                                                                                                                                
|
| |  | Commercial rights and royalties revenues, which
    include product revenues, royalties and commissions, for 2002
    were $110.4 million, an increase of $84.6 million over 2001
    commercial rights and royalties revenues of $25.8 million.
    Commercial rights and royalties revenues were positively
    impacted by approximately $3.8 million due to the effect of
    foreign currency fluctuations related to the weakening of the US
    Dollar relative to the euro. These revenues include products for
    which we have acquired certain commercial rights, such as the
    dermatology products, Solaraze and ADOXA. Also
    included are royalties or commissions on product sales that we
    receive in exchange for providing commercial or product
    development services. The $84.6 million increase is
    primarily the result of our acquisition of certain assets of
    Bioglan Pharma, Inc., and its suite of dermatology products, a
    new risk sharing contract in Europe with a large pharmaceutical
    customer and our contracts with Scios Inc. and Kos
    Pharmaceuticals, Inc. In December 2002, we agreed to permit
    Scios to hire the sales force we had previously provided under
    contract to them, effective December 31, 2002 in return for
    (1) Scios reimbursing us for the operating profit that we
    would have earned between December 31, 2002 and the first
    date on which Scios would have been permitted to hire the sales
    force under the contract terms and (2) advancing from
    May 31, 2003 to December 31, 2002, our ability to
    exercise the remaining unexercisable warrants. The early
    settlement of our service obligation resulted in an accelerated
    recognition of revenues of approximately $9.3 million in
    the fourth quarter of 2002. For the year ended December 31,
    2002, approximately 55.5% of our commercial rights and royalties
    revenues was attributable to the contracts with Scios and Kos,
    approximately 17.2% was attributable to the risk sharing



Quintiles Transnational 2002 Annual
Report  23




---



##### 



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | contract in Europe, approximately 20.3% was
    attributable to the suite of dermatology products and the
    remaining 7.0% was attributable to miscellaneous contracts and
    activities.                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Investment revenues related to our PharmaBio
    Development groups financing arrangements, which include
    gains and losses from the sale of equity securities and
    impairments from other than temporary declines in the fair
    values of our direct and indirect investments, for 2002 were
    $13.7 million versus $611,000 for 2001. Included in 2002
    and 2001 are $4.3 million and $14.0 million,
    respectively, of impairment losses on investments whose decline
    in fair value was considered to be other than temporary.

Costs of revenues were $1.37 billion for
2002 versus $1.32 billion in 2001. Below is a summary of
these costs (in thousands):

|                                      |  |      |           |      |  |   |           | 
|------------------------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                                      |  | 2002 |           | 2001
|                                      |  |      |           |     
|Reimbursed service costs              |  | $    | 399,650   |      |  | $ | 263,429   | 
|Service costs                         |  |      | 775,447   |      |  |   | 931,029   | 
|Commercial rights and royalties costs |  |      | 106,146   |      |  |   | 26,800    | 
|Investment costs                      |  |      | 320       |      |  |   | 1,914     | 
|Depreciation and amortization         |  |      | 86,148    |      |  |   | 95,095    | 
|                                      |  |      |           |      |  |   |           | 
|                                      |  | $    | 1,367,711 |      |  | $ | 1,318,267 | 
|                                      |  |      |           |      |  |   |           | 



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Reimbursed service costs were $399.7 million
    and $263.4 million for 2002 and 2001, respectively. It was
    impracticable to identify and reclassify certain
    commercialization reimbursed service costs, and accordingly, the
    2001 results have not been restated for these costs. These
    commercialization reimbursed service costs totaled approximately
    $60.4 million for 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Service costs, which include compensation and
    benefits for billable employees, and certain other expenses
    directly related to service contracts, were $775.4 million
    or 52.8% of 2002 net service revenues versus $931.0 million
    or 58.4% of 2001 net service revenues. This reduction is
    primarily a result of the continued effect of our process
    enhancements and cost reduction efforts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Commercial rights and royalties costs, which
    include compensation and related benefits for employees,
    amortization of commercial rights, infrastructure costs of the
    PharmaBio Development group and other expenses directly related
    to commercial rights and royalties, were $106.1 million for
    2002 versus $26.8 million for 2001. These costs include
    services and products provided by third parties, as well as
    services provided by our other service groups totaling
    approximately $54.5 million for 2002 and $12.9 million
    for 2001. The year 2002 also includes costs to launch and market
    Solaraze and ADOXA and expenses relating to the risk
    sharing contract in Europe.                                                                                                                                                                                                                                
|
| |  | Investment costs, which include costs directly
    related to direct and indirect investments in our customers or
    other strategic partners as part of the PharmaBio Development
    groups financing arrangements, were $320,000 in 2002
    versus $1.9 million in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | Depreciation and amortization, which include
    depreciation of our property and equipment and amortization of
    our definite-lived intangible assets except commercial rights,
    decreased to $86.1 million for 2002 versus $95.1 million
    for 2001. This decrease is primarily due to the adoption of
    Statement of Financial Accounting Standards No. 142,
    Goodwill and Other Intangible Assets, which requires
    that all goodwill and indefinite-lived intangible assets no
    longer be amortized but reviewed at least annually for
    impairment. In addition, depreciation expense decreased
    $2.9 million as a result of the transfer of our informatics
    group to Verispan. During 2002, we completed the goodwill
    transitional impairment test as of January 1, 2002, as
    required, and the annual impairment test as of July 31,
    2002, in which no goodwill impairment was deemed necessary at
    either date.



24  Quintiles
Transnational 2002 Annual Report




---



##### 



General and administrative expenses, which
include compensation and benefits for administrative employees,
non-billable travel, professional services, and expenses for
advertising, information technology and facilities, were
$508.1 million or 31.9% of total net revenues in 2002
versus $520.7 million or 32.1% of total net revenues in 2001.
General and administrative expenses decreased $12.6 million
primarily due to realization of the benefits from our
restructurings, including efficiencies created through the
implementation of our shared service centers, and the deployment
of our Internet initiative products into day-to-day operations
resulting in our research and development expenses decreasing to
$2.1 million in 2002 from $18.1 million in 2001. These
decreases were partially offset by increases in Japan and Europe
primarily due to the effect of foreign currency fluctuations.

Net interest income, which represents interest
income received from bank balances and investments in debt
securities net of interest expense incurred on lines of credit,
notes and capital leases, was $14.2 million in 2002 versus
$16.7 million in 2001. Although we had an increase in our
investable funds during 2002, we experienced a decrease in
interest income due to a decline in interest rates.

Other expense was $7.1 million in 2002
versus $489,000 in 2001. The increase is a result of several
factors, including the effects of foreign currency translations,
disposals of assets and transaction costs. Included in the 2002
transaction costs are approximately $3.4 million of
expenses relating to the activities of the special committee of
our Board of Directors and its financial and legal advisors, and
approximately $2.7 million of expenses associated with the
formation of the Verispan joint venture.

In 2001, we recognized a $325.6 million
impairment on our investment in WebMD Corporation, or WebMD,
common stock. This included a $334.0 million write-down in
the third quarter of 2001 of our cost basis in our investment in
WebMD whose decline in fair value was considered to be other
than temporary. In the fourth quarter of 2001 we recognized an
$8.5 million gain on our investment in WebMD as a result of
the sale of all 35 million shares of WebMD common stock to
WebMD.

During 2001, we recognized $83.2 million of
income from the settlement of litigation between WebMD and us.
We received $185.0 million in cash for all 35 million
shares of WebMD common stock we owned and to resolve the
remaining disputes. Also as part of the settlement, WebMD
surrendered the warrant to purchase 10 million shares of
our common stock.

In 2001 we announced a strategic plan that has
been implemented across each service line and geographic area of
our business which we believe will allow us to meet the changing
needs of our customers and to increase our opportunity for
growth by committing ourselves to innovation, quality and
efficiency. In connection with this plan, we recognized
$54.2 million of restructuring charges in 2001 which
included approximately $1.1 million relating to a 2000
restructuring plan. In 2002, we revised our estimates of the
restructuring plan which we adopted during 2001. This review
resulted in a reduction of $9.1 million in our accruals,
including $5.7 million in severance payments and
$3.4 million in exit costs. However, also during 2002, we
recognized $9.1 million of restructuring charges as a
result of the continued implementation of the strategic plan we
announced during 2001. This restructuring charge included
revisions to the 2001 and 2000 restructuring plans of
approximately $2.5 million and $1.9 million,
respectively, due to a revision in the estimates for the exit
costs relating to the abandoned leased facilities.

During 2001, we recognized a $27.1 million
charge to write-off goodwill and other operating assets
primarily relating to goodwill recorded in four separate
acquisitions in our commercial services segment and personal
computers including desktops and laptops that were no longer in
service. The goodwill was deemed impaired and written-off due to
changing business conditions and strategic direction.

Income before income taxes was
$123.7 million or 7.8% of total net revenues for 2002
versus a loss before income taxes of $262.5 million for
2001. Excluding the restructuring charge, the write-off of
goodwill and other assets, the income from the settlement of
litigation with WebMD, and the



Quintiles Transnational 2002 Annual
Report  25




---



##### 



impairment on investment in WebMD, income before
income taxes for 2001 was $61.1 million or 3.8% of total
net revenue.


The effective income tax rate was 33.5% for 2002
versus (33.0%) for 2001. Since we conduct operations on a global
basis, our effective income tax rate may vary. See Income
Taxes.

During 2002, we recognized $569,000 of losses
from equity in unconsolidated affiliates and other which
represents our pro rata share of net losses of unconsolidated
affiliates, primarily Verispans net loss since its
formation in May 2002, net of minority interest in a
consolidated subsidiary.

Effective January 2002, we changed our method for
calculating deferred income taxes related to our
multi-jurisdictional tax transactions. Under the previous
method, we followed an incremental approach to measuring the
deferred income tax benefit of our multi-jurisdictional
transactions. Under this approach, we considered the income tax
benefit from the step-up in tax basis, net of any potential
incremental foreign income tax consequences determined by
projecting taxable income, foreign source income, foreign tax
credit provisions and the interplay of these items among and
between their respective tax jurisdictions, based on different
levels of intercompany foreign debt. Under the new method, we
record deferred income taxes only for the future income tax
impact of book and tax basis differences created as a result of
multi-jurisdictional transactions. We believe the new method has
become more widely used in practice and is preferable because it
eliminates the subjectivity and complexities involved in
determining the timing and amount of the release or reversal of
the valuation allowance under the prior method. In order to
effect this change, we recorded a cumulative effect adjustment
of $45.7 million which represents the reversal of the
valuation allowance related to deferred income taxes on these
multi-jurisdictional income tax transactions.

During 2001, we completed a tax basis study for
ENVOY Corporation, our electronic data interchange unit we sold
to WebMD Corporation during 2000. As a result of this study, our
tax basis in ENVOY was determined which resulted in an
approximate $142.0 million reduction in the income taxes
provided on the sale of ENVOY.

Net income was $127.3 million for 2002
versus a net loss of $33.8 million for 2001. Excluding the
restructuring charge, the write-off of goodwill and other
assets, the income from the settlement of litigation with WebMD,
the cumulative effect of changing to a different method of
recognizing deferred income taxes and the extraordinary gain
from the sale of discontinued operation, net income was
$81.7 million for 2002 versus $41.0 million for 2001.

Analysis by
Segment:

During the first quarter of 2002, we transferred
the portion of the operations of our Late Phase, primarily Phase
IV, clinical group that was in the commercial services group to
the product development group in order to consolidate the
operational and business development activities. All historical
information presented has been revised to reflect this change.

The following table summarizes the operating
activities for our reportable segments for the years ended
December 31, 2002 and 2001, respectively. We do not include
reimbursed service costs, general and administrative expenses,
depreciation and amortization except amortization of commercial
rights, interest (income) expense, other
(income) expense and income tax expense (benefit) in
our segment analysis. Intersegment revenues have been eliminated
and the profit on



26  Quintiles
Transnational 2002 Annual Report




---



##### 



intersegment revenues is reported within the
service group providing the services (dollars in millions).


|                      |  |                    |         |              |  |          |         |      |  |          |       |      |  |          |       |  |  |  |      |   |  |   |       |   |  |  |      |  
|--------------------- |  | ------------------ | ------- | ------------ |  | -------- | ------- | ---- |  | -------- | ----- | ---- |  | -------- | ----- |  |  |  | ---- | - |  | - | ----- | - |  |  | ---- | -
|                      |  |                    |         |             
|                      |  | Total Net Revenues |         | Contribution
|                      |  |                    |         |             
|                      |  |                    |         |              |  | % of Net |         |      |  | % of Net
|                      |  | 2002               |         | 2001         |  | Growth % |         | 2002 |  | Revenues |       | 2001 |  | Revenues
|                      |  |                    |         |              |  |          |         |      |  |          |       |      |  |         
|Product development   |  | $                  | 944.9   |              |  | $        | 913.9   |      |  |          | 3.4   | %    |  | $        | 477.5 |  |  |  | 50.5 | % |  | $ | 438.4 |   |  |  | 48.0 | %
|Commercial services   |  |                    | 558.0   |              |  |          | 634.9   |      |  |          | (12.1 | )    |  |          | 207.7 |  |  |  | 37.2 |   |  |   | 197.5 |   |  |  | 31.1 |  
|PharmaBio Development |  |                    | 124.1   |              |  |          | 26.4    |      |  |          | 370.0 |      |  |          | 17.6  |  |  |  | 14.2 |   |  |   | (2.3  | ) |  |  | (8.8 | )
|Informatics           |  |                    | 20.3    |              |  |          | 58.2    |      |  |          | (65.0 | )    |  |          | 8.0   |  |  |  | 39.4 |   |  |   | 27.2  |   |  |  | 46.7 |  
|Eliminations          |  |                    | (54.5   | )            |  |          | (12.9   | )    |  |          |      |      |  |          |      |  |  |  |     |   |  |   |      |   |  |  |     |  
|                      |  |                    |         |              |  |          |         |      |  |          |       |      |  |          |       |  |  |  |      |   |  |   |       |   |  |  |      |  
|                      |  | $                  | 1,592.8 |              |  | $        | 1,620.5 |      |  |          | (1.7  | )%   |  | $        | 710.8 |  |  |  | 44.6 | % |  | $ | 660.7 |   |  |  | 40.8 | %

The product development groups financial
performance improvement was a result of several factors,
including an increase in revenues and the continued improvement
in contribution margin due to greater efficiency and improved
contract management.

The commercial services groups financial
performance was negatively impacted by difficult business
conditions for large fee-for-service contracts in the United
States. The impact of the revenue decline was offset by the
effects of our cost management efforts.

The PharmaBio Development groups increase
in net revenues, which consist of commercial rights and
royalties and investments, was primarily the result of our
acquisition of certain assets of Bioglan Pharma, Inc. and its
suite of dermatology products, the risk sharing contracts in
Europe, our contracts with Scios Inc. and Kos Pharmaceuticals,
Inc. and the rollover of the Scios sales force effective
December 31, 2002. The investment revenues (net of related
costs) increased the contribution of this group by approximately
$14.7 million when compared to 2001. This groups
contribution margin was negatively impacted by the costs
associated with the launch and marketing of Solaraze and
ADOXA and expenses relating to the risk sharing contracts
in Europe. The commercial services provided to PharmaBio
Development by our commercial services group increased
approximately $41.6 million.

The informatics groups performance was
impacted by the pending transfer of this group into the joint
venture. This was completed in May 2002; therefore, the 2002
results include only five months of revenues and contribution
for the informatics group.



| |                                                                            
| | ---------------------------------------------------------------------------
| | Year Ended December 31, 2001 Compared
    with Year Ended December 31, 2000

Gross revenues for the year ended
December 31, 2001 were $1.88 billion versus
$1.87 billion for the year ended December 31, 2000.
Gross revenues include service revenues, revenues from
commercial rights and royalties and investment revenues. Net
revenues exclude reimbursed service costs. Reimbursed service
costs may fluctuate, due in part, to the payment provisions of
the respective service contract. Below is a summary of revenues
(in thousands):

|                                |  |      |           |      |  |   |           | 
|------------------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                                |  | 2001 |           | 2000
|                                |  |      |           |     
|Service revenues                |  | $    | 1,857,509 |      |  | $ | 1,860,316 | 
|Less: reimbursed service costs  |  |      | 263,429   |      |  |   | 210,588   | 
|                                |  |      |           |      |  |   |           | 
|Net service revenues            |  |      | 1,594,080 |      |  |   | 1,649,728 | 
|Commercial rights and royalties |  |      | 25,792    |      |  |   | 10,182    | 
|Investments                     |  |      | 611       |      |  |   | 579       | 
|                                |  |      |           |      |  |   |           | 
|Total net revenues              |  | $    | 1,620,483 |      |  | $ | 1,660,489 | 
|                                |  |      |           |      |  |   |           | 



| |   |                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Service revenues were $1.86 billion for 2001
    compared to $1.86 billion for 2000. Net service revenues
    for 2001 were $1.59 billion, a decrease of
    $55.6 million or (3.4%) over net service revenues of
    $1.65 billion in 2000. However, there was negative impact
    of approximately $49.0 million due to the effect of foreign
    currency fluctuations related to the strengthening of



Quintiles Transnational 2002 Annual
Report  27




---



##### 



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | the US Dollar relative to the euro, other
    European currencies and the Japanese yen combined with the
    effects of the devaluation of several currencies including the
    South African Rand; therefore, using a constant exchange rate
    for each period, net service revenues decreased
    $6.7 million or (0.4%). Net service revenues for the
    commercial services group decreased $113.6 million or
    (15.2%) as a result of large contracts that were terminated or
    converted in-house by our customers instead of being renewed.
    The decrease was partially offset by an increase of
    approximately $11.7 million from our Phase I
    development services and an increase of approximately
    $76.6 million from our clinical development services,
    primarily Phase II and III services. Net service revenues
    increased in the Asia Pacific region $44.0 million or 36.7%
    to $163.8 million but decreased $116.7 million or
    (12.2%) to $839.5 million in the Americas region primarily
    resulting from the decline in the commercial services segment.
    Net service revenues in the Europe and Africa region increased
    $20.3 million or 3.5% to $601.8 million.
|
| |  | Commercial rights and royalties revenues, which
    include product revenues, royalties and commissions, for 2001
    were $25.8 million, an increase of $15.6 million over 2000
    commercial rights and royalties revenues of $10.2 million.
    The increase was primarily attributable to the contract with
    Scios which was operational by the third quarter of 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Investment revenues related to our PharmaBio
    Development groups financing arrangements, which include
    gains and losses from the sale of equity investments and
    impairments from other than temporary declines in the fair
    values of our direct and indirect investments, for 2001 were
    $611,000 versus $579,000 for 2000. Included in 2001 and 2000 are
    $14.0 million and $5.5 million, respectively, of
    impairment losses on investments whose decline in fair value was
    considered to be other than temporary.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

Costs of revenues were $1.32 billion for
2001 versus $1.30 billion in 2000. Below is a summary of
these costs (in thousands):

|                                      |  |      |           |      |  |   |           | 
|------------------------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                                      |  | 2001 |           | 2000
|                                      |  |      |           |     
|Reimbursed service costs              |  | $    | 263,429   |      |  | $ | 210,588   | 
|Service costs                         |  |      | 931,029   |      |  |   | 986,343   | 
|Commercial rights and royalties costs |  |      | 26,800    |      |  |   | 9,441     | 
|Investment costs                      |  |      | 1,914     |      |  |   |          | 
|Depreciation and amortization         |  |      | 95,095    |      |  |   | 91,242    | 
|                                      |  |      |           |      |  |   |           | 
|                                      |  | $    | 1,318,267 |      |  | $ | 1,297,614 | 
|                                      |  |      |           |      |  |   |           | 



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Reimbursed service costs were $263.4 million
    and $210.6 million for 2001 and 2000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Service costs, which include compensation and
    benefits for billable employees, and certain other expenses
    directly related to service contracts, were $931.0 million
    or 58.4% of 2001 net service revenues versus $986.3 million
    or 59.8% of 2000 net service revenues. This reduction is
    primarily a result of the continued effect of our process
    enhancements and cost reduction efforts.                                                                                                                           
|
| |  | Commercial rights and royalties costs, which
    include compensation and related benefits for employees,
    amortization of commercial rights, infrastructure costs of the
    PharmaBio Development group and other expenses directly related
    to commercial rights and royalties, were $26.8 million for
    2001 versus $9.4 million for 2000. These costs include
    services and products provided by third parties, as well as
    services provided by our other service groups totaling
    approximately $12.9 million for 2001.
|
| |  | Investment costs, which include costs directly
    related to direct and indirect investments in our customers or
    other strategic partners as part of the PharmaBio Development
    groups financing arrangements, were $1.9 million in
    2001, the initial year of the groups operations.                                                                                                                                                                                                                                             



28  Quintiles
Transnational 2002 Annual Report




---



##### 





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Depreciation and amortization, which include
    depreciation of our property and equipment and amortization of
    our definite-lived intangible assets except commercial rights,
    increased to $95.1 million for 2001 versus
    $91.2 million for 2000. Depreciation expense increased
    $4.2 million due to the increase in our capitalized asset
    base while amortization expense decreased $300,000 primarily as
    a result of the write-off of goodwill.

General and administrative expenses, which
include compensation and benefits for administrative employees,
non-billable travel, professional services, and expenses for
advertising, information technology and facilities, were
$520.7 million or 32.1% of total net revenues in 2001
versus $565.1 million or 34.0% of total net revenues in
2000. General and administrative expenses decreased primarily
due to the effects of reductions relating to our restructuring
activities including a decrease of approximately
$15.4 million in the spending for our Internet initiative.
These reductions were partially offset by an increase in costs
of approximately $7.8 million associated with the continued
implementation of our shared service center initiative and
approximately $9.0 million associated with the realignment
of our business development strategy.

Net interest income, which represents interest
income received from bank balances and investments in debt
securities, net of interest expense incurred on lines of credit,
notes and capital leases, was $16.7 million in 2001 versus
$15.9 million in 2000.

Other expense was $489,000 in 2001 versus other
income of $725,000 in 2000.

In 2001, we recognized a $325.6 million
impairment on our investment in WebMD common stock. This
included a $334.0 million write-down in the third quarter
of 2001 of our cost basis in our investment in WebMD due to an
other than temporary decline in its fair value and an
$8.5 million gain on our investment in WebMD as a result of
the sale of all 35 million shares of WebMD common stock to
WebMD.

During 2001, we recognized $83.2 million of
income from the settlement of litigation between WebMD and us.
We received $185.0 million in cash for all 35 million
shares of WebMD common stock we owned and to resolve the
remaining disputes. Also as part of the settlement, WebMD
surrendered the warrant it held to purchase 10 million
shares of our common stock.

In response to a change in demand for our
services, we announced restructuring plans during 2000,
resulting in a $58.6 million restructuring charge. This
consisted of $33.2 million related to severance payments,
$11.3 million related to asset impairment write-offs and
$14.0 million in exit costs. As of December 31, 2001,
all affected individuals, approximately 990 positions, had been
notified of their termination and approximately
$1.5 million remained to be spent.

During the third quarter of 2001, we announced a
strategic plan that has been implemented across each service
line and geographic area of our business to meet the changing
needs of our customers and to increase our opportunity for
growth by committing ourselves to innovation, quality and
efficiency.

In connection with the plan, we recognized
$54.2 million of restructuring charges that included
approximately $1.1 million relating to a 2000 restructuring
plan. The restructuring charges consisted of $33.1 million
related to severance payments, $8.2 million related to
asset impairment write-offs and $12.9 million of exit
costs. As part of these restructurings, approximately 1,040
positions were eliminated. As of December 31, 2001, 755
individuals had been notified of their termination of which 485
had been paid and were no longer employed by us.

During 2001, we recognized a $27.1 million
charge to write-off goodwill and other operating assets
primarily relating to goodwill recorded in four separate
acquisitions in our commercial services group and personal
computers including desktops and laptops that were no longer in
service. The goodwill was deemed impaired and written-off due to
changing business conditions and strategic direction.

During 2000, we recognized a $17.3 million
loss on the disposal of our general toxicology operations in
Ledbury, Herefordshire, UK.



Quintiles Transnational 2002 Annual
Report  29




---



##### 



Loss before income taxes was $262.5 million
for 2001 versus $51.0 million for 2000. Excluding the
restructuring charges, the write-off of goodwill and other
assets, the loss on the disposal of a business, the income from
the settlement of litigation with WebMD, and the impairment on
investment in WebMD, income before income taxes was
$61.1 million or 3.8% of total net revenue in 2001 versus
$24.9 million or 1.5% of total net revenue in 2000.

The effective income tax rate was (33.0%) for
2001 and 2000, respectively. Since we conduct operations on a
global basis, our effective income tax rate may vary. See
Income Taxes.

During 2000, we completed the sale of ENVOY to
WebMD. The results of ENVOY, $16.8 million in 2000, are
included in our consolidated statement of operations as a
discontinued operation. The results of ENVOY do not include any
interest expense, management fee or transaction costs allocated
by us.

We received $400 million in cash and
35 million shares of WebMD common stock in exchange for our
entire interest in ENVOY and a warrant to acquire 10 million
shares of our common stock at $40 per share, exercisable for
four years. We recorded an extraordinary gain on the sale of
$436.3 million, net of income taxes of $184.7 million.
During 2001, we completed a tax basis study for ENVOY. As a
result of this study, our tax basis in ENVOY was determined
which resulted in an approximate $142.0 million reduction
in the income taxes provided on the sale of ENVOY.

Net loss was $33.8 million for 2001 versus a
net income of $418.9 million for 2000. Excluding the
restructuring charge, the write-off of goodwill and other
assets, the income from the settlement of litigation with WebMD,
the income from discontinued operation, and the extraordinary
gain from the sale of discontinued operation, net income was
$41.0 million for 2001 versus $16.7 million for 2000.

Analysis by
Segment:

During the first quarter of 2002, we transferred
the portion of the operations of our Late Phase, primarily Phase
IV, clinical group that was in the commercial services group to
the product development group in order to consolidate the
operational and business development activities. All historical
information presented has been revised to reflect this change.

The following table summarizes the operating
activities for our reportable segments for the years ended
December 31, 2001 and 2000, respectively. We do not include
reimbursed service costs, general and administrative expenses,
depreciation and amortization except amortization of commercial
rights, interest (income) expense, other
(income) expense and income tax expense (benefit) in
our segment analysis. Intersegment revenues have been eliminated
and the profit on intersegment revenues is reported within the
service group providing the services (dollars in millions).

|                      |  |                    |         |              |  |          |         |      |  |          |       |      |  |          |       |   |  |  |      |   |  |   |       |  |  |  |      |  
|--------------------- |  | ------------------ | ------- | ------------ |  | -------- | ------- | ---- |  | -------- | ----- | ---- |  | -------- | ----- | - |  |  | ---- | - |  | - | ----- |  |  |  | ---- | -
|                      |  |                    |         |             
|                      |  | Total Net Revenues |         | Contribution
|                      |  |                    |         |             
|                      |  |                    |         |              |  | % of Net |         |      |  | % of Net
|                      |  | 2001               |         | 2000         |  | Growth % |         | 2001 |  | Revenues |       | 2000 |  | Revenues
|                      |  |                    |         |              |  |          |         |      |  |          |       |      |  |         
|Product development   |  | $                  | 913.9   |              |  | $        | 841.5   |      |  |          | 8.6   | %    |  | $        | 438.4 |   |  |  | 48.0 | % |  | $ | 382.6 |  |  |  | 45.5 | %
|Commercial services   |  |                    | 634.9   |              |  |          | 748.5   |      |  |          | (15.2 | )    |  |          | 197.4 |   |  |  | 31.1 |   |  |   | 247.6 |  |  |  | 33.1 |  
|PharmaBio Development |  |                    | 26.4    |              |  |          | 10.8    |      |  |          | 145.4 |      |  |          | (2.3  | ) |  |  | (8.8 | ) |  |   | 1.3   |  |  |  | 12.3 |  
|Informatics           |  |                    | 58.2    |              |  |          | 59.7    |      |  |          | (2.6  | )    |  |          | 27.2  |   |  |  | 46.7 |   |  |   | 33.2  |  |  |  | 55.7 |  
|Eliminations          |  |                    | (12.9   | )            |  |          |        |      |  |          |      |      |  |          |      |   |  |  |     |   |  |   |      |  |  |  |     |  
|                      |  |                    |         |              |  |          |         |      |  |          |       |      |  |          |       |   |  |  |      |   |  |   |       |  |  |  |      |  
|                      |  | $                  | 1,620.5 |              |  | $        | 1,660.5 |      |  |          | (3.4  | )%   |  | $        | 660.7 |   |  |  | 40.8 | % |  | $ | 664.7 |  |  |  | 40.0 | %

The product development groups financial
performance improvement was a result of several factors,
including process enhancements and cost reduction efforts in the
American and European operations, growth in our Phase I and
clinical development services, primarily Phase II and III
services, and an improvement in the quality of our contracts.

The commercial services groups financial
performance was negatively impacted by several factors,
including the effects of large contracts converted in-house or
terminated by our customers



30  Quintiles
Transnational 2002 Annual Report




---



##### 



instead of being renewed and the effects of a
collection issue with a non-pharmaceutical customer receivable.
These were partially offset by the effects of our cost reduction
efforts.


The PharmaBio Development groups increase
in net revenues, which consist of commercial rights and
royalties and investments, was primarily the result of the Scios
contract becoming operational in the third quarter of 2001.

The informatics groups financial
performance was impacted by several factors, including the
effects of the strategic plan and related restructuring, the
costs associated with developing new data products and a
decrease in new business as a result of the dispute with WebMD
and concerns regarding our continuing ability to receive data
from WebMD.

Operating Basis Results

When evaluating our financial performance based
on an analysis of continuing operations, we exclude certain
items that we believe are outside our normal operations. These
items include restructuring charges, write-off of goodwill and
other assets, disposal of a business and WebMD related
transactions which include: gain from the settlement of
litigation including the sale of WebMD common stock, and the
impairment of investment in WebMD common stock.

Below is a summary of our operating basis results
and our reconciliation to reported amounts (stated in thousands):

|                                                                                   |                                        |                                 |           |           |   |      |           |           |   |   |           |           |  
|---------------------------------------------------------------------------------- | -------------------------------------- | ------------------------------- | --------- | --------- | - | ---- | --------- | --------- | - | - | --------- | --------- | -
|                                                                                   |                                        |                                
|                                                                                   |                                        | For the Year Ended December 31,
|                                                                                   |                                        |                                
|                                                                                   |                                        | 2002                            |           | 2001      |   | 2000
|                                                                                   |                                        |                                 |           |           |   |     
|Gross revenues                                                                     |                                        | $                               | 1,992,409 |           |   | $    | 1,883,912 |           |   | $ | 1,871,077 |          
|Costs, expenses and other:                                                         |                                        |                                 |           |           |   |      |           |           |   |   |           |          
|                                                                                   | Costs of revenues                      |                                 |           | 1,367,711 |   |      |           | 1,318,267 |   |   |           | 1,297,614 |  
|                                                                                   | General and administrative             |                                 |           | 508,103   |   |      |           | 520,680   |   |   |           | 565,137   |  
|                                                                                   | Interest (income) expense, net         |                                 |           | (14,188   | ) |      |           | (16,672   | ) |   |           | (15,861   | )
|                                                                                   | Other (income) expense, net            |                                 |           | 7,123     |   |      |           | 489       |   |   |           | (725      | )
|                                                                                   |                                        |                                 |           |           |   |      |           |           |   |   |           |          
|                                                                                   |                                        |                                 | 1,868,749 |           |   |      | 1,822,764 |           |   |   | 1,846,165 |          
|                                                                                   |                                        |                                 |           |           |   |      |           |           |   |   |           |          
|Income before income taxes                                                         |                                        |                                 | 123,660   |           |   |      | 61,148    |           |   |   | 24,912    |          
|Income tax expense                                                                 |                                        |                                 | 41,427    |           |   |      | 20,189    |           |   |   | 8,221     |          
|                                                                                   |                                        |                                 |           |           |   |      |           |           |   |   |           |          
|Adjusted income before equity in losses of
    unconsolidated affiliates and other |                                        |                                 | 82,233    |           |   |      | 40,959    |           |   |   | 16,691    |          
|Equity in losses of unconsolidated affiliates and
    other                        |                                        |                                 | (569      | )         |   |      |          |           |   |   |          |          
|                                                                                   |                                        |                                 |           |           |   |      |           |           |   |   |           |          
|Adjusted income from continuing operations                                         |                                        | $                               | 81,664    |           |   | $    | 40,959    |           |   | $ | 16,691    |          
|                                                                                   |                                        |                                 |           |           |   |      |           |           |   |   |           |          
|Summary of reconciling (income or
    benefit)/expense items excluded above:       |                                        |                                 |           |           |   |      |           |           |   |   |           |          
|                                                                                   | Restructuring charges                  |                                 |           |          |   |      | $         | 54,169    |   |   | $         | 58,592    |  
|                                                                                   | Write-off of goodwill and other assets |                                 |           |          |   |      |           | 27,122    |   |   |           |          |  
|                                                                                   | Disposal of a business                 |                                 |           |          |   |      |           |          |   |   |           | 17,325    |  
|                                                                                   | Settlement of litigation               |                                 |           |          |   |      |           | (83,200   | ) |   |           |          |  
|                                                                                   | Impairment of investments in WebMD     |                                 |           |          |   |      |           | 334,023   |   |   |           |          |  
|                                                                                   | Gain on investments in WebMD           |                                 |           |          |   |      |           | (8,470    | ) |   |           |          |  
|                                                                                   | Income taxes                           |                                 |           |          |   |      |           | (106,812  | ) |   |           | (25,052   | )
|                                                                                   |                                        |                                 |           |           |   |      |           |           |   |   |           |          
|Total expenses excluded, net of income taxes                                       |                                        |                                 |          |           |   |      | 216,832   |           |   |   | 50,865    |          
|                                                                                   |                                        |                                 |           |           |   |      |           |           |   |   |           |          
|(Loss) income from continuing operations, as
    reported                          |                                        | $                               | 81,664    |           |   | $    | (175,873  | )         |   | $ | (34,174   | )        
|                                                                                   |                                        |                                 |           |           |   |      |           |           |   |   |           |          



Quintiles Transnational 2002 Annual
Report  31




---



##### 



Liquidity and Capital Resources

Cash and cash equivalents were
$644.3 million at December 31, 2002 as compared to
$565.1 million at December 31, 2001.

Cash flows provided by operations were
$246.5 million in 2002 versus $247.4 million and
$10.5 million in 2001 and 2000, respectively. Increasing
cash flows from operations in 2001 was $63.2 million
related to the settlement of the litigation with WebMD and
$56.2 million for income tax refunds.

Cash flows used in investing activities in 2002
were $152.3 million and $16.4 million in 2001, versus
$270.4 million of cash flows provided by investing
activities in 2000. Investing activities consisted primarily of
the acquisition of commercial rights, capital asset purchases
and acquisition of businesses and purchases and sales of
investments.

Capital asset purchases required cash outlays of
$40.2 million, $134.0 million and $108.8 million
in 2002, 2001 and 2000, respectively. Capital asset purchases by
our informatics group was $666,000 in 2002 versus
$10.0 million and $7.0 million in 2001 and 2000,
respectively. The decrease in 2002 was due, in part, to the
transfer of this group to Verispan. The $134.0 million
capital asset purchases in 2001 included the final payment of
$58 million in connection with our 1999 acquisition of
Aventis S.A.s Drug Innovation and Approval Facility,
$19.9 million for the implementation of the shared service
centers and $5.7 million for our informatics groups
data center. Capital asset purchases in 2000 included
$25.2 million for the implementation of the shared service
centers and $8.0 million for the purchase of our training
academy in Japan.

During 2002, cash used for the acquisition of
commercial rights were $88.3 million versus
$26.7 million for 2001. The 2002 commercial rights included
$70.0 million in payments under our agreement with Eli
Lilly and Company. Also in 2002, we acquired certain assets of
Bioglan Pharma, Inc., including its management team and sales
force and approximately $1.6 million in cash, for
approximately $27.9 million. In 2001, we acquired the
rights to market for 14 years in the United States, Canada
and Mexico SkyePharmas Solaraze, a treatment of
actinic keratosis, for $26.7 million.

In 2001, we jointly announced with WebMD the
settlement of litigation between the companies and the
resolution of our disputes. As part of the settlement, WebMD
paid us $185.0 million in cash for all 35 million
shares of WebMD common stock we held and to resolve the
remaining disputes. The proceeds were allocated as follows:
$63.2 million related to the settlement of litigation was
reported as cash flows provided by operations and
$121.8 million related to the sale of WebMD common stock
was reported as cash flows from investing activities. We will
also receive an additional payment from WebMD if, on or before
June 30, 2004, WebMD is acquired for a price greater than
$4.00 per share or its ENVOY subsidiary is acquired for a price
greater than $500 million. Also as part of the settlement,
WebMD surrendered the warrant it held to purchase
10 million shares of our common stock.

The following table is a summary of our net
service receivables outstanding (dollars in thousands except
days):

|                                               |  |                   |          |                   |  |   |          |  
|---------------------------------------------- |  | ----------------- | -------- | ----------------- |  | - | -------- | -
|                                               |  | December 31, 2002 |          | December 31, 2001
|                                               |  |                   |          |                  
|Trade accounts receivable, net                 |  | $                 | 227,636  |                   |  | $ | 258,917  |  
|Unbilled services                              |  |                   | 120,383  |                   |  |   | 166,754  |  
|Unearned income                                |  |                   | (239,598 | )                 |  |   | (205,783 | )
|                                               |  |                   |          |                   |  |   |          |  
|Net service receivables outstanding            |  | $                 | 108,421  |                   |  | $ | 219,888  |  
|                                               |  |                   |          |                   |  |   |          |  
|Number of days of service revenues outstanding |  |                   | 21       |                   |  |   | 43       |  
|                                               |  |                   |          |                   |  |   |          |  

The decrease in the number of days of service
revenues outstanding is a result of our continued focus on the
fundamentals of our business and efficiencies generated by our
shared service centers.



32  Quintiles
Transnational 2002 Annual Report




---



##### 



Investments in debt securities were
$36.7 million at December 31, 2002 versus
$37.0 million at December 31, 2001. Our investments in
debt securities consist primarily of U.S. Government Securities,
which are callable by the issuer, at par, and money funds.

Investments in marketable equity securities at
December 31, 2002 were $64.9 million, a decrease of
$13.1 million, as compared to $78.0 million at
December 31, 2001. This decrease is due to the sale of
equity investments. In accordance with our policy to continually
review declines in fair value of our marketable equity
securities for declines that may be other than temporary, we
recorded a loss of approximately $335,000 in 2002 to establish a
new cost basis for certain investments.

Investments in non-marketable equity securities
and loans at December 31, 2002 were $46.4 million, an
increase of $8.9 million, as compared to $37.6 million
at December 31, 2001. In accordance with our policy to
review the carrying values of our non-marketable equity
securities and loans if the facts and circumstances suggest that
a potential impairment, representing an other than temporary
decline in fair value, may have occurred, we recorded a loss of
approximately $4.0 million in 2002 to establish a new cost
basis for certain investments.

In 2002, we completed the formation of our
healthcare informatics joint venture, Verispan. We contributed
the net assets of our informatics group and funded
$10.0 million to Verispan. Accordingly, we have recorded
our investment in Verispan, which is approximately
$120.7 million at December 31, 2002, as an investment
in unconsolidated affiliates.

We have available to us a £10.0 million
(approximately $16.0 million) unsecured line of credit with
a U.K. bank and a £1.5 million (approximately
$2.4 million) general bank facility with the same U.K.
bank. At December 31, 2002 and 2001, we did not have any
outstanding balances on these facilities.

In March 2001, the Board of Directors authorized
us to repurchase up to $100 million of our common stock
from time to time until March 1, 2002. In February 2002,
the Board extended this authorization until March 1, 2003.
During the first half of 2002, we entered into agreements to
repurchase approximately 1.6 million shares for an
aggregate price of $22.2 million. We did not enter into any
agreements to repurchase our common stock during the second half
of 2002. During 2001, we entered into agreements to repurchase
approximately 1.7 million shares for an aggregate price of
$27.5 million. Shareholders equity increased
$143.3 million to $1.60 billion at December 31,
2002 from $1.46 billion at December 31, 2001.

Below is a summary of our future payment
commitments by year under contractual obligations as of
December 31, 2002 (in thousands):

|                                                                                |  |      |         |      |  |      |        |      |  |      |        |            |  |       |        |  |  |   |        |  |  |   |        |  |  |   |         | 
|------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ---------- |  | ----- | ------ |  |  | - | ------ |  |  | - | ------ |  |  | - | ------- | 
|                                                                                |  | 2003 |         | 2004 |  | 2005 |        | 2006 |  | 2007 |        | Thereafter |  | Total
|                                                                                |  |      |         |      |  |      |        |      |  |      |        |            |  |      
|Long-term debt                                                                  |  | $    | 3,347   |      |  | $    | 2,179  |      |  | $    | 1,957  |            |  | $     | 1,702  |  |  | $ | 941    |  |  | $ | 1,431  |  |  | $ | 11,557  | 
|Obligations held under capital leases                                           |  |      | 19,301  |      |  |      | 7,330  |      |  |      | 1,213  |            |  |       | 617    |  |  |   | 482    |  |  |   | 1,433  |  |  |   | 30,376  | 
|Operating leases                                                                |  |      | 62,443  |      |  |      | 39,776 |      |  |      | 26,548 |            |  |       | 22,078 |  |  |   | 18,970 |  |  |   | 72,191 |  |  |   | 242,006 | 
|Service agreement                                                               |  |      | 20,000  |      |  |      | 20,000 |      |  |      | 20,000 |            |  |       | 20,000 |  |  |   | 20,000 |  |  |   | 15,007 |  |  |   | 115,007 | 
|PharmaBio funding commitments in various
    commercial rights and royalties    |  |      | 46,828  |      |  |      | 18,695 |      |  |      | 15,520 |            |  |       | 9,914  |  |  |   | 3,834  |  |  |   |       |  |  |   | 94,791  | 
|PharmaBio funding commitments in non-marketable
    equity securities and loans |  |      | 32,344  |      |  |      | 10,144 |      |  |      |       |            |  |       |       |  |  |   |       |  |  |   |       |  |  |   | 42,488  | 
|                                                                                |  |      |         |      |  |      |        |      |  |      |        |            |  |       |        |  |  |   |        |  |  |   |        |  |  |   |         | 
|                                                                                |  | $    | 184,263 |      |  | $    | 98,124 |      |  | $    | 65,238 |            |  | $     | 54,311 |  |  | $ | 44,227 |  |  | $ | 90,062 |  |  | $ | 536,225 | 
|                                                                                |  |      |         |      |  |      |        |      |  |      |        |            |  |       |        |  |  |   |        |  |  |   |        |  |  |   |         | 

We have also additional future PharmaBio funding
commitments that are contingent upon satisfaction of certain
milestones by the third party such as receiving FDA approval,
obtaining funding from additional third parties, agreement of a
marketing plan and other similar milestones. Due to the
uncertainty of the amounts and timing of these commitments, they
are not included in the commitment amounts above. If all of
these contingencies were satisfied over approximately the same



Quintiles Transnational 2002 Annual
Report  33




---



##### 



time period, then we estimate these commitments
to be a minimum of approximately $115-140 million per year
for a period of five to six years, subject to certain
limitations and varying time periods.


We have entered into financial arrangements with
customers in which a portion of our net revenue and operating
income will be based on the performance of a specific product.
These arrangements typically involve funding, either by direct
investment or in the form of a loan, which we commit to provide
to our customers. Any securities we may acquire as a result of
our investment or upon conversion of the loan may not be readily
marketable, and we will bear the risk of carrying these
investments for an indefinite period of time. The customer may
apply this funding to certain pre-launch and sales and marketing
activities or it may represent payment for a royalty stream
relating to a specific product. We intend to continue to pursue
these types of strategic arrangements, and we are actively
seeking additional opportunities to create alliances with our
customers.

Based on our current operating plan, we believe
that our available cash and cash equivalents, together with
future cash flows from operations and borrowings under our line
of credit agreements will be sufficient to meet our foreseeable
cash needs in connection with our operations. As part of our
business strategy, we review many acquisition candidates in the
ordinary course of business, and in addition to acquisitions
already made, we are continually evaluating new acquisition and
expansion possibilities. In addition, as part of our business
strategy going forward, we intend to review and consider
opportunities to acquire additional product rights, as
appropriate. We may from time to time seek to obtain debt or
equity financing in our ordinary course of business or to
facilitate possible acquisitions or expansion.

The special committee of our Board of Directors
has indicated it is investigating strategic alternatives
available to us for purposes of enhancing shareholder value. The
actions of the special committee could impact our liquidity in
ways we are unable to predict.

Critical Accounting Policies

As we believe these policies require difficult,
subjective and complex judgments, we have identified the
following critical accounting policies which we use in the
preparation of our financial statements.



| |                 
| | ----------------
| | Contract Revenue

We recognize revenue for service contracts based
upon (1) percentage of completion (utilizing input or
output measures as appropriate) for fixed price contracts,
(2) contractual per diem or hourly rate basis as work is
performed for fee-for-service contracts or (3) completion
of units of service for unit-of-service contracts. The
percentage of completion method requires us to estimate total
expected revenue, costs, profitability, duration of the contract
and outputs. These estimates are reviewed periodically and, if
any of these estimates change or actual results differs from
expected results then an adjustment is recorded in the period in
which they become reasonably estimable. These adjustments could
have a material effect on our results of operations.

Certain of our commercial rights and royalty
contracts provide for us to receive minimum guaranteed payments.
These contracts usually contain multiple elements which include
payments being made to the customer, as well as payments being
received by us from the customer. We account for the contracts
as a single contract taking into account the net cash flows we
receive. We recognize revenue over the related service period of
the contract based on the net present value of the guaranteed
payments. As revenues are recognized and payments are made
between the customer and us, we record an asset, which
represents the obligation owed to us by the customer. Milestone
payments, which we make to the customer, are amortized as a
reduction to revenue over the service period of the contract. We
also impute interest on the asset balance and record interest
income as the contract progresses. We will fully realize the
asset balance when we receive the guaranteed minimum level of
cash flows. We recognize revenues in excess of the guaranteed



34  Quintiles
Transnational 2002 Annual Report




---



##### 



minimums as they are earned. The inherent
subjectivity of determining the net present values of the
guaranteed payments could have a significant impact on the
revenues recognized in any period.


We recognize product revenues upon shipment when
title passes to the customer. Revenues are net of allowances for
estimated returns, rebates and discounts. We are obligated to
accept from customers the return of products that are nearing or
have reached their expiration date. We also monitor product
ordering patterns, actual returns and analyze wholesale
inventory levels to estimate potential product return rates.
When we lack a sufficient historical basis to estimate return
rates, we recognize revenues and the related cost of revenues
when we receive end-user prescription data from third-party
providers. Although we believe the product return allowances are
adequate, if actual product returns exceed our estimates our
results of operations could be adversely affected.



| |                                                               
| | --------------------------------------------------------------
| | Accounts Receivable, Unbilled Services and
    Unearned Income

Accounts receivable represents amounts billed to
customers. Revenues recognized in excess of billings are
classified as unbilled services, while billings in excess of
revenue recognized are classified as unearned income. The
realization of these amounts is based on the customers
willingness and ability to pay us. We have an allowance for
doubtful accounts based on managements estimate of
probable incurred losses resulting from a customer failing to
pay us. If any of these estimates change or actual results
differs from expected results, then an adjustment is recorded in
the period in which they become reasonably estimable. These
adjustments could have a material effect on our results of
operations.



| |                                           
| | ------------------------------------------
| | Marketable Debt and Equity
    Investments

We have investments in debt securities and
investments in marketable equity securities. Periodically, we
review our investments for declines in fair value that we
believe may be other than temporary. When we identify such a
decline in fair value we record a loss through earnings to
establish a new cost basis for the investment. In addition, we
may experience future material declines in the fair value of our
investments which would require us to record additional losses.
These adjustments could have a material adverse effect on our
results of operations.



| |                                                
| | -----------------------------------------------
| | Non-Marketable Equity Investments and
    Loans

We have investments in non-marketable equity
securities and loans. These arrangements typically involve
funding, either by direct investment or in the form of a loan,
which we commit to provide. Any securities we may acquire as a
result of our investment or upon conversion of the loan may not
be readily marketable, and we will bear the risk of carrying
these investments for an indefinite period of time. We may not
be able to recover our cost of the investment or loan at any
time in the future, and we could experience an impairment in the
carrying value of these investments, which would require us to
record additional losses, which could have a material adverse
effect on our results of operations.



| |             
| | ------------
| | Income Taxes

We have undistributed earnings of our foreign
subsidiaries. Those earnings are considered to be indefinitely
reinvested and, accordingly, no U.S. Federal and State income
taxes have been provided. If those earnings were distributed, we
would be subject to both U.S. income taxes and withholding taxes
payable to the various countries. Any resulting income tax
obligations could materially adversely affect our results of
operations.

Certain items of income and expense are not
recognized on our income tax returns and financial statements in
the same year, which creates timing differences. The income tax
effect of these timing differences results in (1) deferred
income tax assets that create a reduction in future income taxes
and (2) deferred income tax liabilities that create an
increase in future income taxes. Recognition of deferred income
tax assets is based on managements belief that it is more
likely than not that the income tax benefit associated with
certain temporary differences, income tax operating loss and



Quintiles Transnational 2002 Annual
Report  35




---



##### 



capital loss carry forwards and income tax
credits, will be realized. We record a valuation allowance to
reduce our deferred income tax assets for those deferred income
tax items for which it is more likely than not that realization
will not occur. We determine the amount of the valuation
allowance based, in part, on our assessment of future taxable
income and in light of our ongoing prudent and feasible income
tax strategies. If our estimate of future taxable income or tax
strategies change at any time in the future, we would be
required to record an additional income tax provision; recording
such a provision could have a material adverse effect on our
results of operations.




| |                   
| | ------------------
| | Foreign Currencies

We derive a large portion of our net revenue from
international operations. Our financial statements are
denominated in U.S. dollars; thus, factors associated with
international operations, including changes in foreign currency
exchange rates, could significantly affect our results of
operations and financial condition. Exchange rate fluctuations
between local currencies and the U.S. dollar create risk in
several ways, including the risk of translating revenues and
expenses of foreign operations into U.S. dollars, known as
translation risk, and the risk that we incur expenses in a
currency other than that in which the contract revenues are
paid, known as transaction risk. Gains and losses on foreign
currency transactions are reported in results of operations,
while translation adjustments are reported as a component of
accumulated other comprehensive income within shareholders
equity. If certain balances owed by our foreign subsidiaries are
deemed to be not of a long-term investment nature, then the
translation effect related to those balances would not be
classified as translation adjustments but rather transaction
adjustments, which could have a material effect on our results
of operations.



| |                  
| | -----------------
| | Long-Lived Assets

Realization of identifiable tangible and
intangible assets in which we have invested is exposed to a
changing regulatory and competitive market. Examples include
investments we have made in certain product related rights such
as marketing and distribution rights and investments made to
develop an Internet platform for our product development and
commercialization services. The realization of these assets
could be affected by technological changes, approval by the FDA,
and proposed and final laws and regulations, such as regulations
governing individually identifiable health information or FDA
requirements for use of electronic records and/or electronic
signatures.

Periodically, we review the carrying values of
property and equipment if the facts and circumstances suggest
that a potential impairment may have occurred. If this review
indicates that carrying values will not be recoverable, as
determined based on undiscounted cash flows over the remaining
depreciation or amortization period, we will reduce carrying
values to estimated fair value. The inherent subjectivity of our
estimates of future cash flows could have a significant impact
on our analysis. Any future write-offs of long-lived assets
could have a material adverse effect on our financial condition
or results of operations.



| |                                                
| | -----------------------------------------------
| | Goodwill and Identifiable Intangible
    Assets

Net assets of companies acquired in purchase
transactions are recorded at fair value at the date of
acquisition. The recoverability of the excess of the cost over
the fair value of the net assets acquired, known as goodwill, is
evaluated annually for impairment or if and when events or
circumstances indicate a possible impairment. During 2002, we
completed the goodwill transitional impairment test as of
January 1, 2002, as required, and the annual impairment
test as of July 31, 2002, in which no goodwill impairment
was deemed necessary at either date. Goodwill and
indefinite-lived intangible assets are not amortized. Other
identifiable intangible assets are amortized over their
estimated useful lives. The inherent subjectivity of applying a
market comparables approach to valuing our assets and
liabilities could have a significant impact on our analysis. Any
future impairment could have a material adverse effect on our
financial condition or results of operations.



36  Quintiles
Transnational 2002 Annual Report




---



##### 





| |                            
| | ---------------------------
| | Employee Stock Compensation

We have elected to follow Accounting Principles
Board Opinion No. 25, Accounting for Stock Options
Issued to Employees, or APB 25, and related
interpretations in accounting for our employee stock options
because the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, as amended
by SFAS No. 148, or SFAS 123, requires use of option
valuation models that were not developed for use in valuing
employee stock options. Under APB 25, because the exercise
price equals the market price of the underlying stock on the
date of the grant, no compensation expense is recognized. If we
accounted for stock options under SFAS 123, we would have
recorded additional compensation expense for the stock option
grants to employees. If we are unable to or decide not to
continue to account for stock options under APB 25, our
financial results would be materially adversely affected to the
extent of the additional compensation expense we would have to
recognize, which could change significantly from period to
period based on several factors including the number of stock
options granted and fluctuations of our stock price and/or
interest rates.



| |                  
| | -----------------
| | Backlog Reporting

We report revenue backlog based on anticipated
net revenue from uncompleted projects that our customers have
authorized. We report only service-related revenue as backlog,
and we do not include product revenue or commercial
rights-related revenue (royalties and commissions) in backlog.
Our backlog is calculated based upon our estimate of forecasted
currency exchange rates. Annually, we adjust the beginning
balance of our backlog to reflect changes in our forecasted
currency exchange rates. Our backlog at anytime can be affected
by:



| |   |                                                                  
| | - | -----------------------------------------------------------------
| |  | the variable size and duration of projects,                      
|
| |  | the loss or delay of projects, and                               
|
| |  | a change in the scope of work during the course
    of a project.

If customers delay projects, the projects will
remain in backlog, but will not generate revenue at the rate
originally expected. Accordingly, historical indications of the
relationship of backlog to revenues may not be indicative of the
future relationship. The reporting of revenue backlog is not
authoritatively prescribed, therefore practices tend to vary
among competitors and reported amounts are not necessarily
comparable.

Inflation

We believe the effects of inflation generally do
not have a material adverse impact on our operations or
financial condition.

Market Risk

Market risk is the potential loss arising from
adverse changes in market rates and prices, such as foreign
currency 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. The following analyses present the
sensitivity of our financial instruments to hypothetical changes
in interest and foreign currency exchange rates that are
reasonably possible over a one-year period.



| |                                    
| | -----------------------------------
| | Foreign Currency Exchange
    Rates

Approximately 56.4%, 49.7% and 44.0% of our total
net revenue for the years ended December 31, 2002, 2001,
and 2000, respectively, was derived from our operations outside
the



Quintiles Transnational 2002 Annual
Report  37




---



##### 



United States. We do not have significant
operations in countries in which the economy is considered to be
highly-inflationary. Our financial statements are denominated in
U.S. dollars, and accordingly, changes in the exchange rate
between foreign currencies and the U.S. dollar will affect the
translation of our subsidiaries financial results into
U.S. dollars for purposes of reporting our consolidated
financial results. Accumulated currency translation adjustments
recorded as a separate component (reduction) of
shareholders equity were ($18.4) million at
December 31, 2002 as compared to ($60.6) million at
December 31, 2001.


We may be subject to foreign currency transaction
risk when our service contracts are denominated in a currency
other than the currency in which we earn fees or incur expenses
related to such contracts. At December 31, 2002, our most
significant foreign currency exchange rate exposures were in the
British pound, Japanese yen and the euro. We limit our foreign
currency transaction risk through exchange rate fluctuation
provisions stated in our contracts with customers, or we may
hedge our transaction risk with foreign currency exchange
contracts or options. There were no open foreign exchange
contracts or options relating to service contracts at
December 31, 2002 or 2001.



| |               
| | --------------
| | Interest Rates

At December 31, 2002, our investment in debt
securities portfolio consists primarily of U.S. Government
securities, of which most are callable by the issuer at par, and
money funds. The portfolio is primarily classified as
available-for-sale and therefore these investments are recorded
at fair value in the financial statements. These securities are
exposed to market price risk which also takes into account
interest rate risk. As of December 31, 2002, the fair value
of the investment portfolio was $36.7 million, based on
quoted market prices. The potential loss in fair value resulting
from a hypothetical decrease of 10% in quoted market price is
approximately $3.7 million.



| |              
| | -------------
| | Equity Prices

At December 31, 2002, we had investments in
marketable equity securities. These investments are classified
as available-for-sale and are recorded at fair value in the
financial statements. These securities are subject to equity
price risk. As of December 31, 2002, the fair value of
these investments was $64.9 million, based on quoted equity
prices. The potential loss in fair value resulting from a
hypothetical decrease of 10% in quoted equity price is
approximately $6.5 million.

Recently Issued Accounting Standards

In June 2002, the Financial Accounting Standards
Board issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, requiring
companies to record certain exit costs activities when legally
obligated instead of when an exit plan is adopted. The
provisions of SFAS No. 146 are effective for exit or
disposal activities that are initiated after December 31,
2002; therefore, the adoption of SFAS No. 146 did not have
a material impact on our results of operations and/or financial
position.

In January 2003, the EITF published EITF
Issue 00-21, Revenue Arrangements with Multiple
Deliverables, which requires companies to determine
whether an arrangement involving multiple deliverables contains
more than one unit of accounting. In applying this EITF
Issue 00-21, revenue arrangements with multiple
deliverables should be divided into separate units of accounting
if the deliverables in the arrangement meet certain criteria.
Arrangement consideration should be allocated among the separate
units of accounting based on their relative fair values. This
issue is effective for revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. We are
currently evaluating the impact the adoption of this issue will
have on our results of operations and/or financial position.

From time to time the Staff of the United States
Securities and Exchange Commission communicates its
interpretations of accounting rules and regulations. The manner
by which these views are communicated varies by topic. While
these communications represent the views of the Staff, they do



38  Quintiles
Transnational 2002 Annual Report




---



##### 



not carry the authority of law or regulation.
Nonetheless, the practical effect of these communications is
that changes in the Staffs views from time to time can
impact the accounting and reporting policies of public
companies, like ours.


Risk Factors

In addition to the other information provided in
this Annual Report on Form 10-K, you should consider the
following factors carefully in evaluating our business and us.
Additional risks and uncertainties not presently known to us,
that we currently deem immaterial or that are similar to those
faced by other companies in our industry or business in general,
such as competitive conditions, may also impair our business
operations. If any of the following risks occur, our business,
financial condition, or results of operations could be
materially adversely affected.



| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | Changes in outsourcing trends in the
    pharmaceutical and biotechnology industries could adversely
    affect our operating results and growth rate.

Economic factors and industry trends that affect
our primary customers, pharmaceutical and biotechnology
companies, also affect our business. For example, the practice
of many companies in these industries has been to hire outside
organizations like us to conduct large clinical research and
sales and marketing projects. This practice grew substantially
during the 1990s and we benefited from this trend. Some
industry commentators believe that the rate of growth of
outsourcing will tend to decrease. If these industries reduce
their tendency to outsource those projects, our operations,
financial condition and growth rate could be materially and
adversely affected. Recently, we also believe we have been
negatively impacted by mergers and other factors in the
pharmaceutical industry, which appear to have slowed decision
making by our customers and delayed certain trials. A
continuation of these trends would have an ongoing adverse
effect on our business. In addition, numerous governments have
undertaken efforts to control growing healthcare costs through
legislation, regulation and voluntary agreements with medical
care providers and pharmaceutical companies. If future
regulatory cost containment efforts limit the profits which can
be derived on new drugs, our customers may reduce their research
and development spending, which could reduce the business they
outsource to us. We cannot predict the likelihood of any of
these events or the effects they would have on our business,
results of operations or financial condition.



| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | If we are unable to successfully develop
    and market potential new services, our growth could be adversely
    affected.

Another key element of our growth strategy is the
successful development and marketing of new services that
complement or expand our existing business. If we are unable to
succeed in (1) developing new services and
(2) attracting a customer base for those newly developed
services, we will not be able to implement this element of our
growth strategy, and our future business, results of operations
and financial condition could be adversely affected.



| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | Our plan to web-enable our product
    development and commercialization services may negatively impact
    our results in the short term.

We are currently developing an Internet platform
for our product development and commercialization services. We
have entered into agreements with certain vendors for them to
provide web-enablement services to help us develop this
platform. If such vendors fail to perform as required or if
there are substantial delays in developing and implementing this
platform, we may have to make substantial further investments,
internally or with third parties, to achieve our objectives.
Meeting our objectives is dependent on a number of factors which
may not take place as we anticipate, including obtaining
adequate web-enablement services, creating web-enablement
services which our customers will find desirable and
implementing our business model with respect to these services.
Also, these expenditures are likely to negatively impact our
profitability, at least until our web-enabled



Quintiles Transnational 2002 Annual
Report  39




---



##### 



products are operationalized. Over time, we
envision continuing to invest in extending and enhancing our
Internet platform in other ways to further support and improve
our services. We cannot assure you that any improvements in
operating income resulting from our Internet capabilities will
be sufficient to offset our investments in the Internet
platform. Our results could be further negatively impacted if
our competitors are able to execute their services on a
web-based platform before we can launch our Internet services or
if they are able to structure a platform that attracts customers
away from our services.




| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | We may not be able to derive the benefits
    we hope to achieve from Verispan, our joint venture with
    McKesson.

In May 2002, we completed the formation of a
joint venture, Verispan, with McKesson designed to leverage the
operational strengths of the healthcare information business of
each party. As part of the formation of Verispan, we contributed
our former informatics business. As a result, Verispan remains
subject to the risks to which our informatics business was
exposed. If Verispan is not successful or if it experiences any
of the difficulties described below, there could be an adverse
effect on our results of operations and financial condition, as
Verispan is a pass-through entity and, as such, its results are
reflected in our financial statements to the extent of our
interest in Verispan. We may not achieve the intended benefits
of Verispan if it is not able to secure additional data in
exchange for equity. Verispan also could encounter other
difficulties, including:



| |   |                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | its ability to obtain continuous access to
    de-identified healthcare data from third parties in sufficient
    quantities to support its informatics products;                                     
|
| |  | its ability to process and use the volume of data
    received from a variety of data providers;                                                                                                      
|
| |  | its ability to attract customers, besides
    Quintiles and McKesson, to purchase its products and services;                                                                                          
|
| |  | the risk of changes in healthcare information
    privacy laws and regulations that could create a risk of
    liability, increase the cost of Verispans business or
    limit its service offerings;
|
| |  | the risk that industry regulation may restrict
    Verispans ability to analyze and disseminate
    pharmaceutical and healthcare data; and                                                          
|
| |  | the risk that it will not be able to effectively
    and cost-efficiently replace services previously provided to the
    contributed businesses by the former parent corporations.                   

Although we have a license to use Verispans
commercially available data products and we may pay Verispan to
create customized data products for us, if Verispan is unable to
provide us with the quality and character of data products that
we need to support those services, we would need to seek other
strategic alternatives to achieve our goals.



| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | The potential loss or delay of our large
    contracts could adversely affect our results.

Many of our customers can terminate our contracts
upon 15-90 days notice. In the event of termination,
our contracts often provide for fees for winding down the
project, but these fees may not be sufficient for us to maintain
our margins, and termination may result in lower resource
utilization rates. Thus, the loss or delay of a large contract
or the loss or delay of multiple contracts could adversely
affect our net revenue and profitability. We believe that this
risk has potentially greater effect as we pursue larger
outsourcing arrangements with global pharmaceutical companies.
Also, over the past two years we have observed that customers
may be more willing to delay, cancel or reduce contracts more
rapidly than in the past. If this trend continues, it could
become more difficult for us to balance our resources with
demands for our services and our financial results could be
adversely affected.



40  Quintiles
Transnational 2002 Annual Report




---



##### 





| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | Underperformance of our commercial rights
    strategies could have a negative impact on our financial
    performance.

As part of our PharmaBio Development business
strategy, we enter into arrangements with customers in which we
take on some of the risk of the potential success or failure of
the customers product. These transactions may include
making a strategic investment in a customer, providing financing
to a customer, or acquiring an interest in the revenues from a
customers product. For example, we may build or provide a
sales organization for a biotechnology customer to commercialize
a new product in exchange for a share in the revenues of the
product. We anticipate that in the early periods of many of
these relationships, our expenses will exceed revenues from
these arrangements, particularly where we are providing a sales
force for the product at our own cost. Aggregate royalty or
other payments made to us under these arrangements may not be
adequate to offset our total expenditure in providing a sales
force or in making milestone or marketing payments to our
customers. We must carefully analyze and select the customers
and products with which we are willing to structure our
risk-based deals. Products underlying our commercial rights
strategies may not complete clinical trials, receive FDA
approval or achieve the level of market acceptance or consumer
demand that we expect, in which case we might not be able to
earn a profit or recoup our investment with regard to a
particular arrangement. In addition, the timing of regulatory
approval and product launch and the achievement of other
milestones are generally beyond our control and can affect our
actual return from these investments. The potential negative
effect to us could increase depending on the nature and timing
of our investments and the length of time before it becomes
apparent that the product will not achieve commercial success.
Our financial results would be adversely affected if our
customers or their products do not achieve the level of success
that we anticipate and/or our return or payment from the product
investment or financing is less than our costs of performance,
investment or financing.



| |                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | Our rights to market and sell certain
    pharmaceutical products expose us to product risks typically
    associated with pharmaceutical companies.

Our acquisition of the rights to market and sell
Solaraze and the rights to other dermatology products
acquired from Bioglan Pharma, Inc., as well as any other product
rights we may hold at any time, subject us to a number of risks
typical to the pharmaceutical industry. For example, we could
face product liability claims in the event users of these
products, or of any other pharmaceutical product rights we may
acquire in the future, experience negative reactions or adverse
side effects or in the event it causes injury, is found to be
unsuitable for its intended purpose or is otherwise defective.
While we believe we currently have adequate insurance in place
to protect against these risks, we may nevertheless be unable to
satisfy any claims for which we may be held liable as a result
of the use or misuse of products which we manufacture or sell,
and any such product liability claim could adversely affect our
business, operating results or financial condition. In addition,
like pharmaceutical companies, our commercial success in this
area will depend in part on our obtaining, securing and
defending our intellectual property rights covering our
pharmaceutical product rights.

These risks may be augmented by certain risks
relating to our outsourcing of the manufacturing and
distribution of these products or any pharmaceutical product
rights we may acquire in the future. For example, as a result of
our decision to outsource the manufacturing and distribution of
Solaraze, we are unable to directly monitor quality
control in the manufacturing and distribution processes.

Our plans to market and sell Solaraze and
other pharmaceutical products also subject us to risks
associated with entering into a new line of business. We have
limited experience operating in this line of business. If we are
unable to operate this new line of business as we expect, the
financial results from this new line of business could have a
negative impact on our results of operations as a whole. The
risk that our results may be affected if we are unable to
successfully operate our pharmaceutical operations may increase
in proportion with (1) the number of products or product
rights we license or acquire in the future, (2) the
applicable stage of the drug approval process of



Quintiles Transnational 2002 Annual
Report  41




---



##### 



the products and (3) the levels of
outsourcing involved in the development, manufacture and
commercialization of such products.




| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | If we lose the services of Dennis Gillings,
    Pamela Kirby or other key personnel, our business could be
    adversely affected.

Our success substantially depends on the
performance, contributions and expertise of our senior
management team, led by Dennis B. Gillings, Ph.D., our
Chairman, and Pamela J. Kirby, Ph.D., our Chief
Executive Officer. Our performance also depends on our ability
to attract and retain qualified management and professional,
scientific and technical operating staff, as well as our ability
to recruit qualified representatives for our contract sales
services. The departure of Dr. Gillings, Dr. Kirby, or
any key executive, or our inability to continue to attract and
retain qualified personnel could have a material adverse effect
on our business, results of operations or financial condition.
The uncertainty associated with the special committees
investigation of strategic alternatives may increase this risk.



| |                                                                                
| | -------------------------------------------------------------------------------
| | Our product development services could
    result in potential liability to us.

We contract with drug companies to perform a wide
range of services to assist them in bringing new drugs to
market. Our services include supervising clinical trials, data
and laboratory analysis, patient recruitment and other services.
The process of bringing a new drug to market is time-consuming
and expensive. If we do not perform our services to contractual
or regulatory standards, the clinical trial process could be
adversely affected. Additionally, if clinical trial services
such as laboratory analysis do not conform to contractual or
regulatory standards, trial participants could be affected.
These events would create a risk of liability to us from the
drug companies with whom we contract or the study participants.
Similar risks apply to our product development services relating
to medical devices.

We also contract with physicians to serve as
investigators in conducting clinical trials. Such testing
creates risk of liability for personal injury to or death of
volunteers, particularly to volunteers with life-threatening
illnesses, resulting from adverse reactions to the drugs
administered during testing. It is possible third parties could
claim that we should be held liable for losses arising from any
professional malpractice of the investigators with whom we
contract or in the event of personal injury to or death of
persons participating in clinical trials. We do not believe we
are legally accountable for the medical care rendered by third
party investigators, and we would vigorously defend any such
claims. For example, we are among the defendants named in a
purported class action by participants in an Alzheimers
study seeking to hold us liable for alleged damages to the
participants arising from the study. Nonetheless, it is possible
we could be found liable for those types of losses.

In addition to supervising tests or performing
laboratory analysis, we also own a number of labs where
Phase I clinical trials are conducted. Phase I clinical
trials involve testing a new drug on a limited number of healthy
individuals, typically 20 to 80 persons, to determine the
drugs basic safety. We also could be liable for the
general risks associated with ownership of such a facility.
These risks include, but are not limited to, adverse events
resulting from the administration of drugs to clinical trial
participants or the professional malpractice of Phase I medical
care providers.

We also provide limited clinical trial packaging
services. We could be held liable for any problems that result
from the trial drugs we package, including any quality control
problems in our packaging facilities. For example, accounting
for drug samples that contain controlled substances is subject
to regulation by the United States Drug Enforcement
Administration, or the DEA. For example, some of our facilities
have been audited by the DEA. In one case, the DEA indicated
that it found that we miscounted certain drugs. While no audit
report or action has been taken, the DEA could pursue one or
more courses of action, including a re-audit of the facility,
the assessment of civil fines, or in extreme cases, criminal
penalties.

We also could be held liable for errors or
omissions in connection with our services. For example, we could
be held liable for errors or omissions or breach of contract if
one of our laboratories inaccurately reports or fails to report
lab results. Although, we maintain insurance to



42  Quintiles
Transnational 2002 Annual Report




---



##### 



cover ordinary risks, insurance would not cover
the risk of a customer deciding not to do business with us as a
result of poor performance.




| |                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------
| | Our insurance may not cover all of our
    indemnification obligations and other liabilities associated
    with our operations.

We maintain insurance designed to cover ordinary
risks associated with our operations and our ordinary
indemnification obligations. This insurance might not be
adequate coverage or may be contested by our carriers. For
example, our insurance carrier, to whom we paid premiums to
cover risks associated with our product development services,
has filed suit against us seeking to rescind the insurance
policies or to have coverage denied for some or all of the
claims arising from class action litigation involving an
Alzheimers study. The availability and level of coverage
provided by our insurance could have a material impact on our
profitability if we suffer uninsured losses or are required to
indemnify third parties for uninsured losses.

In connection with our contribution to Verispan,
Verispan assumed our obligation under our settlement agreement
with WebMD to indemnify WebMD for losses arising out of or in
connection with the cancelled Data Rights Agreement with WebMD,
our data business that we contributed to the joint venture, the
collection, accumulation, storage or use of data by ENVOY for
the purpose of transmitting or delivering data to us, any
transmission or delivery by ENVOY of data to us or violations of
law or contract attributable to any such event. This indemnity
obligation is limited to 50% for the first $20 million in
aggregate losses, subject to exceptions for certain indemnity
obligations that were not transferred to Verispan. Although
Verispan has assumed our indemnity obligations to WebMD relating
to our data business, WebMD may seek indemnity from us and we
would have to proceed against Verispan.

In addition, we remain subject to other indemnity
obligations to WebMD, including for losses arising out of the
settlement agreement itself or out of the sale of ENVOY to
WebMD. In particular, we could be liable for losses which may
arise in connection with a class action lawsuit filed against
ENVOY prior to its purchase by us and subsequent sale to WebMD.
Our indemnification obligation with regard to losses arising
from the sale of ENVOY to WebMD including ENVOYs class
action lawsuit is not subject to the limitation on the first
$20 million of losses described above.



| |                                                                                             
| | --------------------------------------------------------------------------------------------
| | Relaxation of government regulation could
    decrease the need for the services we provide.

Governmental agencies throughout the world, but
particularly in the United States, highly regulate the drug
development/approval process. A large part of our business
involves helping pharmaceutical and biotechnology companies
through the regulatory drug approval process. Any relaxation in
regulatory approval standards could eliminate or substantially
reduce the need for our services, and, as a result, our
business, results of operations and financial condition could be
materially adversely affected. Potential regulatory changes
under consideration in the United States and elsewhere include
mandatory substitution of generic drugs for patented drugs,
relaxation in the scope of regulatory requirements or the
introduction of simplified drug approval procedures. These and
other changes in regulation could have an impact on the business
opportunities available to us.



| |                                                                                   
| | ----------------------------------------------------------------------------------
| | Failure to comply with existing regulations
    could result in a loss of revenue.

Any failure on our part to comply with applicable
regulations could result in the termination of ongoing clinical
research or sales and marketing projects or the disqualification
of data for submission to regulatory authorities, either of
which could have a material adverse effect on us. For example,
if we were to fail to verify that informed consent is obtained
from patient participants in connection with a particular
clinical trial, the data collected from that trial could be
disqualified, and we could be required to redo the trial under
the terms of our contract at no further cost to our customer,
but at substantial cost to us.



Quintiles Transnational 2002 Annual
Report  43




---



##### 





| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | Our services are subject to evolving
    industry standards and rapid technological
    changes.

The markets for our services are characterized by
rapidly changing technology, evolving industry standards and
frequent introduction of new and enhanced services. To succeed,
we must continue to:



| |   |                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------
| |  | enhance our existing services;                                                                         
|
| |  | introduce new services on a timely and
    cost-effective basis to meet evolving customer requirements;
|
| |  | integrate new services with existing services;                                                         
|
| |  | achieve market acceptance for new services; and                                                        
|
| |  | respond to emerging industry standards and other
    technological changes.                            



| |                                                                                             
| | --------------------------------------------------------------------------------------------
| | Exchange rate fluctuations may affect our
    results of operations and financial condition.

We derive a large portion of our net revenue from
international operations. Our financial statements are
denominated in U.S. dollars; thus, factors associated with
international operations, including changes in foreign currency
exchange rates and any trends associated with the transition to
the euro, could significantly affect our results of operations
and financial condition. Exchange rate fluctuations between
local currencies and the U.S. dollar create risk in several
ways, including:



| |   |                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Foreign Currency Translation
    Risk.The revenue and expenses of our
    foreign operations are generally denominated in local currencies.                                       
|
| |  | Foreign Currency Transaction
    Risk.Our service contracts may be
    denominated in a currency other than the currency in which we
    incur expenses related to such contracts.

We try to limit these risks through exchange rate
fluctuation provisions stated in our service contracts, or we
may hedge our transaction risk with foreign currency exchange
contracts or options. Although we may hedge our transaction
risk, there were no open foreign exchange contracts or options
relating to service contracts at December 31, 2002. Despite
these efforts, we may still experience fluctuations in financial
results from our operations outside the United States, and we
cannot assure you that we will be able to favorably reduce our
currency transaction risk associated with our service contracts.



| |                                                            
| | -----------------------------------------------------------
| | We may be adversely affected by customer
    concentration.

We have one customer that accounted for
approximately 11% of our net service revenues for the year ended
December 31, 2002 due, in part, to the effect of a long
term contract that is set to expire as of the end of 2003. These
revenues resulted from services provided by the product
development and commercial services groups. If this customer or
any large customer decreases or terminates its relationship with
us, our business, results of operations or financial condition
could be materially adversely affected.



| |                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to submit electronic
    records to the FDA according to FDA regulations, our ability to
    perform services for our customers which meet applicable
    regulatory requirements could be adversely
    affected.

If we were unable to submit electronic records to
the United States Food and Drug Administration, also referred to
as the FDA, which meet the requirements of FDA regulations, this
may adversely affect our customers when they submit the data
concerned to the FDA in support of an application for approval
of a product. The FDA published 21 CFR Part 11
Electronic Records; Electronic Signatures; Final
Rule (Part 11) in 1997. Part 11
became effective in August 1997 and defines the regulatory
requirements that must be met for FDA acceptance of electronic
records and/or electronic signatures in place of the paper
equivalents. Part 11 requires that those utilizing such
electronic records and/or signatures employ procedures and
controls designed to ensure the authenticity, integrity and, as



44  Quintiles
Transnational 2002 Annual Report




---



##### 



appropriate, confidentiality of electronic
records and, Part 11 requires those utilizing electronic
signatures ensure that a person appending an electronic
signature cannot readily repudiate the signed record.
Pharmaceutical, medical device and biotechnology companies are
increasing their utilization of electronic records and
electronic signatures and are requiring their service providers
and partners to do likewise. Becoming compliant with
Part 11 involves considerable complexity and cost. Our
ability to provide services to our customers in full compliance
with applicable regulations includes a requirement that, over
time, we become compliant and maintain compliance with the
requirements of Part 11. If we are unable to achieve this
objective, our ability to provide services to our customers
which meet FDA requirements may be adversely affected.




| |                                                                          
| | -------------------------------------------------------------------------
| | The transaction proposed by our founder
    creates uncertainties for us.

Pharma Services Company, a company wholly owned
by Dennis B. Gillings, Ph.D., our chairman and founder, made a
non-binding proposal to acquire all of the outstanding shares of
our stock for a cash price of $11.25 per share. A special
committee of our board was established to act on behalf of our
company with respect to the proposal or alternatives in the
context of evaluating what is in the best interests of our
company and our shareholders. On November 11, 2002, the
special committee announced its rejection of the proposal and
its intention to investigate strategic alternatives available to
us for purposes of enhancing shareholder value, including the
possibility of a sale of the company and alternatives that would
keep us independent and publicly owned. The special committee is
continuing its evaluation. Although the special committee is
pursuing these alternatives, it is possible that no other
potential transaction will be recommended, approved or
completed. While we explore our strategic alternatives, we may
experience some disruptions to our business. In addition,
several shareholders have filed purported class action lawsuits
against us, our directors and, in some cases, Pharma Services
Company, seeking to block the proposal. Even though the
transaction has been rejected, we may not prevail in this
litigation.



|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk

This information is included under Item 7 of
this report under the caption Market Risk.



Quintiles Transnational 2002 Annual
Report  45




---



##### 





|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                                                                       |                                                            |                                       |           |           |   |      |           |           |   |   |           |           |  
|-------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ------------------------------------- | --------- | --------- | - | ---- | --------- | --------- | - | - | --------- | --------- | -
|                                                                                                                                       |                                                            |                                      
|                                                                                                                                       |                                                            | Year Ended December 31,              
|                                                                                                                                       |                                                            |                                      
|                                                                                                                                       |                                                            | 2002                                  |           | 2001      |   | 2000
|                                                                                                                                       |                                                            |                                       |           |           |   |     
|                                                                                                                                       |                                                            |                                      
|                                                                                                                                       |                                                            | (in thousands, except per share data)
|Gross revenues                                                                                                                         |                                                            | $                                     | 1,992,409 |           |   | $    | 1,883,912 |           |   | $ | 1,871,077 |          
|Costs, expenses and other:                                                                                                             |                                                            |                                       |           |           |   |      |           |           |   |   |           |          
|                                                                                                                                       | Costs of revenues                                          |                                       |           | 1,367,711 |   |      |           | 1,318,267 |   |   |           | 1,297,614 |  
|                                                                                                                                       | General and administrative                                 |                                       |           | 508,103   |   |      |           | 520,680   |   |   |           | 565,137   |  
|                                                                                                                                       | Interest income                                            |                                       |           | (16,739   | ) |      |           | (19,844   | ) |   |           | (20,703   | )
|                                                                                                                                       | Interest expense                                           |                                       |           | 2,551     |   |      |           | 3,172     |   |   |           | 4,842     |  
|                                                                                                                                       | Other expense (income), net                                |                                       |           | 7,123     |   |      |           | 489       |   |   |           | (725      | )
|                                                                                                                                       | Impairment on investment in WebMD common stock             |                                       |           |          |   |      |           | 325,553   |   |   |           |          |  
|                                                                                                                                       | Settlement of litigation                                   |                                       |           |          |   |      |           | (83,200   | ) |   |           |          |  
|                                                                                                                                       | Restructuring charges                                      |                                       |           |          |   |      |           | 54,169    |   |   |           | 58,592    |  
|                                                                                                                                       | Write-off of goodwill and other assets                     |                                       |           |          |   |      |           | 27,122    |   |   |           |          |  
|                                                                                                                                       | Disposal of business                                       |                                       |           |          |   |      |           |          |   |   |           | 17,325    |  
|                                                                                                                                       |                                                            |                                       |           |           |   |      |           |           |   |   |           |          
|                                                                                                                                       |                                                            |                                       | 1,868,749 |           |   |      | 2,146,408 |           |   |   | 1,922,082 |          
|                                                                                                                                       |                                                            |                                       |           |           |   |      |           |           |   |   |           |          
|Income (loss) before income taxes                                                                                                      |                                                            |                                       | 123,660   |           |   |      | (262,496  | )         |   |   | (51,005   | )        
|Income tax expense (benefit)                                                                                                           |                                                            |                                       | 41,427    |           |   |      | (86,623   | )         |   |   | (16,831   | )        
|                                                                                                                                       |                                                            |                                       |           |           |   |      |           |           |   |   |           |          
|Income (loss) before equity in losses of
    unconsolidated affiliates and other                                                       |                                                            |                                       | 82,233    |           |   |      | (175,873  | )         |   |   | (34,174   | )        
|Equity in losses of unconsolidated affiliates and
    other                                                                            |                                                            |                                       | (569      | )         |   |      |          |           |   |   |          |          
|                                                                                                                                       |                                                            |                                       |           |           |   |      |           |           |   |   |           |          
|Income (loss) from continuing operations                                                                                               |                                                            |                                       | 81,664    |           |   |      | (175,873  | )         |   |   | (34,174   | )        
|Income from discontinued operation                                                                                                     |                                                            |                                       |          |           |   |      |          |           |   |   | 16,770    |          
|Extraordinary gain from sale of discontinued
    operation, net of income taxes                                                        |                                                            |                                       |          |           |   |      | 142,030   |           |   |   | 436,327   |          
|Cumulative effect on prior years (to
    December 31, 2001) of changing to a different method of
    recognizing deferred income taxes |                                                            |                                       | 45,659    |           |   |      |          |           |   |   |          |          
|                                                                                                                                       |                                                            |                                       |           |           |   |      |           |           |   |   |           |          
|Net income (loss)                                                                                                                      |                                                            | $                                     | 127,323   |           |   | $    | (33,843   | )         |   | $ | 418,923   |          
|                                                                                                                                       |                                                            |                                       |           |           |   |      |           |           |   |   |           |          
|Basic net income (loss) per share:                                                                                                     |                                                            |                                       |           |           |   |      |           |           |   |   |           |          
|                                                                                                                                       | Income (loss) from continuing operations                   |                                       | $         | 0.69      |   |      | $         | (1.49     | ) |   | $         | (0.29     | )
|                                                                                                                                       | Income from discontinued operation                         |                                       |           |          |   |      |           |          |   |   |           | 0.14      |  
|                                                                                                                                       | Extraordinary gain from sale of discontinued
    operation |                                       |           |          |   |      |           | 1.20      |   |   |           | 3.76      |  
|                                                                                                                                       | Cumulative effect of change in accounting
    principle    |                                       |           | 0.39      |   |      |           |          |   |   |           |          |  
|                                                                                                                                       |                                                            |                                       |           |           |   |      |           |           |   |   |           |          
|                                                                                                                                       | Basic net income (loss) per share                          |                                       | $         | 1.08      |   |      | $         | (0.29     | ) |   | $         | 3.61      |  
|                                                                                                                                       |                                                            |                                       |           |           |   |      |           |           |   |   |           |          
|Diluted net income (loss) per share:                                                                                                   |                                                            |                                       |           |           |   |      |           |           |   |   |           |          
|                                                                                                                                       | Income (loss) from continuing operations                   |                                       | $         | 0.69      |   |      | $         | (1.49     | ) |   | $         | (0.29     | )
|                                                                                                                                       | Income from discontinued operation                         |                                       |           |          |   |      |           |          |   |   |           | 0.14      |  
|                                                                                                                                       | Extraordinary gain from sale of discontinued
    operation |                                       |           |          |   |      |           | 1.20      |   |   |           | 3.76      |  
|                                                                                                                                       | Cumulative effect of change in accounting
    principle    |                                       |           | 0.39      |   |      |           |          |   |   |           |          |  
|                                                                                                                                       |                                                            |                                       |           |           |   |      |           |           |   |   |           |          
|                                                                                                                                       | Diluted net income (loss) per share                        |                                       | $         | 1.07      |   |      | $         | (0.29     | ) |   | $         | 3.61      |  
|                                                                                                                                       |                                                            |                                       |           |           |   |      |           |           |   |   |           |          
|Shares used in computing net income
    (loss) per share:                                                                              |                                                            |                                       |           |           |   |      |           |           |   |   |           |          
|                                                                                                                                       | Basic                                                      |                                       |           | 118,135   |   |      |           | 118,223   |   |   |           | 115,968   |  
|                                                                                                                                       | Diluted                                                    |                                       |           | 118,458   |   |      |           | 118,223   |   |   |           | 115,968   |  

The accompanying notes are an integral part of
these consolidated statements.



46  Quintiles
Transnational 2002 Annual Report




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                         |                                                                                                                                                            |                       |                                            |          |           |           |         |          |           |           | 
|---------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | ------------------------------------------ | -------- | --------- | --------- | ------- | -------- | --------- | --------- | 
|                                         |                                                                                                                                                            |                      
|                                         |                                                                                                                                                            | December 31,         
|                                         |                                                                                                                                                            |                      
|                                         |                                                                                                                                                            | 2002                  |                                            | 2001    
|                                         |                                                                                                                                                            |                       |                                            |         
|                                         |                                                                                                                                                            |                      
|                                         |                                                                                                                                                            | (in thousands, except
|                                         |                                                                                                                                                            | share data)          
|Assets                                  
|Current assets:                          |                                                                                                                                                            |                       |                                            |          |           |           |         |         
|                                         | Cash and cash equivalents                                                                                                                                  |                       | $                                          | 644,284  |           |           | $       | 565,063  |          
|                                         | Trade accounts receivable and unbilled services,
    net                                                                                                   |                       |                                            | 353,535  |           |           |         | 426,954  |          
|                                         | Investments in debt securities                                                                                                                             |                       |                                            | 27,218   |           |           |         | 27,489   |          
|                                         | Prepaid expenses                                                                                                                                           |                       |                                            | 22,516   |           |           |         | 28,085   |          
|                                         | Other receivables                                                                                                                                          |                       |                                            | 17,185   |           |           |         | 19,630   |          
|                                         | Other current assets                                                                                                                                       |                       |                                            | 25,469   |           |           |         | 12,517   |          
|                                         |                                                                                                                                                            |                       |                                            |          |           |           |         |         
|                                         |                                                                                                                                                            | Total current assets  |                                            |          | 1,090,207 |           |         |          | 1,079,738 |          
|Property and equipment:                  |                                                                                                                                                            |                       |                                            |          |           |           |         |         
|                                         | Land, buildings and leasehold improvements                                                                                                                 |                       |                                            | 202,465  |           |           |         | 192,290  |          
|                                         | Equipment                                                                                                                                                  |                       |                                            | 190,312  |           |           |         | 200,012  |          
|                                         | Furniture and fixtures                                                                                                                                     |                       |                                            | 44,094   |           |           |         | 44,020   |          
|                                         | Motor vehicles                                                                                                                                             |                       |                                            | 38,672   |           |           |         | 33,597   |          
|                                         |                                                                                                                                                            |                       |                                            |          |           |           |         |         
|                                         |                                                                                                                                                            |                       | 475,543                                    |          |           |           | 469,919 |         
|                                         | Less accumulated depreciation                                                                                                                              |                       |                                            | (213,385 | )         |           |         | (196,144 | )        
|                                         |                                                                                                                                                            |                       |                                            |          |           |           |         |         
|                                         |                                                                                                                                                            |                       | 262,158                                    |          |           |           | 273,775 |         
|Intangibles and other assets:            |                                                                                                                                                            |                       |                                            |          |           |           |         |         
|                                         | Investments in debt securities                                                                                                                             |                       |                                            | 9,453    |           |           |         | 9,510    |          
|                                         | Investments in marketable equity securities                                                                                                                |                       |                                            | 64,926   |           |           |         | 77,992   |          
|                                         | Investments in non-marketable equity securities
    and loans                                                                                              |                       |                                            | 46,449   |           |           |         | 37,590   |          
|                                         | Investments in unconsolidated affiliates                                                                                                                   |                       |                                            | 121,101  |           |           |         |         |          
|                                         | Commercial rights and royalties                                                                                                                            |                       |                                            | 131,536  |           |           |         | 10,000   |          
|                                         | Goodwill                                                                                                                                                   |                       |                                            | 70,133   |           |           |         | 163,651  |          
|                                         | Other identifiable intangibles, net                                                                                                                        |                       |                                            | 142,715  |           |           |         | 123,999  |          
|                                         | Deferred income taxes                                                                                                                                      |                       |                                            | 174,534  |           |           |         | 136,686  |          
|                                         | Deposits and other assets                                                                                                                                  |                       |                                            | 38,871   |           |           |         | 34,799   |          
|                                         |                                                                                                                                                            |                       |                                            |          |           |           |         |         
|                                         |                                                                                                                                                            |                       | 799,718                                    |          |           |           | 594,227 |         
|                                         |                                                                                                                                                            |                       |                                            |          |           |           |         |         
|                                         |                                                                                                                                                            | Total Assets          |                                            | $        | 2,152,083 |           |         | $        | 1,947,740 |          
|                                         |                                                                                                                                                            |                       |                                            |          |           |           |         |         
|Liabilities and Shareholders
    Equity
|Current liabilities:                     |                                                                                                                                                            |                       |                                            |          |           |           |         |         
|                                         | Accounts payable                                                                                                                                           |                       | $                                          | 57,535   |           |           | $       | 54,400   |          
|                                         | Accrued expenses                                                                                                                                           |                       |                                            | 180,734  |           |           |         | 169,173  |          
|                                         | Unearned income                                                                                                                                            |                       |                                            | 239,606  |           |           |         | 205,783  |          
|                                         | Income taxes payable                                                                                                                                       |                       |                                            | 20,067   |           |           |         | 14,073   |          
|                                         | Deferred income taxes                                                                                                                                      |                       |                                            |         |           |           |         | 738      |          
|                                         | Current portion of obligations held under capital
    leases                                                                                               |                       |                                            | 18,372   |           |           |         | 13,147   |          
|                                         | Current portion of long-term debt                                                                                                                          |                       |                                            | 3,347    |           |           |         | 2,969    |          
|                                         | Other current liabilities                                                                                                                                  |                       |                                            | 2,073    |           |           |         | 1,903    |          
|                                         |                                                                                                                                                            |                       |                                            |          |           |           |         |         
|                                         |                                                                                                                                                            |                       | Total current liabilities                  |          |           | 521,734   |         |          |           | 462,186   | 
|Long-term liabilities:                   |                                                                                                                                                            |                       |                                            |          |           |           |         |         
|                                         | Obligations held under capital leases, less
    current portion                                                                                            |                       |                                            | 10,645   |           |           |         | 11,415   |          
|                                         | Long-term debt, less current portion                                                                                                                       |                       |                                            | 8,210    |           |           |         | 10,335   |          
|                                         | Other liabilities                                                                                                                                          |                       |                                            | 13,108   |           |           |         | 8,716    |          
|                                         |                                                                                                                                                            |                       |                                            |          |           |           |         |         
|                                         |                                                                                                                                                            |                       | 31,963                                     |          |           |           | 30,466  |         
|                                         |                                                                                                                                                            |                       |                                            |          |           |           |         |         
|                                         |                                                                                                                                                            |                       | Total liabilities                          |          |           | 553,697   |         |          |           | 492,652   | 
|Commitments and contingencies            |                                                                                                                                                            |                       |                                            |          |           |           |         |         
|Shareholders equity:                    |                                                                                                                                                            |                       |                                            |          |           |           |         |         
|                                         | Preferred stock, none issued and outstanding at
    December 31, 2002 and 2001, respectively                                                               |                       |                                            |         |           |           |         |         |          
|                                         | Common stock and additional paid-in capital,
    117,850,597 and 118,623,669 shares issued and outstanding at
    December 31, 2002 and 2001, respectively |                       |                                            | 881,927  |           |           |         | 897,075  |          
|                                         | Retained earnings                                                                                                                                          |                       |                                            | 716,465  |           |           |         | 589,142  |          
|                                         | Accumulated other comprehensive loss                                                                                                                       |                       |                                            | (6       | )         |           |         | (31,129  | )        
|                                         |                                                                                                                                                            |                       |                                            |          |           |           |         |         
|                                         |                                                                                                                                                            |                       | Total shareholders equity                 |          |           | 1,598,386 |         |          |           | 1,455,088 | 
|                                         |                                                                                                                                                            |                       |                                            |          |           |           |         |         
|                                         |                                                                                                                                                            |                       | Total liabilities and shareholders equity |          | $         | 2,152,083 |         |          | $         | 1,947,740 | 
|                                         |                                                                                                                                                            |                       |                                            |          |           |           |         |         

The accompanying notes are an integral part of
these consolidated statements.



Quintiles Transnational 2002 Annual
Report  47




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                  |                                                                                                                                        |                                            |          |         |        |      |         |          |         |   |          |          |         |  
|--------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------- | ------- | ------ | ---- | ------- | -------- | ------- | - | -------- | -------- | ------- | -
|                                                                                  |                                                                                                                                        |                                           
|                                                                                  |                                                                                                                                        | Year Ended December 31,                   
|                                                                                  |                                                                                                                                        |                                           
|                                                                                  |                                                                                                                                        | 2002                                       |          | 2001    |        | 2000
|                                                                                  |                                                                                                                                        |                                            |          |         |        |     
|                                                                                  |                                                                                                                                        |                                           
|                                                                                  |                                                                                                                                        | (in thousands)                            
|Operating activities:                                                             |                                                                                                                                        |                                            |          |         |        |      |         |          |         |   |          |         
|                                                                                  | Net income (loss)                                                                                                                      |                                            | $        | 127,323 |        |      | $       | (33,843  | )       |   | $        | 418,923  |        
|                                                                                  | Income from discontinued operation, net of income
    taxes                                                                            |                                            |          |        |        |      |         |         |         |   |          | (16,770  | )      
|                                                                                  | Extraordinary gain from sale of discontinued
    operation, net of tax                                                                 |                                            |          |        |        |      |         | (142,030 | )       |   |          | (436,327 | )      
|                                                                                  | Cumulative effect on prior years (to
    December 31, 2001) of changing to a different method of
    recognizing deferred income taxes |                                            |          | (45,659 | )      |      |         |         |         |   |          |         |        
|                                                                                  |                                                                                                                                        |                                            |          |         |        |      |         |          |         |   |          |         
|                                                                                  | Income (loss) from continuing operations                                                                                               |                                            |          | 81,664  |        |      |         | (175,873 | )       |   |          | (34,174  | )      
|Adjustments to reconcile income (loss) from
    continuing operations to net cash |                                                                                                                                        |                                            |          |         |        |      |         |          |         |   |          |         
|provided by operating activities:                                                 |                                                                                                                                        |                                            |          |         |        |      |         |          |         |   |          |         
|                                                                                  | Depreciation and amortization                                                                                                          |                                            |          | 89,824  |        |      |         | 96,103   |         |   |          | 92,567   |        
|                                                                                  | Restructuring (payments) accrual and
    write-off of other assets, net                                                                |                                            |          | (21,158 | )      |      |         | 42,975   |         |   |          | 25,886   |        
|                                                                                  | Loss on disposal of business                                                                                                           |                                            |          |        |        |      |         |         |         |   |          | 17,325   |        
|                                                                                  | Loss on sale of property and equipment, net                                                                                            |                                            |          | 2,399   |        |      |         | 287      |         |   |          | 190      |        
|                                                                                  | Loss (gain) on investments, net                                                                                                        |                                            |          | (13,710 | )      |      |         | 304,942  |         |   |          | (578     | )      
|                                                                                  | Provision for (benefit from) deferred income taxes                                                                                     |                                            |          | 2,464   |        |      |         | (64,360  | )       |   |          | 12,460   |        
|                                                                                  | Change in operating assets and liabilities:                                                                                            |                                            |          |         |        |      |         |          |         |   |          |          |        
|                                                                                  |                                                                                                                                        | Accounts receivable and unbilled services  |          |         | 59,885 |      |         |          | (24,495 | ) |          |          | (48,226 | )
|                                                                                  |                                                                                                                                        | Prepaid expenses and other assets          |          |         | (5,639 | )    |         |          | 6,935   |   |          |          | (15,881 | )
|                                                                                  |                                                                                                                                        | Accounts payable and accrued expenses      |          |         | 12,966 |      |         |          | 19,263  |   |          |          | 16,429  |  
|                                                                                  |                                                                                                                                        | Unearned income                            |          |         | 29,990 |      |         |          | 15,993  |   |          |          | 28,706  |  
|                                                                                  |                                                                                                                                        | Income taxes payable and other liabilities |          |         | 7,807  |      |         |          | 25,139  |   |          |          | (84,285 | )
|                                                                                  | Other                                                                                                                                  |                                            |          |        |        |      |         | 447      |         |   |          | 95       |        
|                                                                                  |                                                                                                                                        |                                            |          |         |        |      |         |          |         |   |          |         
|Net cash provided by operating activities                                         |                                                                                                                                        |                                            | 246,492  |         |        |      | 247,356 |          |         |   | 10,514   |         
|Investing activities:                                                             |                                                                                                                                        |                                            |          |         |        |      |         |          |         |   |          |         
|                                                                                  | Acquisition of property, equipment and software                                                                                        |                                            |          | (40,157 | )      |      |         | (133,983 | )       |   |          | (108,782 | )      
|                                                                                  | Acquisition of businesses, net of cash acquired                                                                                        |                                            |          | (27,968 | )      |      |         | (6,620   | )       |   |          | (15,169  | )      
|                                                                                  | Acquisition of commercial rights                                                                                                       |                                            |          | (88,331 | )      |      |         | (26,735  | )       |   |          |         |        
|                                                                                  | Proceeds from disposition of property and
    equipment                                                                                |                                            |          | 6,290   |        |      |         | 7,548    |         |   |          | 8,591    |        
|                                                                                  | Proceeds from disposal of discontinued operation,
    net of expenses                                                                  |                                            |          |        |        |      |         |         |         |   |          | 390,722  |        
|                                                                                  | Purchase of held-to-maturity investments                                                                                               |                                            |          |        |        |      |         |         |         |   |          | (1,296   | )      
|                                                                                  | Maturities of held-to-maturity investments                                                                                             |                                            |          | 397     |        |      |         | 437      |         |   |          | 465      |        
|                                                                                  | Purchase of available-for-sale investments                                                                                             |                                            |          | (1,611  | )      |      |         |         |         |   |          | (2,717   | )      
|                                                                                  | Proceeds from sale of available-for-sale
    investments                                                                               |                                            |          |        |        |      |         | 71,422   |         |   |          | 5,296    |        
|                                                                                  | Purchase of marketable equity securities                                                                                               |                                            |          | (6,616  | )      |      |         | (22,660  | )       |   |          | (14,379  | )      
|                                                                                  | Proceeds from sale of marketable equity securities                                                                                     |                                            |          | 26,853  |        |      |         | 134,379  |         |   |          | 3,514    |        
|                                                                                  | Purchase of other investments                                                                                                          |                                            |          | (11,483 | )      |      |         | (40,247  | )       |   |          | (1,617   | )      
|                                                                                  | Proceeds from other investments                                                                                                        |                                            |          | 608     |        |      |         | 103      |         |   |          | 2,959    |        
|                                                                                  | Advances to unconsolidated affiliates                                                                                                  |                                            |          | (10,328 | )      |      |         |         |         |   |          |         |        
|                                                                                  | Payment from ESOP, net                                                                                                                 |                                            |          |        |        |      |         |         |         |   |          | 2,857    |        
|                                                                                  | Other                                                                                                                                  |                                            |          |        |        |      |         |         |         |   |          | (2       | )      
|                                                                                  |                                                                                                                                        |                                            |          |         |        |      |         |          |         |   |          |         
|Net cash (used in) provided by investing
    activities                           |                                                                                                                                        |                                            | (152,346 | )       |        |      | (16,356 | )        |         |   | 270,442  |         
|Financing activities:                                                             |                                                                                                                                        |                                            |          |         |        |      |         |          |         |   |          |         
|                                                                                  | (Decrease) increase in lines of credit, net                                                                                            |                                            |          |        |        |      |         | (44      | )       |   |          | 33       |        
|                                                                                  | Proceeds from issuance of debt                                                                                                         |                                            |          |        |        |      |         |         |         |   |          | 11,183   |        
|                                                                                  | Repayment of debt                                                                                                                      |                                            |          | (2,487  | )      |      |         | (3,263   | )       |   |          | (151,653 | )      
|                                                                                  | Principal payments on capital lease obligations                                                                                        |                                            |          | (12,987 | )      |      |         | (10,618  | )       |   |          | (14,419  | )      
|                                                                                  | Issuance of common stock                                                                                                               |                                            |          | 9,641   |        |      |         | 48,439   |         |   |          | 21,748   |        
|                                                                                  | Repurchase of common stock                                                                                                             |                                            |          | (27,024 | )      |      |         | (22,694  | )       |   |          | (21,883  | )      
|                                                                                  | Dividend from discontinued operation                                                                                                   |                                            |          |        |        |      |         |         |         |   |          | 17,086   |        
|                                                                                  |                                                                                                                                        |                                            |          |         |        |      |         |          |         |   |          |         
|Net cash (used in) provided by financing
    activities                           |                                                                                                                                        |                                            | (32,857  | )       |        |      | 11,820  |          |         |   | (137,905 | )       
|Effect of foreign currency exchange rate changes
    on cash                      |                                                                                                                                        |                                            | 17,932   |         |        |      | (7,971  | )        |         |   | (4,490   | )       
|                                                                                  |                                                                                                                                        |                                            |          |         |        |      |         |          |         |   |          |         
|Increase in cash and cash equivalents                                             |                                                                                                                                        |                                            | 79,221   |         |        |      | 234,849 |          |         |   | 138,561  |         
|Cash and cash equivalents at beginning of year                                    |                                                                                                                                        |                                            | 565,063  |         |        |      | 330,214 |          |         |   | 191,653  |         
|                                                                                  |                                                                                                                                        |                                            |          |         |        |      |         |          |         |   |          |         
|Cash and cash equivalents at end of year                                          |                                                                                                                                        | $                                          | 644,284  |         |        | $    | 565,063 |          |         | $ | 330,214  |         
|                                                                                  |                                                                                                                                        |                                            |          |         |        |      |         |          |         |   |          |         
|Supplemental Cash Flow Information:                                               |                                                                                                                                        |                                            |          |         |        |      |         |          |         |   |          |         
|                                                                                  | Interest paid                                                                                                                          |                                            | $        | 2,633   |        |      | $       | 2,724    |         |   | $        | 5,435    |        
|                                                                                  | Income taxes paid (refunded), net                                                                                                      |                                            |          | 19,466  |        |      |         | (56,243  | )       |   |          | 64,451   |        
|Non-cash Investing and Financing Activities:                                      |                                                                                                                                        |                                            |          |         |        |      |         |          |         |   |          |         
|                                                                                  | Acquisition of property and equipment utilizing
    capital leases                                                                     |                                            |          | 9,903   |        |      |         | 14,578   |         |   |          | 12,948   |        
|                                                                                  | Equity impact of mergers, acquisitions and
    dispositions                                                                            |                                            |          |        |        |      |         | (20,952  | )       |   |          | 82,557   |        
|                                                                                  | Transfer of assets to joint venture                                                                                                    |                                            |          | 112,136 |        |      |         |         |         |   |          |         |        
|                                                                                  | Marketable equity securities received from sale
    of discontinued operation                                                          |                                            |          |        |        |      |         |         |         |   |          | 447,353  |        
|                                                                                  | Unrealized gain (loss) on marketable
    securities, net of income tax                                                                 |                                            | $        | 6,026   |        |      | $       | (124,182 | )       |   | $        | (69,619  | )      

The accompanying notes are an integral part of
these consolidated statements.



48  Quintiles
Transnational 2002 Annual Report




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

|                                                                  |                                                          |                                                          |         |          |          |               |         |           |         |        |         |            |          |                |   |       |   |   |       |   |   |   |         |   |   |   |        |   |   |   |           |         |          |  
|----------------------------------------------------------------- | -------------------------------------------------------- | -------------------------------------------------------- | ------- | -------- | -------- | ------------- | ------- | --------- | ------- | ------ | ------- | ---------- | -------- | -------------- | - | ----- | - | - | ----- | - | - | - | ------- | - | - | - | ------ | - | - | - | --------- | ------- | -------- | -
|                                                                  |                                                          |                                                          |         |          |          |               |         |           |         |        |         |            |          | Employee Stock |   |      
|                                                                  |                                                          |                                                          |         |          |          | Accumulated   |         |           |         |        |         |            |          | Ownership Plan |   |      
|                                                                  |                                                          |                                                          |         |          |          | Other         |         |           |         |        |         | Additional |          | Loan           |   |      
|                                                                  |                                                          | Comprehensive                                            |         | Retained |          | Comprehensive |         | Preferred |         | Common |         | Paid-In    |          | Guarantee &    |   |      
|                                                                  |                                                          | Income                                                   |         | Earnings |          | Income (Loss) |         | Stock     |         | Stock  |         | Capital    |          | Other          |   | Total
|                                                                  |                                                          |                                                          |         |          |          |               |         |           |         |        |         |            |          |                |   |      
|                                                                  |                                                          |                                                         
|                                                                  |                                                          | (in thousands, except share data)                       
|Balance, December 31, 1999 (115,118,347
    shares)               |                                                          |                                                          |         |          |          | $             | 204,062 |           |         | $      | 1,677   |            |          | $              |  |       |   | $ | 1,149 |   |   | $ | 787,098 |   |   | $ | (2,227 | ) |   | $ | 991,759   |        
|Issuance of common stock (2,180,335 shares)                       |                                                          |                                                          |         |          |          |               |        |           |         |        |        |            |          |                |  |       |   |   | 22    |   |   |   | 21,018  |   |   |   |       |   |   |   | 21,040    |        
|Repurchase of common stock (1,365,500 shares)                     |                                                          |                                                          |         |          |          |               |        |           |         |        |        |            |          |                |  |       |   |   | (13   | ) |   |   | (21,870 | ) |   |   |       |   |   |   | (21,883   | )      
|Issuance of stock warrants                                        |                                                          |                                                          |         |          |          |               |        |           |         |        |        |            |          |                |  |       |   |   |      |   |   |   | 32,300  |   |   |   |       |   |   |   | 32,300    |        
|Issuance of put option                                            |                                                          |                                                          |         |          |          |               |        |           |         |        |        |            |          |                |  |       |   |   |      |   |   |   | 925     |   |   |   |       |   |   |   | 925       |        
|Stock option charge in ENVOY sale                                 |                                                          |                                                          |         |          |          |               |        |           |         |        |        |            |          |                |  |       |   |   |      |   |   |   | 50,040  |   |   |   |       |   |   |   | 50,040    |        
|Principal payments on ESOP loan                                   |                                                          |                                                          |         |          |          |               |        |           |         |        |        |            |          |                |  |       |   |   |      |   |   |   |        |   |   |   | 1,214  |   |   |   | 1,214     |        
|Tax benefit from the exercise of non- qualified
    stock options |                                                          |                                                          |         |          |          |               |        |           |         |        |        |            |          |                |  |       |   |   |      |   |   |   | 6,752   |   |   |   |       |   |   |   | 6,752     |        
|Other equity transactions                                         |                                                          |                                                          |         |          |          |               |        |           |         |        |        |            |          |                |  |       |   |   |      |   |   |   | (1,014  | ) |   |   | 1,013  |   |   |   | (1        | )      
|Comprehensive income:                                             |                                                          |                                                          |         |          |          |               |         |           |         |        |         |            |          |                |   |       |   |   |       |   |   |   |         |   |   |   |        |   |   |   |           |        
|                                                                  | Net income                                               |                                                          | $       | 418,923  |          |               |         | 418,923   |         |        |         |           |          |                |   |      |   |   |       |  |   |   |         |  |   |   |        |  |   |   |           | 418,923 |         
|                                                                  | Unrealized loss on marketable securities, net of
    tax |                                                          |         | (69,619  | )        |               |         |          |         |        |         | (69,619    | )        |                |   |      |   |   |       |  |   |   |         |  |   |   |        |  |   |   |           | (69,619 | )       
|                                                                  | Foreign currency adjustments                             |                                                          |         | (26,744  | )        |               |         |          |         |        |         | (26,744    | )        |                |   |      |   |   |       |  |   |   |         |  |   |   |        |  |   |   |           | (26,744 | )       
|                                                                  |                                                          |                                                          |         |          |          |               |         |           |         |        |         |            |          |                |   |       |   |   |       |   |   |   |         |   |   |   |        |   |   |   |           |        
|Comprehensive income for year ended
    December 31, 2000         |                                                          |                                                          | 322,560 |          |          |               |         |           |         |        |         |            |          |                |   |       |   |   |       |   |   |   |         |   |   |   |        |   |   |   |           |        
|                                                                  |                                                          |                                                          |         |          |          |               |         |           |         |        |         |            |          |                |   |       |   |   |       |   |   |   |         |   |   |   |        |   |   |   |           |        
|Balance, December 31, 2000 (115,933,182
    shares)               |                                                          |                                                          |         |          |          |               | 622,985 |           |         |        | (94,686 | )          |          |                |  |       |   |   | 1,158 |   |   |   | 875,249 |   |   |   |       |   |   |   | 1,404,706 |        
|Issuance of common stock (4,392,987 shares)                       |                                                          |                                                          |         |          |          |               |        |           |         |        |        |            |          |                |  |       |   |   | 46    |   |   |   | 48,393  |   |   |   |       |   |   |   | 48,439    |        
|Repurchase of common stock (1,702,500 shares)                     |                                                          |                                                          |         |          |          |               |        |           |         |        |        |            |          |                |  |       |   |   | (14   | ) |   |   | (22,680 | ) |   |   |       |   |   |   | (22,694   | )      
|Cancellation of stock warrants                                    |                                                          |                                                          |         |          |          |               |        |           |         |        |        |            |          |                |  |       |   |   |      |   |   |   | (20,000 | ) |   |   |       |   |   |   | (20,000   | )      
|Tax benefit from the exercise of non- qualified
    stock options |                                                          |                                                          |         |          |          |               |        |           |         |        |        |            |          |                |  |       |   |   |      |   |   |   | 15,871  |   |   |   |       |   |   |   | 15,871    |        
|Other equity transactions                                         |                                                          |                                                          |         |          |          |               |        |           |         |        |        |            |          |                |  |       |   |   |      |   |   |   | (948    | ) |   |   |       |   |   |   | (948      | )      
|Comprehensive income:                                             |                                                          |                                                          |         |          |          |               |         |           |         |        |         |            |          |                |   |       |   |   |       |   |   |   |         |   |   |   |        |   |   |   |           |        
|                                                                  |                                                          | Net loss                                                 |         |          | (33,843  | )             |         |           | (33,843 | )      |         |            |         |                |   |       |  |   |       |   |  |   |         |   |  |   |        |   |  |   |           |         | (33,843  | )
|                                                                  |                                                          | Unrealized loss on marketable securities, net of
    tax |         |          | (124,182 | )             |         |           |        |        |         |            | (124,182 | )              |   |       |  |   |       |   |  |   |         |   |  |   |        |   |  |   |           |         | (124,182 | )
|                                                                  |                                                          | Reclassification adjustment, net of tax                  |         |          | 206,151  |               |         |           |        |        |         |            | 206,151  |                |   |       |  |   |       |   |  |   |         |   |  |   |        |   |  |   |           |         | 206,151  |  
|                                                                  |                                                          | Foreign currency adjustments                             |         |          | (18,412  | )             |         |           |        |        |         |            | (18,412  | )              |   |       |  |   |       |   |  |   |         |   |  |   |        |   |  |   |           |         | (18,412  | )
|                                                                  |                                                          |                                                          |         |          |          |               |         |           |         |        |         |            |          |                |   |       |   |   |       |   |   |   |         |   |   |   |        |   |   |   |           |        
|Comprehensive income for year ended
    December 31, 2001         |                                                          |                                                          | 29,714  |          |          |               |         |           |         |        |         |            |          |                |   |       |   |   |       |   |   |   |         |   |   |   |        |   |   |   |           |        
|                                                                  |                                                          |                                                          |         |          |          |               |         |           |         |        |         |            |          |                |   |       |   |   |       |   |   |   |         |   |   |   |        |   |   |   |           |        
|Balance, December 31, 2001 (118,623,669
    shares)               |                                                          |                                                          |         |          |          |               | 589,142 |           |         |        | (31,129 | )          |          |                |  |       |   |   | 1,190 |   |   |   | 895,885 |   |   |   |       |   |   |   | 1,455,088 |        
|Issuance of common stock (796,928 shares)                         |                                                          |                                                          |         |          |          |               |        |           |         |        |        |            |          |                |  |       |   |   | 9     |   |   |   | 9,610   |   |   |   |       |   |   |   | 9,619     |        
|Repurchase of common stock (1,570,000 shares)                     |                                                          |                                                          |         |          |          |               |        |           |         |        |        |            |          |                |  |       |   |   | (19   | ) |   |   | (27,005 | ) |   |   |       |   |   |   | (27,024   | )      
|Tax benefit from the exercise of non- qualified
    stock options |                                                          |                                                          |         |          |          |               |        |           |         |        |        |            |          |                |  |       |   |   |      |   |   |   | 857     |   |   |   |       |   |   |   | 857       |        
|Other                                                             |                                                          |                                                          |         |          |          |               |        |           |         |        |        |            |          |                |  |       |   |   |      |   |   |   | 1,400   |   |   |   |       |   |   |   | 1,400     |        
|Comprehensive income:                                             |                                                          |                                                          |         |          |          |               |         |           |         |        |         |            |          |                |   |       |   |   |       |   |   |   |         |   |   |   |        |   |   |   |           |        
|                                                                  |                                                          | Net income                                               |         |          | 127,323  |               |         |           | 127,323 |        |         |            |         |                |   |       |  |   |       |   |  |   |         |   |  |   |        |   |  |   |           |         | 127,323  |  
|                                                                  |                                                          | Unrealized gain on marketable securities, net of
    tax |         |          | 6,026    |               |         |           |        |        |         |            | 6,026    |                |   |       |  |   |       |   |  |   |         |   |  |   |        |   |  |   |           |         | 6,026    |  
|                                                                  |                                                          | Reclassification adjustment, net of tax                  |         |          | (17,097  | )             |         |           |        |        |         |            | (17,097  | )              |   |       |  |   |       |   |  |   |         |   |  |   |        |   |  |   |           |         | (17,097  | )
|                                                                  |                                                          | Foreign currency adjustments                             |         |          | 42,194   |               |         |           |        |        |         |            | 42,194   |                |   |       |  |   |       |   |  |   |         |   |  |   |        |   |  |   |           |         | 42,194   |  
|                                                                  |                                                          |                                                          |         |          |          |               |         |           |         |        |         |            |          |                |   |       |   |   |       |   |   |   |         |   |   |   |        |   |   |   |           |        
|Comprehensive income for year ended
    December 31, 2002         |                                                          | $                                                        | 158,446 |          |          |               |         |           |         |        |         |            |          |                |   |       |   |   |       |   |   |   |         |   |   |   |        |   |   |   |           |        
|                                                                  |                                                          |                                                          |         |          |          |               |         |           |         |        |         |            |          |                |   |       |   |   |       |   |   |   |         |   |   |   |        |   |   |   |           |        
|Balance, December 31, 2002 (117,850,597
    shares)               |                                                          |                                                          |         |          |          | $             | 716,465 |           |         | $      | (6      | )          |          | $              |  |       |   | $ | 1,180 |   |   | $ | 880,747 |   |   | $ |       |   |   | $ | 1,598,386 |        
|                                                                  |                                                          |                                                          |         |          |          |               |         |           |         |        |         |            |          |                |   |       |   |   |       |   |   |   |         |   |   |   |        |   |   |   |           |        

The accompanying notes are an integral part of
these consolidated statements.



Quintiles Transnational 2002 Annual
Report  49




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1.     Summary of
Significant Accounting Policies



| |            
| | -----------
| | The Company

Quintiles Transnational Corp. (the
Company) helps improve healthcare worldwide by
providing a broad range of professional services, information
and partnering solutions to the pharmaceutical, biotechnology
and healthcare industries.



| |                            
| | ---------------------------
| | Principles of Consolidation

The accompanying consolidated financial
statements include the accounts and operations of the Company
and its subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation.



| |                 
| | ----------------
| | Use of Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results
could differ from those estimates.



| |                   
| | ------------------
| | Foreign Currencies

Assets and liabilities recorded in foreign
currencies on the books of foreign subsidiaries are translated
at the exchange rate on the balance sheet date. Revenues, costs
and expenses are recorded at average rates of exchange during
the year. Translation adjustments resulting from this process
are charged or credited to equity. Gains and losses on foreign
currency transactions are included in other
(income) expense.



| |                         
| | ------------------------
| | Foreign Currency Hedging

The Company may use foreign exchange contracts
and options to hedge the risk of changes in foreign currency
exchange rates associated with contracts in which the expenses
for providing services are incurred in one currency and paid for
by the customer in another currency. There were no open foreign
exchange contracts or options relating to service contracts at
December 31, 2002 or 2001.



| |                                     
| | ------------------------------------
| | Cash Equivalents and
    Investments

The Company considers all highly liquid
investments with an initial maturity of three months or less
when purchased to be cash equivalents. The Company does not
report in the accompanying balance sheets cash held for
customers for investigator payments in the amount of $712,000
and $3.5 million at December 31, 2002 and 2001,
respectively, that pursuant to agreements with these customers,
remains the property of the customers.

The Companys investments in debt securities
are classified as either held-to-maturity or available-for-sale.
Investments classified as held-to-maturity are recorded at
amortized cost. Investments classified as available-for-sale are
measured at market value and net unrealized gains and losses are
recorded as a component of shareholders equity until
realized. Any gains or losses on sales of debt investments are
computed by specific identification.

Investments in marketable equity securities are
classified as available-for-sale and measured at market value
with net unrealized gains and losses recorded as a component of
shareholders equity until realized. The market value is
based on the closing price as quoted by the respective stock
exchange or Nasdaq. In addition, the Company has investments in
equity securities of and advances



50  Quintiles
Transnational 2002 Annual Report




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

to companies for which there are not readily
available market values and for which the Company does not
exercise significant influence or control; such investments are
accounted for using the cost method. Any gains or losses from
the sales of investments or an other than temporary decline in
fair value are computed by specific identification.



| |            
| | -----------
| | Derivatives

From time to time the Company may use derivative
instruments to manage exposures to equity prices and interest
rates. The Company also holds freestanding warrants and other
embedded derivatives (conversion options in financing
arrangements). Derivatives meeting the criteria established by
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, as amended by SFAS No. 138,
are recorded in the balance sheet at fair value at each balance
sheet date. When the derivative instrument is entered into, the
Company designates whether or not the derivative instrument is
an effective hedge of an asset, liability or firm commitment
which is then classified as either a cash flow hedge or a fair
value hedge. If determined to be an effective cash flow hedge,
changes in the fair value of the derivative instrument are
recorded as a component of accumulated other comprehensive loss
until realized. Changes in fair value of effective fair value
hedges are recorded in earnings as an offset to the changes in
the fair value of the related hedge item. Changes in the fair
values of derivative instruments that are not an effective hedge
are recognized in earnings. The Company has, and may in the
future, enter into derivative contracts (calls or puts, for
example) related to its investments in marketable equity
securities. While these contracts do not qualify for hedge
accounting, the Company utilizes these transactions to mitigate
its economic exposure to market price fluctuations.



| |                                          
| | -----------------------------------------
| | Unbilled Services and Unearned
    Income

In general, prerequisites for billings and
payments are established by contractual provisions including
predetermined payment schedules, submission of appropriate
billing detail or the achievement of contract milestones,
depending on the type of contract. Unbilled services arise when
services have been rendered but customers have not been billed.
Similarly, unearned income represents prebillings for services
that have not yet been rendered.



| |                  
| | -----------------
| | Long-Lived Assets

Property and equipment are carried at historical
cost and are depreciated using the straight-line method over the
shorter of the assets estimated useful life or the lease
term as follows:

|                                     |  |             
|------------------------------------ |  | ------------
|Buildings and leasehold improvements |  | 3  50 years
|Equipment                            |  | 3  10 years
|Furniture and fixtures               |  | 5  10 years
|Motor vehicles                       |  | 3  5 years 

Prior to 2002, the excess cost over the fair
value of net assets acquired (goodwill) had been
amortized on a straight-line basis over periods from five to
40 years. Effective January 1, 2002, the Company
adopted SFAS No. 142 and no longer amortizes
indefinite-lived intangible assets but reviews these assets at
least annually for impairment.

In conjunction with the adoption of SFAS
No. 142, the Company has reclassified capitalized software
and related accumulated amortization to other identifiable
intangible assets from property and equipment for all periods
presented. Identifiable intangible assets consist primarily of
software, which are amortized over the estimated useful life
ranging from three to five years. Product licensing and
distribution rights are amortized ratably, based on estimated
cash flows, over the life of the rights period ranging from five
to 15 years.



Quintiles Transnational 2002 Annual
Report  51




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The carrying values of property, equipment and
intangible assets are reviewed if the facts and circumstances
suggest that a potential impairment may have occurred. If this
review indicates that carrying values will not be recoverable,
as determined based on undiscounted cash flows over the
remaining depreciation and amortization period, the Company will
reduce carrying values to estimated fair value.



| |                    
| | -------------------
| | Revenue Recognition

Many of the Companys contracts for services
are fixed price, with some variable components, and range in
duration from a few months to several years. The Company is also
party to fee-for-service and unit-of-service contracts. The
Company recognizes net revenue primarily based upon
(1) percentage of completion (utilizing input or output
measures as appropriate) for fixed price contracts,
(2) contractual per diem or hourly rate basis as work is
performed under fee-for-service contracts or (3) completion
of units of service for unit-of-service contracts.

The Companys contracts for clinical
research services provide for price renegotiation upon scope of
work changes. The Company recognizes revenue related to these
scope changes when the underlying services are performed
according to a binding commitment. Most contracts are terminable
upon 15  90 days notice by the customer. In the
event of termination, contracts typically require payment for
services rendered through the date of termination, as well as
for subsequent services rendered to close out the contract. Any
anticipated losses resulting from contract performance are
charged to earnings in the period identified.

The Company has entered into agreements with
various customers, with which the Company may have service
agreements, whereby the Company provides services and may also
fund certain activities of the customers in return for product
or royalty rights that provide for future cash payments to the
Company based on the achievement of certain sales levels of the
product. Certain of these contracts provide for minimum
guaranteed payments to the Company. The Company accounts for the
multiple elements of such arrangements as a single contract, as
there is not sufficient evidence of fair value to separate the
service, funding and royalty elements of these contracts. For
these contracts, the Company recognizes revenue over the related
service period based on the net present value of the fixed and
determinable net cash flows over the term of the agreement. As
revenues are recognized and payments are exchanged between the
Company and the counter-party an asset is recorded representing
the obligation owed to the Company by the counter-party.
Milestone payments paid to the counter-party are amortized
ratably over the service period. This amortization is recorded
as a reduction of revenue. Interest is imputed on the related
asset and recorded as interest income as the contract
progresses. The related asset balance will be fully realized
when the Company has received the guaranteed minimum level of
cash flows. Revenues in excess of contractual minimum amounts
are recognized as earned.

Product revenues are recognized upon shipment
when title passes to the customer, net of allowances for
estimated returns, rebates and discounts. The Company is
obligated to accept from customers the return of products that
are nearing or have reached their expiration date. The Company
monitors product ordering cycles, actual returns and analyzes
wholesale inventory levels to estimate potential product return
rates. When the Company lacks a sufficient historical basis to
estimate return rates, the Company recognizes revenues and the
related cost of revenues when end-user prescription data is
received from third-party data providers.

The Company, through its PharmaBio Development
group, has entered into financial arrangements with various
customers and other parties in which the Company provides
funding in the form of an equity investment in marketable
securities, non-marketable securities or loans. Gains and losses
from the sale of equity securities and impairments from other
than temporary declines in the fair values of these strategic
investments are included in the Companys gross revenues.



52  Quintiles
Transnational 2002 Annual Report




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                             
| | ----------------------------
| | Concentration of Credit Risk

Substantially all revenue for the product
development and commercial services groups are earned by
performing services under contracts with various pharmaceutical,
biotechnology, medical device and healthcare companies. The
concentration of credit risk is equal to the outstanding
accounts receivable and unbilled services balances, less the
unearned income related thereto, and such risk is subject to the
financial and industry conditions of the Companys
customers. The Company does not require collateral or other
securities to support customer receivables. Credit losses have
been immaterial and reasonably within managements
expectations. One customer accounted for approximately 11.3%,
10.8% and 10.2% of consolidated net service revenue in 2002,
2001 and 2000, respectively. These revenues were derived from
the Companys product development, commercial services and
informatics segments.



| |                                   
| | ----------------------------------
| | Research and Development
    Costs

Research and development costs relating
principally to new software applications and computer technology
are charged to expense as incurred. These expenses totaled
$2.1 million, $18.1 million and $29.0 million in
2002, 2001 and 2000, respectively.



| |             
| | ------------
| | Income Taxes

Income tax expense includes U.S., state and
international income taxes. Certain items of income and expense
are not reported in income tax returns and financial statements
in the same year. The income tax effects of these differences
are reported as deferred income taxes. Income tax credits are
accounted for as a reduction of income tax expense in the year
in which the credits reduce income taxes payable. Valuation
allowances are provided to reduce the related deferred income
tax assets to an amount which will, more likely than not, be
realized.



| |                     
| | --------------------
| | Net Income Per Share

The Company determines basic net income per share
by dividing net income by the weighted average number of common
shares outstanding during each year. Diluted net income per
share reflects the assumed conversion or exercise of all
convertible securities and issued and unexercised stock options,
unless the effects would be anti-dilutive to results from
continuing operations. A reconciliation of the number of shares
used in computing basic and diluted net income per share is in
Note 23.



| |                            
| | ---------------------------
| | Employee Stock Compensation

The Company has elected to follow Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25) and related
interpretations in accounting for its employee stock options
because the alternative fair value accounting provided for under
SFAS No. 123, Accounting for Stock-Based
Compensation, as amended by SFAS No. 148, requires
use of option valuation models that were not developed for use
in valuing employee stock options. Under APB 25, because
the exercise price of the Companys employee stock options
equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.

Pro forma information regarding net income and
net income per share is required by SFAS No. 123, as amended by
SFAS No. 148, and has been determined as if the Company had
accounted for its employee stock options under the fair value
method of SFAS No. 123. The per share weighted-average fair
value of stock options granted during 2002, 2001 and 2000 was
$3.72, $5.57 and



Quintiles Transnational 2002 Annual
Report  53




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

$4.93 per share, respectively, on the date of
grant using the Black-Scholes option pricing model with the
following weighted-average assumptions:

|                                      |  |                        |      |                |  |      |      |      |  |      |      |      |  |  |      |   |  |  |      |   |  |  |      |  
|------------------------------------- |  | ---------------------- | ---- | -------------- |  | ---- | ---- | ---- |  | ---- | ---- | ---- |  |  | ---- | - |  |  | ---- | - |  |  | ---- | -
|                                      |  |                        |      |                |  |      |      |     
|                                      |  |                        |      | Employee Stock
|                                      |  | Employee Stock Options |      | Purchase Plan 
|                                      |  |                        |      |               
|                                      |  | 2002                   |      | 2001           |  | 2000 |      | 2002 |  | 2001 |      | 2000
|                                      |  |                        |      |                |  |      |      |      |  |      |      |     
|Expected dividend yield               |  |                        | 0    | %              |  |      | 0    | %    |  |      | 0    | %    |  |  | 0    | % |  |  | 0    | % |  |  | 0    | %
|Risk-free interest rate               |  |                        | 2.1  | %              |  |      | 5.0  | %    |  |      | 5.1  | %    |  |  | 1.7  | % |  |  | 3.9  | % |  |  | 5.9  | %
|Expected volatility                   |  |                        | 40.0 | %              |  |      | 40.0 | %    |  |      | 40.0 | %    |  |  | 40.0 | % |  |  | 40.0 | % |  |  | 40.0 | %
|Expected life (in years from vesting) |  |                        | 0.85 |                |  |      | 0.83 |      |  |      | 0.86 |      |  |  | 0.25 |   |  |  | 0.25 |   |  |  | 0.25 |  

The Black-Scholes option pricing model was
developed for use in estimating the fair value of traded options
that have no vesting restrictions and are freely transferable.
All available option pricing models require the input of highly
subjective assumptions including the expected stock price
volatility. Because the Companys employee stock options
have characteristics significantly different from those of
traded options and changes in the subjective input assumptions
can materially affect the fair value estimate, in
managements opinion, the existing models do not provide a
reliable single measure of the fair value of its employee stock
options.

The Companys pro forma information (which
includes pro forma stock compensation expense before income
taxes related to discontinued operation of approximately
$1.5 million in 2000) follows (in thousands, except for net
income (loss) per share information):

|                                                                               |                                |                         |         |       |   |      |         |       |   |   |         |       |  
|------------------------------------------------------------------------------ | ------------------------------ | ----------------------- | ------- | ----- | - | ---- | ------- | ----- | - | - | ------- | ----- | -
|                                                                               |                                |                        
|                                                                               |                                | Year Ended December 31,
|                                                                               |                                |                        
|                                                                               |                                | 2002                    |         | 2001  |   | 2000
|                                                                               |                                |                         |         |       |   |     
|Net income (loss), as reported                                                 |                                | $                       | 127,323 |       |   | $    | (33,843 | )     |   | $ | 418,923 |      
|Less: pro forma adjustment for stock-based
    compensation, net of income tax |                                |                         | (15,957 | )     |   |      | (25,556 | )     |   |   | (37,719 | )    
|                                                                               |                                |                         |         |       |   |      |         |       |   |   |         |      
|Pro forma net income (loss)                                                    |                                | $                       | 111,366 |       |   | $    | (59,399 | )     |   | $ | 381,204 |      
|                                                                               |                                |                         |         |       |   |      |         |       |   |   |         |      
|Basic net income (loss) per share:                                             |                                |                         |         |       |   |      |         |       |   |   |         |      
|                                                                               | As reported                    |                         | $       | 1.08  |   |      | $       | (0.29 | ) |   | $       | 3.61  |  
|                                                                               | Pro forma                      |                         |         | 0.94  |   |      |         | (0.50 | ) |   |         | 3.29  |  
|                                                                               |                                |                         |         |       |   |      |         |       |   |   |         |      
|                                                                               | Effect of pro forma adjustment |                         | $       | (0.14 | ) |      | $       | (0.22 | ) |   | $       | (0.33 | )
|                                                                               |                                |                         |         |       |   |      |         |       |   |   |         |      
|Diluted pro forma net income (loss) per
    share:                             |                                |                         |         |       |   |      |         |       |   |   |         |      
|                                                                               | As reported                    |                         | $       | 1.07  |   |      | $       | (0.29 | ) |   | $       | 3.61  |  
|                                                                               | Pro forma                      |                         |         | 0.94  |   |      |         | (0.50 | ) |   |         | 3.29  |  
|                                                                               |                                |                         |         |       |   |      |         |       |   |   |         |      
|                                                                               | Effect of pro forma adjustment |                         | $       | (0.13 | ) |      | $       | (0.22 | ) |   | $       | (0.33 | )
|                                                                               |                                |                         |         |       |   |      |         |       |   |   |         |      



| |                     
| | --------------------
| | Comprehensive Income

The Company includes foreign currency translation
adjustments and unrealized gains and losses on the
available-for-sale securities in other comprehensive income.
Accumulated other comprehensive loss at December 31, 2002
was $6,000 which consisted of ($18.4) million in foreign
currency translation adjustments and $18.4 million in
unrealized gains on available-for-sale securities. During 2002
and 2001, the Company reclassified ($17.1) million and
$206.1 million, respectively, of net holding
(gains) losses to revenues as the related securities were
sold or deemed to be impaired.



54  Quintiles
Transnational 2002 Annual Report




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                          
| | -----------------------------------------
| | Recently Adopted Accounting
    Standards

In October 2001, the Financial Accounting
Standards Board (FASB) issued SFAS No. 144,
Accounting for the Impairment on Disposal of Long-Lived
Assets. This statement supersedes SFAS No. 121,
Accounting for Long-Lived Assets to Be Disposed of
and the accounting and reporting provisions of APB Opinion
No. 30, Reporting the Results of
Operations  Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions. The
Company adopted SFAS No. 144 as required to do so on
January 1, 2002. The adoption of SFAS No. 144 did not
have a material impact on the Companys results of
operations and/or financial position.



| |                                         
| | ----------------------------------------
| | Recently Issued Accounting
    Standards

In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities, requiring companies to record certain exit
costs activities when legally obligated instead of when an exit
plan is adopted. The provisions of SFAS No. 146 are
effective for exit or disposal activities that are initiated
after December 31, 2002; therefore, the adoption of SFAS
No. 146 is not anticipated to have an effect on the
Companys results of operations and/or financial position.

In January 2003, the Emerging Issues Task Force
published EITF Issue 00-21, Revenue Arrangements with
Multiple Deliverables, which requires companies to
determine whether an arrangement involving multiple deliverables
contains more than one unit of accounting. In applying EITF
Issue 00-21, revenue arrangements with multiple deliverables
should be divided into separate units of accounting if the
deliverables in the arrangement meet certain criteria.
Arrangement consideration should be allocated among the separate
units of accounting based on their relative fair values. This
issue is effective for revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. The Company
is currently evaluating the impact the adoption of this issue
will have on its results of operations and/or financial position.



|   |                                            
|-- | -------------------------------------------
|2. | Revisions to Prior Financial
    Statements

Certain amounts in the 2001 and 2000 financial
statements have been reclassified to conform with the 2002
financial statement presentation. These reclassifications had no
effect on previously reported net income (loss),
shareholders equity or net income (loss) per share.

The Company adopted EITF Issue 01-14 (EITF
01-14), Income Statement Characterization of
Reimbursements Received for Out-of-Pocket Expenses
Incurred, which required companies to report reimbursed
costs as part of gross revenues. As such, the Company
reclassified reimbursed service costs for 2002 and, to the
extent determinable, for 2001 and 2000. These reimbursed service
costs totaled $399.7 million, $263.4 million and
$210.6 million in 2002, 2001 and 2000, respectively.
However, it was impracticable to identify and reclassify certain
prior period commercialization reimbursed service costs and,
accordingly, historical results have not been restated for these
costs. These commercialization reimbursed service costs totaled
approximately $60.4 million for the year ended
December 31, 2002.



Quintiles Transnational 2002 Annual
Report  55




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                              
|-- | ---------------------------------------------
|3. | Accounts Receivable and Unbilled
    Services

Accounts receivable and unbilled services consist
of the following (in thousands):

|                                |                   |              |         |         |  |   |         |         | 
|------------------------------- | ----------------- | ------------ | ------- | ------- |  | - | ------- | ------- | 
|                                |                   |             
|                                |                   | December 31,
|                                |                   |             
|                                |                   | 2002         |         | 2001   
|                                |                   |              |         |        
|Trade:                          |                   |              |         |         |  |   |         |        
|                                | Billed            |              | $       | 240,295 |  |   | $       | 271,706 | 
|                                | Unbilled services |              |         | 118,501 |  |   |         | 166,712 | 
|                                |                   |              |         |         |  |   |         |        
|                                |                   |              | 358,796 |         |  |   | 438,418 |        
|Allowance for doubtful accounts |                   |              | (5,261  | )       |  |   | (11,464 | )      
|                                |                   |              |         |         |  |   |         |        
|                                |                   | $            | 353,535 |         |  | $ | 426,954 |        
|                                |                   |              |         |         |  |   |         |        

The decrease in allowance for doubtful accounts
is the result of the write-offs of certain accounts receivables.

Substantially all of the Companys trade
accounts receivable and unbilled services are due from companies
in the pharmaceutical, biotechnology, medical device and
healthcare industries and are a result of contract research,
sales, marketing, healthcare consulting and health information
management services provided by the Company on a global basis.
The percentage of accounts receivable and unbilled services by
region is as follows:

|                   |                |                   |     |      |    |  |     |    |    | 
|------------------ | -------------- | ----------------- | --- | ---- | -- |  | --- | -- | -- | 
|                   |                |                  
|                   |                | December 31,     
|                   |                |                  
|Region             |                | 2002              |     | 2001
|                   |                |                   |     |     
|Americas:          |                |                   |     |      |    |  |     |   
|                   | United States  |                   |     | 40   | %  |  |     | 45 | % 
|                   | Other          |                   |     | 2    |    |  |     | 3  |   
|                   |                |                   |     |      |    |  |     |   
|                   |                | Americas          |     |      | 42 |  |     |    | 48 | 
|Europe and Africa: |                |                   |     |      |    |  |     |   
|                   | United Kingdom |                   |     | 35   |    |  |     | 33 |   
|                   | Other          |                   |     | 15   |    |  |     | 10 |   
|                   |                |                   |     |      |    |  |     |   
|                   |                | Europe and Africa |     |      | 50 |  |     |    | 43 | 
|Asia  Pacific     |                |                   | 8   |      |    |  | 9   |   
|                   |                |                   |     |      |    |  |     |   
|                   |                |                   | 100 | %    |    |  | 100 | % 
|                   |                |                   |     |      |    |  |     |   



|   |                                
|-- | -------------------------------
|4. | Commercial Rights and Royalties

The Company has entered into financial
transactions and other arrangements with customers and other
parties in which a portion of the Companys revenues and
operating income depends on the performance of a specific
pharmaceutical product. These transactions may include providing
product development and/or commercialization services to
customers, as well as the funding of such services, in return
for royalties or commissions based on the sales of the
customers product. Below is a brief description of these
agreements:

In May 1999, the Company entered into an
agreement with CV Therapeutics, Inc. (CVTX) to
commercialize Ranexa (formerly known as Ranolazine) for
angina in the United States and Canada. Under the terms of this
agreement, the Company purchased 1,043,705 shares of CVTXs
common stock for $5 million of which the Company owns
126,705 shares as of December 31, 2002, and has made
available a $10 million credit line for pre-launch sales
and marketing activities. If



56  Quintiles
Transnational 2002 Annual Report




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Ranexa, which has been submitted to the
United States Food and Drug Administration (FDA)
under a New Drug Application (NDA) for review, is
approved, the Company will provide a $10 million milestone
payment to CVTX which will be used to pay off any outstanding
balances on the credit line. The Company will also make
available an additional line of credit to help fund a portion of
the first year sales and marketing expenses. Additionally, the
Company has committed to provide a minimum of approximately
$14.4 million per year of commercialization services and to
fund a minimum of $7.8 million per year of marketing
activities, for a period of five years. In return it will
receive payment for services rendered by the Company in year one
and royalties based on the net sales of Ranexa in years
two through five subject to a cap not to exceed 300% of funding
by the Company in any year or over the life of the contract. In
addition, the Company will also receive royalties in years six
and seven.

In December 1999, the Company obtained the
distribution rights to market four pharmaceutical products in
the Philippines from a large pharmaceutical customer in exchange
for providing certain commercialization services amounting to
approximately $5.1 million during the two-year period ended
December 31, 2001. As of December 31, 2002, the
Company has capitalized 251.8 million philippino pesos
(approximately $4.6 million) related to the cost of
acquiring these commercial rights, and is amortizing these costs
over five years. Under the terms of the agreement, the customer
has the option to reacquire the rights to the four products from
the Company after seven years for a price to be determined at
the exercise date.

In January 2001, the Company entered into an
agreement with Scios Inc. (SCIO) to market
Natrecor® for acute congestive heart failure in the United
States and Canada. Under the terms of the agreement, the Company
agreed to provide $30 million in funding over a two and
one-half year period for sales and marketing activities
following product launch. The $30 million in payments are
included in the net present value calculation which serves as
the basis for revenue to be recognized over the service period.
As of December 31, 2002, $23.5 million has been paid by the
Company. The payments are reported in the accompanying statement
of cash flows as an investing activity  acquisition of
commercial rights. In addition to receiving payments on a fee
for service basis for providing commercialization services, the
Company will receive royalties based on net sales of the product
from 2002 through 2008. The royalty payments are subject to
minimum and maximum amounts of $50 million and
$65 million, respectively, over the life of the agreement.
The Company also received warrants to purchase 700,000 shares of
SCIOs common stock at $20 per share, exercisable in
installments over two and one-half years. During December 2002,
the Company agreed to permit SCIO to hire the sales force the
Company had previously provided under the contract effective
December 31, 2002 in return for (a) SCIO reimbursing
the Company for the operating profit that the Company would have
earned between that date and May 31, 2003, the date on
which SCIO would be permitted to hire the sales force under the
contract, and (b) advancing from May 31, 2003 to
December 31, 2002 the Companys ability to exercise
the remaining unexercisable warrants. The early settlement of
the Companys service obligation resulted in accelerating
the recognition of revenues of approximately $9.3 million
in the fourth quarter of 2002.

In June 2001, the Company entered into an
agreement with Pilot Therapeutics, Inc. (PLTT) to
commercialize a natural therapy for asthma, AIROZIN, in
the United States and Canada. Under the terms of the agreement,
the Company will provide commercialization services for
AIROZIN and a milestone-based $6 million line of
credit which is convertible into PLTTs common stock, of
which $4 million was funded by the Company as of
December 31, 2002. Further, based on achieving certain
milestones, the Company has committed to funding 50% of sales
and marketing activities for AIROZIN over five years with
a $6 million limit per year. Following product launch, the
Company will receive royalties based on the net sales of
AIROZIN. The royalty percentage will vary to allow the
Company to achieve a minimum rate of return.



Quintiles Transnational 2002 Annual
Report  57




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In December 2001, the Company entered into an
agreement with Discovery Laboratories, Inc. (DSCO)
to commercialize, in the United States, DSCOs humanized
lung surfactant, Surfaxin®, which is currently in Phase III
studies. Under the terms of the agreement, the Company acquired
791,905 shares of DSCOs common stock and a warrant to
purchase 357,143 shares of DSCOs common stock at $3.48 per
share for a total of $3 million, and has agreed to make
available a line of credit up to $10 million for pre-launch
commercialization services as certain milestones are achieved by
DSCO. As of December 31, 2002, the Company has made
$5.7 million available under the line of credit, of which
$1.4 million has been funded. In addition, the Company
receives warrants to purchase approximately 38,000 shares of
DSCO common stock at an exercise price of $3.03 per share for
each million dollars made available by the Company under the
line of credit as milestones are achieved. The Company has
agreed to fund the sales and marketing activities of this
product up to $10 million per year for seven years. In
return, the Company will receive commissions based on net sales
of Surfaxin® for meconium aspiration syndrome, infant
respiratory distress syndrome and all off-label uses
for 10 years. During November 2002, the Company purchased
an additional 266,246 shares of DSCO common stock along with
detachable warrants to purchase 119,811 shares of DSCO common
stock for $517,000.

In December 2001, the Company acquired the
license to market SkyePharmas SolarazeTM skin
treatment in the United States, Canada and Mexico for
14 years from Bioglan Pharma Plc for a total consideration
of $26.7 million. The Company will amortize the rights
ratably over 14 years. The Company has a commitment to pay
royalties to SkyePharma based on a percentage of net sales of
SolarazeTM. Pursuant to the license, the Company may
pursue additional indications for the compound, which will be
facilitated through the Companys ownership rights in the
SolarazeTM NDA and Investigational New Drug.

In January 2002, the Company entered into an
agreement with Kos Pharmaceuticals, Inc. (KOSP) to
commercialize, in the United States, KOSPs treatments for
cholesterol disorders, Advicor® and Niaspan®.
Advicor® was launched in January 2002 and Niaspan® is
also on the market. Under the terms of the agreement, the
Company will provide, at its own expense, a dedicated sales
force of 150 cardiovascular-trained representatives who, in
combination with KOSPs sales force of 300 representatives,
will commercialize Advicor® and Niaspan® for two
years. In return, the Company also received warrants to purchase
150,000 shares of KOSPs common stock at $32.79 per share,
exercisable in installments over two years. Further, the Company
will receive commissions based on net sales of the product from
2002 through 2006. The commission payments are subject to
minimum and maximum amounts of $45 million and
$75 million, respectively, over the life of the agreement.

In March 2002, the Company acquired certain
assets of Bioglan Pharma, Inc. for a total consideration of
approximately $27.9 million. The assets included
distribution rights to market ADOXATM in the United
States for nine years along with other products and product
rights that Bioglan Pharma, Inc., had previously marketed, as
well as approximately $1.6 million in cash. Under the
purchase method of accounting, the results of operations of
Bioglan Pharma, Inc. are included in the Companys results
of operations as of March 22, 2002 and the assets and
liabilities of Bioglan Pharma, Inc. were recorded at their
respective fair values. The acquisition did not have a material
impact on the financial position or results of operations for
the Company. The acquisition resulted in total intangible assets
of $29.3 million. The Company will amortize the intangible
assets ratably over the lives of these products. Under certain
of the contracts acquired, the Company has commitments to pay
royalties based on a percentage of net sales of the acquired
product rights.

During the second quarter of 2002, the Company
finalized the arrangements under its previously announced letter
of intent with a large pharmaceutical customer to market
pharmaceutical products in Belgium, Germany and Italy. The
Company will provide, at its own expense, sales and



58  Quintiles
Transnational 2002 Annual Report




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

marketing resources over the five-year life of
the agreement. As of December 31, 2002, the Company
estimates the cost of its minimum obligation over the remaining
contract life to be approximately $44 million, in return
for which the customer will pay the Company royalties on product
sales in excess of certain baselines. The total royalty is
comprised of a minimal royalty on the baseline sales targets for
these products plus a share of incremental net sales above these
baselines. Either party may cancel the contract at six-month
intervals in the event that sales are not above certain levels
specified. Revenues under these agreements will be recognized as
they are earned and costs expensed as incurred. Subsequent to
December 31, 2002, the Company exercised its rights to
terminate the contract in Germany. The termination reduces the
Companys minimum remaining obligation from
$44 million to $25 million.

In July 2002, the Company entered into an
agreement with Eli Lilly and Company (LLY) to
support LLY in its commercialization efforts for Cymbalta
in the United States. LLY has submitted a NDA for
Cymbalta, which is currently under review by the FDA for
the treatment of depression. Under the terms of the agreement,
the Company will provide, at its expense, more than 500 sales
representatives to supplement the extensive LLY sales force in
the promotion of Cymbalta for the five years following
product launch. The sales force will promote Cymbalta in
its primary, or P1, position within sales calls. During the
first three years LLY will pay for the remainder of the capacity
of this sales force, referred to as the P2 and P3 positions, on
a fee-for-service basis. The Company will make marketing and
milestone payments to LLY totaling $110 million of which
$70 million was paid in 2002 and the remaining $40 million
is due throughout the four quarters following FDA approval. The
$70 million in payments made by the Company is on an at-risk
basis, and is not refundable in the event the FDA does not grant
final approval for Cymbalta. However, if any such
non-approval occurs solely as a result of regulatory issues the
FDA cites with respect to LLYs manufacturing processes and
facilities, the Company will be entitled to recoup its
pre-approval outlays, plus interest at the prime rate plus five
percent, from a percentage of any revenues or royalties LLY
derives from the sales of Cymbalta by LLY or sublicense of
Cymbalta to third parties, if any. The $110 million in
payments will be capitalized and amortized ratably as a
reduction of revenue over the five-year service period. The
sales force costs will be expensed as incurred. The payments are
reported in the accompanying statement of cash flows as an
investing activity  acquisition of commercial rights.
In return for the P1 position for Cymbalta and the
marketing and milestone payments, LLY will pay to the Company
8.25% of U.S. Cymbalta sales for depression and other
neuroscience indications over the five year service period
followed by a 3% royalty over the subsequent three years. In
addition to the Companys obligations, LLY is obligated to
spend at specified levels. The Company or LLY has the ability to
cancel this agreement if Cymbalta is not approved by
January 31, 2005, in which case the Company would write-off
any payments made through that date, unless the FDA had failed
to grant approval for Cymbalta based on concerns over
LLYs manufacturing processes and facilities.

In July 2002, the Company entered into an
agreement with Columbia Laboratories, Inc. (COB) to
commercialize, in the United States, the following womens
health products: Prochieve 8%, Prochieve 4%,
Advantage-S® and RepHresh. Under the terms of the
agreement, the Company purchased 1,121,610 shares of COB common
stock for $5.5 million. The Company will also pay to COB
four quarterly payments of $1.125 million each commencing
in the third quarter of 2002 in exchange for royalties of 5% on
the sales of the four COBs womens healthcare
products in the United States for a five-year period beginning
in the first quarter of 2003. The Company has funded
$2.25 million as of December 31, 2002. The payments
are reported in the accompanying statement of cash flows as an
investing activity  acquisition of commercial rights.
The aggregate royalties are subject to a contractual minimum of
$8.0 million and a maximum of $12.0 million. In addition,
the Company will provide to COB, at COBs expense on a
fee-for-service basis, a sales force to commercialize the
products.



Quintiles Transnational 2002 Annual
Report  59




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In December 2002, the Company entered into an
agreement with a large pharmaceutical customer to market two
products in Belgium. Under the terms of an asset purchase
agreement, the Company will have the rights to one product in
Belgium in exchange for payments of 5.5 million euros
(approximately $5.7 million). The customer will continue to
manufacture the product through 2005. Under the terms of a
distribution agreement, the Company will have the rights to
market the other product in Belgium for a period of six years in
exchange for payments of 6.9 million euros (approximately
$7.2 million). The Company has funded 2.5 million
euros (approximately $2.6 million) as of December 31,
2002. The payments are reported in the accompanying statement of
cash flows as an investing activity  acquisition of
commercial rights. The customer will continue to manufacture the
product for the six years of the distribution agreement. The
Company has accrued approximately $10.0 million for the
remaining payments as of December 31, 2002.

The asset balances related to commercial rights
and royalty agreements as of December 31, 2002 and 2001
were as follows (in thousands):

|      |  |      |         |      |  |   |        | 
|----- |  | ---- | ------- | ---- |  | - | ------ | 
|      |  | 2002 |         | 2001
|      |  |      |         |     
|SCIO  |  | $    | 40,661  |      |  | $ | 10,000 | 
|KOSP  |  |      | 17,602  |      |  |   |       | 
|COB   |  |      | 3,273   |      |  |   |       | 
|LLY   |  |      | 70,000  |      |  |   |       | 
|      |  |      |         |      |  |   |        | 
|Total |  | $    | 131,536 |      |  | $ | 10,000 | 
|      |  |      |         |      |  |   |        | 

The Company has firm commitments under the above
arrangements to provide funding of approximately
$304.0 million in exchange for various commercial rights.
As of December 31, 2002, the Company has funded
approximately $209.2 million. Further, the Company has
additional future funding commitments that are contingent upon
satisfaction of certain milestones being met by the third party
such as receiving FDA approval, obtaining funding from
additional third parties, agreement of a marketing plan and
other similar milestones. Due to the uncertainty of the amounts
and timing, these contingent commitments are not included in the
firm commitment amounts. If all of these contingencies were
satisfied over approximately the same time period, the Company
estimates these commitments to be a minimum of approximately
$115-140 million per year for a period of five to six
years, subject to certain limitations and varying time periods.

Below is a summary of the remaining firm
commitments with pre-determined payment schedules under such
arrangements (in thousands):

|                                  |  |      |        |      |  |      |        |      |  |      |        |       |  |   |       |  |  |   |       |  |  |   |        | 
|--------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ----- |  | - | ----- |  |  | - | ----- |  |  | - | ------ | 
|                                  |  | 2003 |        | 2004 |  | 2005 |        | 2006 |  | 2007 |        | Total
|                                  |  |      |        |      |  |      |        |      |  |      |        |      
|Milestone payments                |  | $    | 8,710  |      |  | $    |       |      |  | $    |       |       |  | $ |      |  |  | $ |      |  |  | $ | 8,710  | 
|Sales force commitments           |  |      | 29,050 |      |  |      | 16,002 |      |  |      | 14,277 |       |  |   | 9,914 |  |  |   | 3,834 |  |  |   | 73,077 | 
|Licensing and distribution rights |  |      | 9,068  |      |  |      | 2,693  |      |  |      | 1,243  |       |  |   |      |  |  |   |      |  |  |   | 13,004 | 
|                                  |  |      |        |      |  |      |        |      |  |      |        |       |  |   |       |  |  |   |       |  |  |   |        | 
|                                  |  | $    | 46,828 |      |  | $    | 18,695 |      |  | $    | 15,520 |       |  | $ | 9,914 |  |  | $ | 3,834 |  |  | $ | 94,791 | 
|                                  |  |      |        |      |  |      |        |      |  |      |        |       |  |   |       |  |  |   |       |  |  |   |        | 



60  Quintiles
Transnational 2002 Annual Report




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                  
|-- | ---------------------------------
|5. | Investments  Debt
    Securities

The following is a summary as of
December 31, 2002 of held-to-maturity securities and
available-for-sale securities by contractual maturity where
applicable (in thousands):

|                               |                              |           |        |            |  |            |   |              |  |   |        |   |  |   |        |       | 
|------------------------------ | ---------------------------- | --------- | ------ | ---------- |  | ---------- | - | ------------ |  | - | ------ | - |  | - | ------ | ----- | 
|                               |                              |           |        | Gross      |  | Gross      |   |             
|                               |                              | Amortized |        | Unrealized |  | Unrealized |   |             
|                               |                              | Cost      |        | Gains      |  | Losses     |   | Market Value
|                               |                              |           |        |            |  |            |   |             
|Held-To-Maturity Securities:   |                              |           |        |            |  |            |   |              |  |   |        |   |  |   |        |      
|State Securities              |                              |           |        |            |  |            |   |              |  |   |        |   |  |   |        |      
|                               | Maturing in one year or less |           | $      | 576        |  |            | $ |             |  |   | $      |  |  |   | $      | 576   | 
|                               | Maturing in over five years  |           |        | 5,315      |  |            |   |             |  |   |        |  |  |   |        | 5,315 | 
|                               |                              |           |        |            |  |            |   |              |  |   |        |   |  |   |        |      
|                               |                              | $         | 5,891  |            |  | $          |  |              |  | $ |       |   |  | $ | 5,891  |      
|                               |                              |           |        |            |  |            |   |              |  |   |        |   |  |   |        |      
|Available-For-Sale Securities: |                              |           |        |            |  |            |   |              |  |   |        |   |  |   |        |      
|Money Funds                    |                              | $         | 27,186 |            |  |            |  |              |  |   | (544   | ) |  | $ | 26,642 |      
|Other                          |                              |           | 5,476  |            |  |            |  |              |  |   | (1,338 | ) |  |   | 4,138  |      
|                               |                              |           |        |            |  |            |   |              |  |   |        |   |  |   |        |      
|                               |                              | $         | 32,662 |            |  | $          |  |              |  | $ | (1,882 | ) |  | $ | 30,780 |      
|                               |                              |           |        |            |  |            |   |              |  |   |        |   |  |   |        |      

The following is a summary as of
December 31, 2001 of held-to-maturity securities and
available-for-sale securities by contractual maturity where
applicable (in thousands):

|                               |                              |           |        |            |  |            |   |              |  |   |      |   |  |   |        |       | 
|------------------------------ | ---------------------------- | --------- | ------ | ---------- |  | ---------- | - | ------------ |  | - | ---- | - |  | - | ------ | ----- | 
|                               |                              |           |        | Gross      |  | Gross      |   |             
|                               |                              | Amortized |        | Unrealized |  | Unrealized |   |             
|                               |                              | Cost      |        | Gains      |  | Losses     |   | Market Value
|                               |                              |           |        |            |  |            |   |             
|Held-To-Maturity Securities:   |                              |           |        |            |  |            |   |              |  |   |      |   |  |   |        |      
|State Securities              |                              |           |        |            |  |            |   |              |  |   |      |   |  |   |        |      
|                               | Maturing in one year or less |           | $      | 591        |  |            | $ |             |  |   | $    |  |  |   | $      | 591   | 
|                               | Maturing in over five years  |           |        | 6,016      |  |            |   |             |  |   |      |  |  |   |        | 6,016 | 
|                               |                              |           |        |            |  |            |   |              |  |   |      |   |  |   |        |      
|                               |                              | $         | 6,607  |            |  | $          |  |              |  | $ |     |   |  | $ | 6,607  |      
|                               |                              |           |        |            |  |            |   |              |  |   |      |   |  |   |        |      
|Available-For-Sale Securities: |                              |           |        |            |  |            |   |              |  |   |      |   |  |   |        |      
|Money Funds                    |                              | $         | 27,186 |            |  | $          |  |              |  | $ | (288 | ) |  | $ | 26,898 |      
|Other                          |                              |           | 3,494  |            |  |            |  |              |  |   |     |   |  |   | 3,494  |      
|                               |                              |           |        |            |  |            |   |              |  |   |      |   |  |   |        |      
|                               |                              | $         | 30,680 |            |  | $          |  |              |  | $ | (288 | ) |  | $ | 30,392 |      
|                               |                              |           |        |            |  |            |   |              |  |   |      |   |  |   |        |      

The net after-tax adjustment to unrealized
holding gains (losses) on available-for-sale debt
securities included as a separate component of
shareholders equity was ($1.0) million, $668,000 and
($18.4) million in 2002, 2001 and 2000, respectively.



Quintiles Transnational 2002 Annual
Report  61




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                               
|-- | ----------------------------------------------
|6. | Investments  Marketable Equity
    Securities

The Company has entered into financial
arrangements with various customers and other parties in which
the Company provides funding in the form of an equity
investment. The equity investments may be subject to certain
trading restrictions including lock-up agreements.
The Companys portfolio in such transactions as of
December 31, 2002 is as follows (in thousands except share
data):

|                                   |  |         |  |           |           |                |  |            |     |             |  |   |        |  |  |   |        | 
|---------------------------------- |  | ------- |  | --------- | --------- | -------------- |  | ---------- | --- | ----------- |  | - | ------ |  |  | - | ------ | 
|                                   |  |         |  |           |           | Estimated      |  |            |     |            
|                                   |  | Trading |  | Number of |           | Beneficial     |  |            |     | Fair Market
|Company                            |  | Symbol  |  | Shares    |           | Ownership %(1) |  | Cost Basis |     | Value      
|                                   |  |         |  |           |           |                |  |            |     |            
|Common Stock:                      |  |         |  |           |           |                |  |            |     |             |  |   |        |  |  |   |        | 
|Triangle Pharmaceuticals Inc.      |  | VIRS    |  |           | 3,775,000 |                |  |            | 4.9 | %           |  | $ | 15,029 |  |  | $ | 22,424 | 
|The Medicines Company              |  | MDCO    |  |           | 2,062,520 |                |  |            | 5.2 | %           |  |   | 8,992  |  |  |   | 33,042 | 
|CV Therapeutics, Inc.              |  | CVTX    |  |           | 126,705   |                |  |            | 0.5 | %           |  |   | 617    |  |  |   | 2,309  | 
|Columbia Laboratories, Inc.        |  | COB     |  |           | 1,121,610 |                |  |            | 3.2 | %           |  |   | 5,500  |  |  |   | 3,769  | 
|Other                              |  |         |  |           |           |                |  |            |     |             |  |   | 3,327  |  |  |   | 3,382  | 
|                                   |  |         |  |           |           |                |  |            |     |             |  |   |        |  |  |   |        | 
|Total Marketable Equity Securities |  |         |  |           |           |                |  |            |     |             |  | $ | 33,465 |  |  | $ | 64,926 | 
|                                   |  |         |  |           |           |                |  |            |     |             |  |   |        |  |  |   |        | 

The Companys portfolio in such transactions
as of December 31, 2001 is as follows (in thousands except
share data):

|                                   |  |         |  |           |           |                |  |            |     |             |  |   |        |  |  |   |        | 
|---------------------------------- |  | ------- |  | --------- | --------- | -------------- |  | ---------- | --- | ----------- |  | - | ------ |  |  | - | ------ | 
|                                   |  |         |  |           |           | Estimated      |  |            |     |            
|                                   |  | Trading |  | Number of |           | Beneficial     |  |            |     | Fair Market
|Company                            |  | Symbol  |  | Shares    |           | Ownership %(1) |  | Cost Basis |     | Value      
|                                   |  |         |  |           |           |                |  |            |     |            
|Common Stock:                      |  |         |  |           |           |                |  |            |     |             |  |   |        |  |  |   |        | 
|Triangle Pharmaceuticals Inc.      |  | VIRS    |  |           | 3,775,000 |                |  |            | 4.9 | %           |  | $ | 15,029 |  |  | $ | 15,138 | 
|The Medicines Company              |  | MDCO    |  |           | 1,896,245 |                |  |            | 6.3 | %           |  |   | 8,462  |  |  |   | 21,977 | 
|CV Therapeutics, Inc.              |  | CVTX    |  |           | 681,705   |                |  |            | 2.6 | %           |  |   | 3,320  |  |  |   | 35,463 | 
|Other                              |  |         |  |           |           |                |  |            |     |             |  |   | 4,740  |  |  |   | 5,414  | 
|                                   |  |         |  |           |           |                |  |            |     |             |  |   |        |  |  |   |        | 
|Total Marketable Equity Securities |  |         |  |           |           |                |  |            |     |             |  | $ | 31,551 |  |  | $ | 77,992 | 
|                                   |  |         |  |           |           |                |  |            |     |             |  |   |        |  |  |   |        | 



---



|    |                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The estimated beneficial ownership percentage
    calculation is based upon the issuers filings with the
    United States Securities and Exchange Commission. The beneficial
    ownership percentage is subject to change due to the
    Companys transactions in these investments and changes in
    the issuers capitalization.

The Company may from time to time acquire equity
instruments of companies in which a current market value is not
readily available. As such, these investments are included in
deposits and other assets.

The Company recognized $14.1 million,
$22.9 million and $3.3 million of gains from the sale
of marketable equity securities during 2002, 2001 and 2000,
respectively. The Company recognized $66,000 in losses from the
sale of marketable equity securities during 2002. Gross
unrealized gains totaled $31.5 million as of December 31,
2002 and $46.4 million as of December 31, 2001 from
investments in marketable equity securities. The net after-tax
adjustment to unrealized holding gains (losses) on
marketable equity securities included as a separate component of
shareholders equity was ($10.1) million,
$81.3 million and ($51.2) million in 2002, 2001 and 2000
respectively. In accordance with its policy to continually
review declines in fair value of the marketable equity



62  Quintiles
Transnational 2002 Annual Report




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

securities for declines that may be other than
temporary, the Company also recognized losses due to the
impairment of marketable equity securities of $335,000,
$338.8 million and $5.5 million in 2002, 2001 and
2000, respectively. Included in the 2001 amount is
$334.0 million relating to the Companys investment in
WebMD common stock.

In 2000, the Company sold its electronic data
interchange unit, ENVOY Corporation, to WebMD Corporation
(WebMD). As part of the consideration received in
the sale, the Company received 35 million shares of WebMD
common stock. In 2001, WebMD paid the Company $185 million
in cash for all of the 35 million shares of WebMD common
stock and in settlement of the disputes.

During December 2002, Gilead Sciences, Inc.
(Gilead) commenced a tender offer for Triangle
Pharmaceuticals, Inc. (VIRS) at $6.00 per share.
Prior to December 31, 2002, the Company agreed to tender
its shares in VIRS to Gilead under this tender offer. The
Company expects to receive the proceeds related to this
transaction during the first quarter of 2003.

7.     Investments 
Non-Marketable Equity Securities and Loans

The Company has entered into financial
arrangements with various customers and other parties in which
the Company provides funding in the form of an equity investment
in non-marketable securities or loans. These financial
arrangements are comprised of direct and indirect investments.
The indirect investments are made through eight venture capital
funds in which the Company is an investor. The Companys
portfolio in such transactions as of December 31, 2002 is as
follows (in thousands):

|                                     |                                                  |            |        |                   |  |   |        |        | 
|------------------------------------ | ------------------------------------------------ | ---------- | ------ | ----------------- |  | - | ------ | ------ | 
|                                     |                                                  |            |        | Remaining Funding
|Company                              |                                                  | Cost Basis |        | Commitment       
|                                     |                                                  |            |        |                  
|Venture capital funds                |                                                  | $          | 27,405 |                   |  | $ | 22,945 |       
|Equity investments (eight companies) |                                                  |            | 11,961 |                   |  |   |       |       
|Convertible loans (five companies)   |                                                  |            | 5,576  |                   |  |   | 2,447  |       
|Loans (two companies)                |                                                  |            | 1,507  |                   |  |   | 17,096 |       
|                                     |                                                  |            |        |                   |  |   |        |       
|                                     | Total non-marketable equity securities and loans |            | $      | 46,449            |  |   | $      | 42,488 | 
|                                     |                                                  |            |        |                   |  |   |        |       

The Companys portfolio in such transactions
as of December 31, 2001 is as follows (in thousands):

|                                     |                                                  |            |        |        | 
|------------------------------------ | ------------------------------------------------ | ---------- | ------ | ------ | 
|Company                              |                                                  | Cost Basis
|                                     |                                                  |           
|Venture capital funds                |                                                  | $          | 19,702 |       
|Equity investments (seven companies) |                                                  |            | 10,547 |       
|Convertible loans (five companies)   |                                                  |            | 7,341  |       
|Loans (two companies)                |                                                  |            |       |       
|                                     |                                                  |            |        |       
|                                     | Total non-marketable equity securities and loans |            | $      | 37,590 | 
|                                     |                                                  |            |        |       

Included in the venture capital funds is
$7.7 million and $5.9 million at December 31,
2002 and 2001, respectively which are managed by A.M. Pappas
& Associates, LLC whose chief executive officer is a member
of the Companys Board of Directors. The Company also has
remaining commitments to these funds totaling $7.7 million
as of December 31, 2002.



Quintiles Transnational 2002 Annual
Report  63




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Below is a table representing managements
best estimate as of December 31, 2002 of the amount and timing
of the above remaining funding commitments (in thousands):

|                      |  |      |        |      |  |       |        |  |  |   |        | 
|--------------------- |  | ---- | ------ | ---- |  | ----- | ------ |  |  | - | ------ | 
|                      |  | 2003 |        | 2004 |  | Total
|                      |  |      |        |      |  |      
|Venture capital funds |  | $    | 16,897 |      |  | $     | 6,048  |  |  | $ | 22,945 | 
|Convertible loans     |  |      | 2,447  |      |  |       |       |  |  |   | 2,447  | 
|Loans                 |  |      | 13,000 |      |  |       | 4,096  |  |  |   | 17,096 | 
|                      |  |      |        |      |  |       |        |  |  |   |        | 
|                      |  | $    | 32,344 |      |  | $     | 10,144 |  |  | $ | 42,488 | 
|                      |  |      |        |      |  |       |        |  |  |   |        | 

The Company also has future loan commitments that
are contingent upon satisfaction of certain milestones by the
third party such as receiving FDA approval, obtaining funding
from additional third parties, agreement of a marketing plan and
other similar milestones. Due to the uncertainty of the amounts
and timing, these commitments are not included in the commitment
amounts described above.

The Company has determined that it is not
practicable at each reporting date to estimate the fair value of
its investments in non-marketable equity securities and loans;
however, the carrying values are reviewed if the facts and
circumstances suggest that a potential impairment, representing
an other than temporary decline in fair value, may have
occurred. The Company recognized $4.0 million and
$9.2 million of losses due to such impairments in 2002 and
2001, respectively, relating to non-marketable equity securities
and loans mainly due to declining financial condition of
investees.

8.     Derivatives

As of December 31, 2002, the Company had the
following derivative positions in securities of other issuers:
(1) conversion option positions that are embedded in
financing arrangements and (2) freestanding warrants to
purchase shares of common stock.

As of December 31, 2002 and 2001, the
Company had funded five convertible loans with a carrying value
of approximately $5.6 million and $7.3 million,
respectively. Loans that are convertible into an equity interest
have an embedded option contract because the value of the equity
interest is based on the market price of another entitys
common stock and thus is not clearly and closely related to the
value of the interest-bearing note. The Company has not
accounted for these embedded conversion features as
mark-to-market derivatives because the terms of conversion do
not allow for cash settlement and the Company believes that the
equity interest delivered upon conversion would not be readily
convertible to cash since these entities are privately held or
have limited liquidity and trading of their equity interest.

As of December 31, 2002 and 2001, the
Company has several freestanding warrants to purchase common
stock of various customers and other third parties. These
freestanding warrants primarily were acquired as part of the
financial arrangements with such customers and third parties. No
quoted price is available for the Companys freestanding
warrants to purchase shares of common stock. The Company uses
various valuation techniques including the present value of
estimated expected future cash flows, option-pricing models and
fundamental analysis. Factors affecting the valuation include
the current price of the underlying asset, strike price, time to
expiration of the option, estimated price volatility of the
underlying asset over the life of the option and restrictions on
the transferability or ability to exercise the option. As of
January 1, 2001, the Companys derivative instruments
included two warrants to purchase an aggregate of
282,385 shares of common stock of The Medicines Company
(NASDAQ: MDCO). The Company estimated the fair value of these
derivative instruments to be insignificant at January 1,
2001 and December 31, 2001 because the Company concluded
that the implicit restrictions on exercisability and
transferability impaired the value of the warrants. The most
significant of these restrictions were



64  Quintiles
Transnational 2002 Annual Report




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

eliminated in January 2002. In March 2002, the
Company exercised the MDCO warrants under its cashless exercise
option and received 162,976 shares of MDCO common stock. At
December 31, 2002, the Company held warrants from various
contracts valued at $5.8 million which are included in the
accompanying balance sheet as deposits and other assets. During
2002, the Company recognized investment revenues of $535,000
related to changes in the fair values of the warrants.

The Company had exchange-traded option contracts
with a fair value as of December 31, 2001 of approximately
$1.3 million. These contracts expired in January 2002 and
April 2002. There were no open exchange-traded option contracts
at December 31, 2002. During 2002 and 2001, the Company
recorded a $3.4 million gain and a $1.9 million loss,
respectively, in earnings related to changes in the fair value
of put and call option contracts.

9.     Investment
Revenues

The following table is a summary of investment
revenues for the years ended December 31, 2002, 2001, and
2000 (in thousands):

|                                             |                       |      |        |        |   |      |     |        |   |   |     |        |  
|-------------------------------------------- | --------------------- | ---- | ------ | ------ | - | ---- | --- | ------ | - | - | --- | ------ | -
|                                             |                       | 2002 |        | 2001   |   | 2000
|                                             |                       |      |        |        |   |     
|Marketable equity and derivative securities: |                       |      |        |        |   |      |     |        |   |   |     |       
|                                             | Gross realized gains  |      | $      | 18,093 |   |      | $   | 14,394 |   |   | $   | 3,270  |  
|                                             | Gross realized losses |      |        | (92    | ) |      |     | (1,954 | ) |   |     |       |  
|                                             | Impairment losses     |      |        | (335   | ) |      |     | (6,066 | ) |   |     | (5,466 | )
|Non-marketable equity securities and loans:  |                       |      |        |        |   |      |     |        |   |   |     |       
|                                             | Gross realized gains  |      |        |       |   |      |     | 2,197  |   |   |     | 2,775  |  
|                                             | Gross realized losses |      |        |       |   |      |     | (34    | ) |   |     |       |  
|                                             | Impairment losses     |      |        | (3,962 | ) |      |     | (7,926 | ) |   |     |       |  
|                                             |                       |      |        |        |   |      |     |        |   |   |     |       
|                                             |                       | $    | 13,704 |        |   | $    | 611 |        |   | $ | 579 |       
|                                             |                       |      |        |        |   |      |     |        |   |   |     |       

10.     Investments
in Unconsolidated Affiliates and Other

In January 2002, the Company acquired an equity
interest in a sales and marketing organization in France for
approximately $328,000. The Companys pro rata share of
earnings is included in the accompanying statement of operations
as losses of unconsolidated affiliates and other. The Company
owns approximately 41.0% at December 31, 2002.

In May 2002, the Company and McKesson Corporation
(McKesson) completed the formation of a previously
announced healthcare informatics joint venture named Verispan,
L.L.C. 
 (Verispan). The Company and McKesson are equal
co-owners of a majority of the equity of Verispan. The Company
contributed the net assets of its informatics group
(approximately $112.1 million) and funded $10 million
to Verispan. Accordingly, the Company has recorded its
investment in Verispan, approximately $120.7 million at
December 31, 2002, as an investment in unconsolidated
affiliates. Verispan licenses data products to the Company and
McKesson for use in their respective core businesses. Under the
license arrangement, the Company continues to have access to
Verispans commercially available products to enhance their
service to and partnering with the Companys customers.

The Companys pro rata share of
Verispans earnings, since the date of formation, is
included in equity in losses of unconsolidated affiliates and
other. Results of operations for the informatics group prior to
formation of Verispan are included in the Companys
revenues and expenses as appropriate. The Company owns
approximately 45% of Verispan at December 31, 2002.



Quintiles Transnational 2002 Annual
Report  65




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In October 2002, the Company acquired a
controlling interest in Health Research Solutions Pty Ltd
(HRS) and, accordingly, the results of operations
for HRS and the assets and liabilities of HRS are included in
the results of operations and assets and liabilities of the
Company. The Company has recorded the minority interests
pro rata share (approximately 33.33% at December 31, 2002)
of HRS earnings in the accompanying statement of
operations as equity in losses of unconsolidated affiliates and
other.

11.     Goodwill and
Identifiable Intangible Assets

Identifiable intangible assets consist primarily
of software, which are amortized over the estimated useful life
ranging from three to five years, and licensing and distribution
rights, which are amortized ratably, based on estimated cash
flows, over the life of the rights or service period ranging
from five to 15 years. Amortization expense associated with
identifiable intangible assets was $29.3 million,
$14.1 million and $12.8 million for 2002, 2001 and
2000, respectively. The following is a summary of identifiable
intangible assets (in thousands):

|                                |                                           |                         |         |                         |  |        |        |        |  |              |         |        |  |   |         |         |  |   |        |        |  |   |         |        | 
|------------------------------- | ----------------------------------------- | ----------------------- | ------- | ----------------------- |  | ------ | ------ | ------ |  | ------------ | ------- | ------ |  | - | ------- | ------- |  | - | ------ | ------ |  | - | ------- | ------ | 
|                                |                                           |                         |         |                        
|                                |                                           | As of December 31, 2002 |         | As of December 31, 2001
|                                |                                           |                         |         |                        
|                                |                                           | Gross                   |         | Accumulated             |  | Net    |        | Gross  |  | Accumulated  |         | Net   
|                                |                                           | Amount                  |         | Amortization            |  | Amount |        | Amount |  | Amortization |         | Amount
|                                |                                           |                         |         |                         |  |        |        |        |  |              |         |       
|Identifiable intangible assets: |                                           |                         |         |                         |  |        |        |        |  |              |         |        |  |   |         |         |  |   |        |        |  |   |         |       
|                                | Software and related assets               |                         | $       | 150,713                 |  |        | $      | 83,974 |  |              | $       | 66,739 |  |   | $       | 156,806 |  |   | $      | 63,938 |  |   | $       | 92,868 | 
|                                | Product licensing and distribution rights |                         |         | 81,889                  |  |        |        | 5,913  |  |              |         | 75,976 |  |   |         | 33,475  |  |   |        | 2,344  |  |   |         | 31,131 | 
|                                |                                           |                         |         |                         |  |        |        |        |  |              |         |        |  |   |         |         |  |   |        |        |  |   |         |       
|                                |                                           | $                       | 232,602 |                         |  | $      | 89,887 |        |  | $            | 142,715 |        |  | $ | 190,281 |         |  | $ | 66,282 |        |  | $ | 123,999 |       
|                                |                                           |                         |         |                         |  |        |        |        |  |              |         |        |  |   |         |         |  |   |        |        |  |   |         |       

Estimated amortization expense for existing
identifiable intangible assets is targeted to be approximately
$34.6 million, $28.5 million, $22.6 million,
$14.6 million and $9.9 million for each of the years
in the five-year period ended December 31, 2007,
respectively. Estimated amortization expense can be affected by
various factors including future acquisitions or divestitures of
product and/or licensing and distribution rights.

In conjunction with the adoption of
SFAS No. 142, the company completed the required
transitional impairment test as of January 1, 2002 and the
annual impairment test as of July 31, 2002 and no goodwill
impairment was deemed necessary. The following is a summary of
goodwill by segment for 2002 (in thousands):

|                                        |  |             |        |            |  |             |        |              |  |   |          |   |  |   |          |  
|--------------------------------------- |  | ----------- | ------ | ---------- |  | ----------- | ------ | ------------ |  | - | -------- | - |  | - | -------- | -
|                                        |  | Product     |        | Commercial |  |             |        |             
|                                        |  | development |        | services   |  | Informatics |        | Consolidated
|                                        |  |             |        |            |  |             |        |             
|Balance as of December 31, 2001         |  | $           | 31,746 |            |  | $           | 30,168 |              |  | $ | 101,737  |   |  | $ | 163,651  |  
|Add: acquisition                        |  |             | 2,937  |            |  |             |       |              |  |   |         |   |  |   | 2,937    |  
|Less: impairment                        |  |             |       |            |  |             |       |              |  |   |         |   |  |   |         |  
|contribution
    to joint               |  |             |        |            |  |             |        |              |  |   |          |   |  |   |          |  
|venture                                 |  |             |       |            |  |             |       |              |  |   | (101,737 | ) |  |   | (101,737 | )
|Impact of foreign currency fluctuations |  |             | 4,235  |            |  |             | 1,047  |              |  |   |         |   |  |   | 5,282    |  
|                                        |  |             |        |            |  |             |        |              |  |   |          |   |  |   |          |  
|Balance as of December 31, 2002         |  | $           | 38,918 |            |  | $           | 31,215 |              |  | $ |         |   |  | $ | 70,133   |  
|                                        |  |             |        |            |  |             |        |              |  |   |          |   |  |   |          |  



66  Quintiles
Transnational 2002 Annual Report




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following is a summary of goodwill by segment
for 2001 (in thousands):

|                                        |  |             |        |            |  |             |         |              |  |   |         |   |  |   |         |  
|--------------------------------------- |  | ----------- | ------ | ---------- |  | ----------- | ------- | ------------ |  | - | ------- | - |  | - | ------- | -
|                                        |  | Product     |        | Commercial |  |             |         |             
|                                        |  | development |        | services   |  | Informatics |         | Consolidated
|                                        |  |             |        |            |  |             |         |             
|Balance as of December 31, 2000         |  | $           | 30,664 |            |  | $           | 48,836  |              |  | $ | 105,481 |   |  | $ | 184,981 |  
|Add: acquisition                        |  |             | 5,754  |            |  |             |        |              |  |   |        |   |  |   | 5,754   |  
|Less: impairment                        |  |             |       |            |  |             | (16,120 | )            |  |   |        |   |  |   | (16,120 | )
|amortization                            |  |             | (2,324 | )          |  |             | (1,713  | )            |  |   | (3,728  | ) |  |   | (7,765  | )
|Impact of foreign currency fluctuations |  |             | (2,348 | )          |  |             | (835    | )            |  |   | (16     | ) |  |   | (3,199  | )
|                                        |  |             |        |            |  |             |         |              |  |   |         |   |  |   |         |  
|Balance as of December 31, 2001         |  | $           | 31,746 |            |  | $           | 30,168  |              |  | $ | 101,737 |   |  | $ | 163,651 |  
|                                        |  |             |        |            |  |             |         |              |  |   |         |   |  |   |         |  

The decrease in goodwill during 2002 is primarily
a result of the formation of the Verispan joint venture. During
2001, the Company recognized a $16.1 million charge to
write-off goodwill recorded in four separate acquisitions in the
commercial services segment. The goodwill was deemed impaired
due to changing business conditions and strategic direction.

Through December 2001, goodwill was amortized on
a straight-line basis over periods from five to 40 years.
Effective January 1, 2002, the Company adopted
SFAS No. 142 and no longer amortizes goodwill. The
following is a summary of reported net (loss) income and net
(loss) income per share, adjusted to exclude goodwill
amortization expense (in thousands, except per share amounts):

|                                      |         |                         |         |       |   |   |         |      | 
|------------------------------------- | ------- | ----------------------- | ------- | ----- | - | - | ------- | ---- | 
|                                      |         |                        
|                                      |         | Year Ended December 31,
|                                      |         |                        
|                                      |         | 2001                    |         | 2000 
|                                      |         |                         |         |      
|Net (loss) income                     |         | $                       | (33,843 | )     |   | $ | 418,923 |     
|Add: goodwill amortization            |         |                         | 7,765   |       |   |   | 7,901   |     
|Less: income tax benefit              |         |                         | (2,562  | )     |   |   | (2,607  | )   
|                                      |         |                         |         |       |   |   |         |     
|Adjusted net (loss) income            |         | $                       | (28,640 | )     |   | $ | 424,217 |     
|                                      |         |                         |         |       |   |   |         |     
|Adjusted net (loss) income per share: |         |                         |         |       |   |   |         |     
|                                      | Basic   |                         | $       | (0.24 | ) |   | $       | 3.66 | 
|                                      | Diluted |                         |         | (0.24 | ) |   |         | 3.66 | 



|    |                 
|--- | ----------------
|12. | Accrued Expenses

Accrued expenses consist of the following (in
thousands):

|                               |  |              |         |      |  |   |         | 
|------------------------------ |  | ------------ | ------- | ---- |  | - | ------- | 
|                               |  |             
|                               |  | December 31,
|                               |  |             
|                               |  | 2002         |         | 2001
|                               |  |              |         |     
|Compensation and payroll taxes |  | $            | 77,354  |      |  | $ | 63,458  | 
|Restructuring                  |  |              | 8,467   |      |  |   | 30,737  | 
|Other                          |  |              | 94,913  |      |  |   | 74,978  | 
|                               |  |              |         |      |  |   |         | 
|                               |  | $            | 180,734 |      |  | $ | 169,173 | 
|                               |  |              |         |      |  |   |         | 



Quintiles Transnational 2002 Annual
Report  67




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                    
|--- | -------------------
|13. | Credit Arrangements

The following is a summary of the credit
facilities available to the Company at December 31, 2002:

|                                                                                                                                       |  |                                            
|-------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------
|Facility                                                                                                                               |  | Interest Rates                             
|                                                                                                                                       |  |                                            
|£10.0 million (approximately
    $16.0 million) unsecured line of credit                                                               |  | Base (4.0% at December 31, 2002) plus 0.75%
|£1.5 million (approximately
    $2.4 million) general banking facility with the same U.K.
    bank used for the issuance of guarantees |  | 1% per annum fee for each guarantee issued 

The Company did not have any outstanding balances
on these facilities at December 31, 2002 and 2001.

Long-term debt and obligations consist of the
following (in thousands):

|                                              |                             |              |        |        |   |   |        |        |  
|--------------------------------------------- | --------------------------- | ------------ | ------ | ------ | - | - | ------ | ------ | -
|                                              |                             |             
|                                              |                             | December 31,
|                                              |                             |             
|                                              |                             | 2002         |        | 2001  
|                                              |                             |              |        |       
|Missouri tax incentive bonds due October 2009 |                             | $            | 4,288  |        |   | $ | 4,755  |       
|                                              | (6.7% annual interest rate) |              |        |        |   |   |        |        |  
|Other notes payable                           |                             |              | 7,269  |        |   |   | 8,549  |       
|                                              |                             |              |        |        |   |   |        |       
|                                              |                             |              | 11,557 |        |   |   | 13,304 |       
|                                              | Less: current portion       |              |        | (3,347 | ) |   |        | (2,969 | )
|                                              |                             |              |        |        |   |   |        |       
|                                              |                             | $            | 8,210  |        |   | $ | 10,335 |       
|                                              |                             |              |        |        |   |   |        |       

Other notes payable include various notes
payables, primarily in foreign currencies, with interest rates
ranging between 1.875% and 7.5%.

Maturities of long-term debt and obligations at
December 31, 2002 are as follows (in thousands):

|           |  |   |        | 
|---------- |  | - | ------ | 
|2003       |  | $ | 3,347  | 
|2004       |  |   | 2,179  | 
|2005       |  |   | 1,957  | 
|2006       |  |   | 1,702  | 
|2007       |  |   | 941    | 
|Thereafter |  |   | 1,431  | 
|           |  |   |        | 
|           |  | $ | 11,557 | 
|           |  |   |        | 

The fair value of the Companys long-term
debt approximates its carrying value.



|    |       
|--- | ------
|14. | Leases

The Company leases certain office space and
equipment under operating leases. The leases expire at various
dates through 2074 with options to cancel certain leases at
five-year increments. Annual rental expenses under these
agreements were approximately $75.9 million,
$76.3 million and $73.9 million for the years ended
December 31, 2002, 2001 and 2000, respectively. The Company
leases certain assets, primarily vehicles, under capital leases.
Capital lease amortization is included with costs of revenues
and accumulated depreciation in the accompanying financial
statements.



68  Quintiles
Transnational 2002 Annual Report




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following is a summary of future minimum
payments under capitalized leases and under operating leases
that have initial or remaining noncancelable lease terms in
excess of one year at December 31, 2002 (in thousands):

|                                      |  |         |         |           |  |   |         | 
|------------------------------------- |  | ------- | ------- | --------- |  | - | ------- | 
|                                      |  | Capital |         | Operating
|                                      |  | Leases  |         | Leases   
|                                      |  |         |         |          
|2003                                  |  | $       | 19,301  |           |  | $ | 62,443  | 
|2004                                  |  |         | 7,330   |           |  |   | 39,776  | 
|2005                                  |  |         | 1,213   |           |  |   | 26,548  | 
|2006                                  |  |         | 617     |           |  |   | 22,078  | 
|2007                                  |  |         | 482     |           |  |   | 18,970  | 
|Thereafter                            |  |         | 1,433   |           |  |   | 72,191  | 
|                                      |  |         |         |           |  |   |         | 
|Total minimum lease payments          |  |         | 30,376  |           |  | $ | 242,006 | 
|                                      |  |         |         |           |  |   |         | 
|Amounts representing interest         |  |         | (1,359  | )         |  |   |         | 
|                                      |  |         |         |           |  |   |         | 
|Present value of net minimum payments |  |         | 29,017  |           |  |   |         | 
|Current portion                       |  |         | (18,372 | )         |  |   |         | 
|                                      |  |         |         |           |  |   |         | 
|Long-term capital lease obligations   |  | $       | 10,645  |           |  |   |         | 
|                                      |  |         |         |           |  |   |         | 



|    |                              
|--- | -----------------------------
|15. | Commitments and Contingencies

On January 26, 2001, a purported class
action lawsuit was filed in the State Court of Richmond County,
Georgia, naming Novartis Pharmaceuticals Corp., Pharmed Inc.,
Debra Brown, Bruce I. Diamond and Quintiles Laboratories
Limited, a subsidiary of the Company, on behalf of 185
Alzheimers patients who participated in drug studies
involving an experimental drug manufactured by defendant
Novartis and their surviving spouses. The complaint alleges
claims for breach of fiduciary duty, civil conspiracy, unjust
enrichment, misrepresentation, Georgia RICO violations,
infliction of emotional distress, battery, negligence and loss
of consortium as to class member spouses. The complaint seeks
unspecified damages, plus costs and expenses, including
attorneys fees and experts fees. The parties are in
the discovery phase of the litigation. The Company continues to
believe the claims to be without merit and is defending the suit
vigorously.

On January 22, 2002, Federal Insurance
Company (Federal) and Chubb Custom Insurance Company
(Chubb) filed suit against the Company, Quintiles
Pacific, Inc. and Quintiles Laboratories Limited, two of the
Companys subsidiaries, in the United States District Court
for the Northern District of Georgia. In the suit, Chubb, the
Companys primary commercial general liability carrier, and
Federal, the Companys excess liability carrier, seek to
rescind the policies issued to the Company for coverage years
2000-2001 and 2001-2002 based on an alleged misrepresentation by
the Company on the policy application. Alternatively, Chubb and
Federal seek a declaratory judgment that there is no coverage
under the policies for some or all of the claims asserted
against the Company and its subsidiaries in the litigation
described in the prior paragraph and, if one or more of such
claims is determined to be covered, Chubb and Federal request an
allocation of the defense costs between the claims they contend
are covered and non-covered claims. The Company has filed an
answer with counterclaims against Federal and Chubb in response
to their complaint. Additionally, the Company has amended its
pleadings to add AON Risk Services as a counterclaim defendant,
as an alternative to the Companys position that Federal
and Chubb are liable under the policies. The Company believes
the allegations made by Federal and Chubb are without merit and
is defending this case vigorously.



Quintiles Transnational 2002 Annual
Report  69




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In October 2002, seven purported class action
lawsuits were filed in Superior Court, Durham County, North
Carolina by shareholders seeking to enjoin the consummation of a
transaction proposed by Pharma Services Company, a newly formed
company wholly owned by Dennis B. Gillings, Ph.D., to
acquire all the Companys outstanding shares for $11.25 per
share in cash. All of the lawsuits were subsequently transferred
to the North Carolina Business Court. The lawsuits name as
defendants Dr. Gillings, other members of the
Companys Board of Directors, the Company and, in some
cases Pharma Services Company. The complaints allege, among
other things, that the directors breached their fiduciary duties
with respect to the proposal. The complaints seek to enjoin the
transaction proposed by Pharma Services Company, and the
plaintiffs seek to recover damages. On November 11, 2002, a
special committee of the Companys Board of Directors
announced its rejection of the proposal by Pharma Services
Company and its intention to investigate strategic alternatives
available to the Company for purposes of enhancing shareholder
value, including the possibility of a sale of the Company and
alternatives that would keep the Company independent and
publicly owned. On January 6, 2003, the North Carolina
Business Court entered a Case Management Order consolidating all
seven lawsuits for all purposes and staying the lawsuits until
March 29, 2003 or until the Company provides notice of a
change-of-control transaction involving the Company. Based upon
its preliminary review, the Company believes the lawsuits are
without merit and intends to defend them vigorously.

The Company is currently a party to other legal
proceedings incidental to its business. While the Companys
management currently believes that the ultimate outcome of these
proceedings, individually and in the aggregate, will not have a
material adverse effect on the Companys consolidated
financial statements, litigation is subject to inherent
uncertainties. Were an unfavorable ruling to occur, there exists
the possibility of a material adverse impact on the results of
operations of the period in which the ruling occurs.

The Company entered into a seven-year service
agreement in 2001 with a third party vendor to provide fully
integrated information technology infrastructure services in the
United States and Europe to the Company. The Company can
terminate this agreement with six months notice and a penalty,
which is based upon a sliding scale. The Companys annual
commitment under this service agreement is approximately
$20.0 million.

16.     Shareholders
Equity

The Company is authorized to issue
25 million shares of preferred stock, $.01 per share par
value. At December 31, 2002, 500 million common shares
of $.01 par value were authorized.

In March 2001, the Board of Directors authorized
the Company to repurchase up to $100 million of the
Companys Common Stock from time to time until March 2002.
During 2001, the Company entered into agreements to repurchase
1,702,500 shares of its Common Stock for an aggregate price of
approximately $27.5 million. On February 7, 2002, the
Board of Directors extended this authorization until
March 1, 2003. During 2002, the Company entered into
agreements to repurchase 1,570,000 shares of its Common Stock
for an aggregate price of approximately $22.2 million.

In February 2000, the Board of Directors
authorized the Company to repurchase up to $200 million of
the Companys Common Stock from time to time until February
2001. The authorization expired in February 2001. During 2000,
the Company repurchased 1,365,500 shares of its Common Stock for
an aggregate price of approximately $21.9 million.

To enhance its stock repurchase program, the
Company sold put options during 2000 to an independent third
party. These put options entitled the holder to sell a total of
500,000 shares of the Companys Common Stock to the Company
on January 2, 2001 at $13.7125 per share. The put



70  Quintiles
Transnational 2002 Annual Report




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

options expired unexercised in accordance with
their terms on January 2, 2001. The transaction has been
recorded as a component of shareholders equity.

In November 1999, the Board of Directors declared
a dividend distribution of one preferred stock purchase right (a
Right) for each outstanding share of the
Companys Common Stock. Each Right, if activated, entitles
the holder to purchase one one-thousandth of a share of the
Companys Series A Preferred Stock at a purchase price
of $150, subject to adjustment in certain circumstances. Each
one one-thousandth of a preferred share will have the same
voting and dividend rights as a share of the Companys
Common Stock. The Rights become exercisable 10 business
days after (1) any person or group announces it has
acquired or obtained the right to acquire 15% or more of the
outstanding shares of the Companys Common Stock or
(2) commencement of a tender offer or exchange offer for
more than 15% of the Companys Common Stock, subject to
limited exceptions. In the event that any party should acquire
more than 15% of the Companys Common Stock without the
Boards approval, the Rights entitle all other shareholders
to purchase shares of the Companys Common Stock at a
substantial discount. In addition, if the Company engages in
certain types of mergers or business combinations after a group
or person acquires 15% or more of the Companys Common
Stock, the Rights entitle all other shareholders to purchase
common stock of the acquirer at a substantial discount. The
Rights expire on November 15, 2009, unless redeemed earlier
at the discretion of the Company at the redemption price of
$0.0001 per Right.

17.     Loss on
Disposal

In June 2000, the Company completed the sale of
its general toxicology operations in Ledbury, Herefordshire,
United Kingdom. This facility contributed less than one percent
of consolidated net revenue and was included in the product
development segment. In connection with the sale, the Company
recognized a $17.3 million loss on disposal.

18.     Discontinued
Operation

On May 26, 2000, the Company completed the
sale of its electronic data interchange unit, ENVOY, to
Healtheon/WebMD Corp., which subsequently changed its name to
WebMD. Prior to the sale, ENVOY transferred its informatics
subsidiary, Synergy Health Care, Inc., to the Company. The
Company received $400 million in cash and 35 million
shares of WebMD common stock in exchange for its entire interest
in ENVOY and a warrant to acquire 10 million shares of the
Companys Common Stock at $40 per share, exercisable for
four years. The Company recorded an extraordinary gain on the
sale of $436.3 million, net of taxes of $184.7 million.

During 2001, the Company completed a tax basis
study for ENVOY. As a result of this study, the Companys
tax basis in ENVOY was determined which resulted in an
approximate $142.0 million reduction in income taxes
provided on the sale of ENVOY.

The Company retained exclusive rights to
de-identified ENVOY transaction data and certain other
de-identified data available from WebMD, subject to limited
exceptions. The Company agreed to share with WebMD a royalty
derived from sales of products using the licensed data. The
Company formed a strategic alliance with WebMD to develop a
web-based suite of integrated products and services for the
pharmaceutical industry and may provide funding for development
of the products. As a result of the settlement of litigation
between the Company and WebMD, the Company continued to receive
data from WebMD only through February 28, 2002. In
addition, as part of the settlement, the contracts with WebMD
were terminated, which among other things, absolved the Company
from any obligation to fund WebMD to develop a web-based suite
of integrated products and services. Also, the outstanding
warrant to purchase up to 10 million shares of the
Companys Common Stock, at $40 per share, held by WebMD,
was cancelled. The Company recorded an $83.2 million gain
from the settlement of litigation during 2001.



Quintiles Transnational 2002 Annual
Report  71




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

On March 30, 1999, the Company acquired
ENVOY in exchange for 28,465,160 shares of the Companys
Common Stock. Outstanding ENVOY options became options to
acquire 3,914,583 shares of the Companys Common Stock
(Exchanged Options). On May 26, 2000, employees
of ENVOY held 3,312,200 options to acquire Company Common Stock
as a result of the Exchanged Options and ENVOY employees
participation in Company stock option plans. In connection with
the sale of ENVOY, all of the options outstanding immediately
vested and became exercisable over a three-year term.
Subsequently, 2,516,062 of the outstanding options were
cancelled and issued with new terms to certain ENVOY employees
(ENVOY Options). This transaction resulted in a
charge of $50.0 million, based on the fair value of the
options at the date of grant, which reduced the extraordinary
gain from sale of discontinued operation. The ENVOY Options have
an exercise price of $6.84, vested immediately, have a term of
three years and are automatically exercised if the market price
of the Companys Common Stock reaches $23.34. As of
December 31, 2001, all of the stock options had been
exercised.

The results of ENVOY through the date of closing
have been reported separately as a discontinued operation in the
Consolidated Statement of Operations. The results of the
discontinued operation do not reflect any interest expense,
management fee or transaction costs allocated by the Company.

The following is a summary of income from
operations for ENVOY through the date of closing (in thousands):

|                           |  |                   |        | 
|-------------------------- |  | ----------------- | ------ | 
|                           |  | Year Ended       
|                           |  | December 31, 2000
|                           |  |                  
|Net revenue                |  | $                 | 99,041 | 
|                           |  |                   |        | 
|Income before income taxes |  | $                 | 27,121 | 
|Income taxes               |  |                   | 10,351 | 
|                           |  |                   |        | 
|Net income                 |  | $                 | 16,770 | 
|                           |  |                   |        | 

19.     Change in
Accounting for Deferred Income Taxes

Effective January 1, 2002, the Company
changed its method for calculating deferred income taxes related
to its multi-jurisdictional tax transactions. Under the prior
method, the Company followed an incremental approach to
measuring the deferred income tax benefit of its
multi-jurisdictional transactions, whereby it considered the
income tax benefit from the step-up in tax basis, net of any
potential incremental foreign income tax consequences determined
by projecting taxable income, foreign source income, foreign tax
credit provisions and the interplay of these items among and
between their respective tax jurisdictions, based on different
levels of intercompany foreign debt. As of December 31,
2001, the Company had deferred income tax assets of
$72.7 million and a related valuation allowance of
$45.7 million pursuant to the application of this prior
accounting policy.

The new methodology of accounting for deferred
income taxes incorporates a strict jurisdictional view of SFAS
No. 109, Accounting for Income Taxes, and
assumes that the Company recorded deferred income taxes only for
the future income tax impact of book and tax basis differences
created as a result of multi-jurisdictional transactions. The
Company believes that the new method has become more widely used
in practice and is preferable because it eliminates the
subjectivity and complexities involved in determining the timing
and amount of the release or reversal of the valuation allowance
under the prior method. This new approach ignores (i.e. in
determining the amount of any recorded valuation allowance) the
fact that future incremental income taxes may be
paid in a separate tax jurisdiction as a result of the interplay
among foreign and U.S. income



72  Quintiles
Transnational 2002 Annual Report




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

tax statutes and accordingly may subject the
Company to risk of increasing future income tax rates. After the
accounting change, related deferred income tax assets on
January 1, 2002 were $72.7 million and no valuation
allowance was required because it is more likely than not that
there would be sufficient future taxable income on the U.S.
federal income tax return to realize the benefit of future
deductions of that amount which primarily represents deductible
goodwill resulting from tax elections made at the time of the
Companys acquisition of Innovex Limited in November 1996.
At December 31, 2002, the balance of the related deferred
income tax assets was $65.4 million.

In order to effect the change to this method of
accounting as of January 1, 2002, the Company recorded a
cumulative effect adjustment of $45.7 million representing
the reversal of the valuation allowance related to deferred
income taxes on these multi-jurisdictional income tax
transactions. The change in accounting had no pro forma impact
on the Companys income in any prior quarterly or annual
period.

20.     Business
Combinations

In October 2002, the Company acquired, for
approximately $1.8 million in cash, a controlling interest
in HRS, a privately held Australian company specializing in
multi-national late-phase clinical research. Under the purchase
method of accounting, the results of HRS are included in the
Companys results of operations as of the acquisition date
and the assets and liabilities of HRS were recorded at their
respective fair values. In connection with the acquisition of
HRS, the Company recorded $2.7 million of goodwill. The
acquisition did not have a material impact on the financial
position or results of operations for the Company.

In March 2002, the Company acquired certain
assets of Bioglan Pharma, Inc. for a total consideration of
approximately $27.9 million. The assets included
distribution rights to market ADOXA in the United States
for nine years along with other products and product rights that
Bioglan Pharma, Inc. had previously marketed, as well as
approximately $1.6 million in cash. Under the purchase
method of accounting, the results of operations of Bioglan
Pharma, Inc. are included in the Companys results of
operations as of March 22, 2002 and the assets and
liabilities of Bioglan Pharma, Inc. were recorded at their
respective fair values. The acquisition resulted in total
intangible assets of $29.3 million. The acquisition did not
have a material impact on the financial position or results of
operations for the Company.

During the first quarter of 2001, the Company
acquired OEC, SA, a Switzerland-based company that provides drug
safety services to the pharmaceutical industry, and Ungerer
Laboratory, a laboratory based in Pretoria, South Africa
specializing in microbiology, molecular biology and hematology.
These transactions were accounted for as purchases with an
aggregate purchase price of approximately $7.1 million.
These acquisitions did not have a material impact on the
financial position or results of operations for the Company.

21.     Restructuring

During the second quarter of 2002, the Company
revised its estimates of the restructuring plan adopted during
2001 (2001 Plan) which resulted in a reduction of
$9.1 million in accruals for the 2001 Plan. The reduction
included approximately $5.7 million in severance payments
and $3.4 million of exit costs. The reductions are
primarily the result of a higher than expected number of
voluntary terminations and the reversal of restructuring
accruals due to the Companys contribution of its
informatics segment to the Verispan joint venture.

Also during the second quarter of 2002, the
Company recognized $9.1 million of restructuring charges as
a result of the continued implementation of the strategic plan
announced during 2001. This restructuring charge included
revisions to 2001 and 2000 restructuring plans of approximately



Quintiles Transnational 2002 Annual
Report  73




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

$2.5 million and $1.9 million,
respectively, due to a revision in the estimates for the exit
costs relating to the abandoned leased facilities. In addition,
the adopted follow-on restructuring plan (2002 Plan)
consisted of $4.3 million related to severance payments,
$310,000 related to exit costs and $112,000 of asset write-offs.
As part of this plan, approximately 99 positions are to be
eliminated mostly in the Europe and Africa region. As of
December 31, 2002, 78 individuals have been terminated.

As of December 31, 2002, the following
amounts were recorded (in thousands):

|                            |  |                                                |   |         |  |             |       |              |  |   |        |   |  |   |       | 
|--------------------------- |  | ---------------------------------------------- | - | ------- |  | ----------- | ----- | ------------ |  | - | ------ | - |  | - | ----- | 
|                            |  |                                               
|                            |  | Activity Twelve Months Ended December 31, 2002
|                            |  |                                               
|                            |  | Balance at                                     |   | 2002    |  | 2002 Plan   |       | Balance at  
|                            |  | December 31,                                   |   | Plan    |  | Write-Offs/ |       | December 31,
|                            |  | 2001                                           |   | Accrual |  | Payments    |       | 2002        
|                            |  |                                                |   |         |  |             |       |             
|Severance and related costs |  | $                                              |  |         |  | $           | 4,241 |              |  | $ | (2,175 | ) |  | $ | 2,066 | 
|Exit costs                  |  |                                                |  |         |  |             | 310   |              |  |   | (156   | ) |  |   | 154   | 
|Asset write-offs            |  |                                                |  |         |  |             | 112   |              |  |   | (112   | ) |  |   |      | 
|                            |  |                                                |   |         |  |             |       |              |  |   |        |   |  |   |       | 
|                            |  | $                                              |  |         |  | $           | 4,663 |              |  | $ | (2,443 | ) |  | $ | 2,220 | 
|                            |  |                                                |   |         |  |             |       |              |  |   |        |   |  |   |       | 

During the second quarter of 2001, the Company
recognized a $2.1 million restructuring charge (2001
A Plan) relating primarily to severance costs from the
reorganization of the Internet initiative and the commercial
services group in the United States. All of the
40 positions to be eliminated as part of this restructuring
were terminated as of June 30, 2001.

During the third quarter of 2001, the Company
recognized a $50.9 million restructuring charge (2001
B Plan). In addition, the Company recognized a
restructuring charge of approximately $1.1 million as a
revision of an estimate to a 2000 restructuring plan. The
restructuring charge consisted of $31.1 million related to
severance payments, $8.2 million related to asset
impairment write-offs and $12.7 million of exit costs. As
part of this restructuring, approximately 1,000 positions
worldwide will be eliminated and as of December 31, 2002,
882 individuals have been terminated. In certain
circumstances, international regulations and restrictions have
caused the terminations to extend beyond one year. Positions
have been eliminated in each of the segments.

As of December 31, 2002, the following
amounts were recorded (in thousands):

|                            |  |                                                |        |              |  |         |        |              |  |   |         |   |  |   |       | 
|--------------------------- |  | ---------------------------------------------- | ------ | ------------ |  | ------- | ------ | ------------ |  | - | ------- | - |  | - | ----- | 
|                            |  |                                               
|                            |  | Activity Twelve Months Ended December 31, 2002
|                            |  |                                               
|                            |  | 2001 B Plan                                    |        |             
|                            |  | Balance at                                     |        | Revisions to |  | 2001 B  |        | Balance at  
|                            |  | December 31,                                   |        | 2001 B       |  | Plan    |        | December 31,
|                            |  | 2001                                           |        | Plan         |  | Payment |        | 2002        
|                            |  |                                                |        |              |  |         |        |             
|Severance and related costs |  | $                                              | 19,323 |              |  | $       | (5,725 | )            |  | $ | (12,292 | ) |  | $ | 1,306 | 
|Exit costs                  |  |                                                | 8,806  |              |  |         | (875   | )            |  |   | (4,550  | ) |  |   | 3,381 | 
|                            |  |                                                |        |              |  |         |        |              |  |   |         |   |  |   |       | 
|                            |  | $                                              | 28,129 |              |  | $       | (6,600 | )            |  | $ | (16,842 | ) |  | $ | 4,687 | 
|                            |  |                                                |        |              |  |         |        |              |  |   |         |   |  |   |       | 



74  Quintiles
Transnational 2002 Annual Report




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of December 31, 2001, the following
amounts were recorded (in thousands):

|                            |  |                                                |       |         |  |         |        |          |  |                     |        |              |  |   |        |   |  |   |         |   |  |   |        | 
|--------------------------- |  | ---------------------------------------------- | ----- | ------- |  | ------- | ------ | -------- |  | ------------------- | ------ | ------------ |  | - | ------ | - |  | - | ------- | - |  | - | ------ | 
|                            |  |                                               
|                            |  | Activity Twelve Months Ended December 31, 2001
|                            |  |                                               
|                            |  | 2001 A                                         |       | 2001 B  |  |         |        | 2001 A   |  |                     |        | Balance at  
|                            |  | Plan                                           |       | Plan    |  | Total   |        | Plan     |  | 2001 B Plan         |        | December 31,
|                            |  | Accrual                                        |       | Accrual |  | Accrual |        | Payments |  | Write-offs/Payments |        | 2001        
|                            |  |                                                |       |         |  |         |        |          |  |                     |        |             
|Severance and related costs |  | $                                              | 1,970 |         |  | $       | 31,134 |          |  | $                   | 33,104 |              |  | $ | (1,970 | ) |  | $ | (11,811 | ) |  | $ | 19,323 | 
|Asset impairment write-offs |  |                                                |      |         |  |         | 8,237  |          |  |                     | 8,237  |              |  |   |       |   |  |   | (8,237  | ) |  |   |       | 
|Exit Costs                  |  |                                                | 176   |         |  |         | 11,567 |          |  |                     | 11,743 |              |  |   | (176   | ) |  |   | (2,761  | ) |  |   | 8,806  | 
|                            |  |                                                |       |         |  |         |        |          |  |                     |        |              |  |   |        |   |  |   |         |   |  |   |        | 
|                            |  | $                                              | 2,146 |         |  | $       | 50,938 |          |  | $                   | 53,084 |              |  | $ | (2,146 | ) |  | $ | (22,809 | ) |  | $ | 28,129 | 
|                            |  |                                                |       |         |  |         |        |          |  |                     |        |              |  |   |        |   |  |   |         |   |  |   |        | 

In January 2000, the Company announced the
adoption of a restructuring plan (January 2000
Plan). In connection with this plan, the company
recognized a restructuring charge of $58.6 million. The
restructuring charge consisted of $33.2 million related to
severance payments, $11.3 million related to asset
impairment write-offs and $14.0 million of exit costs. As
part of this plan, approximately 770 positions worldwide
were eliminated as of December 31, 2001. Although positions
eliminated were across all functions, most of the eliminated
positions were in the product development group.

In the fourth quarter of 2000, the Company
revised its estimates of the January 2000 Plan. This revision
resulted in a reduction of the January 2000 Plan of
$6.9 million. This reduction included $6.3 million in
severance payments and $632,000 in exit costs. The severance
reduction resulted primarily from a higher than expected number
of voluntary terminations, reduced outplacement costs and
related fringes.

Also, during the fourth quarter of 2000,
management conducted a detailed review of the resource levels
within each business group. Based on this review, the Company
adopted a follow-on restructuring plan (2000 Follow-On
Plan) resulting in a restructuring charge of
$7.1 million. The restructuring charge consisted of
$5.8 million related to severance payments and
$1.3 million related to exit costs. As part of this plan,
approximately 220 positions were to be eliminated mostly in
the commercial services group. As of December 31, 2002,
145 individuals have been terminated. In certain
circumstances, international regulations and restrictions have
caused the terminations to extend beyond one year.

As of December 31, 2002, the following
amounts were recorded (in thousands):

|                            |  |                                                |       |              |  |              |     |         |  |               |       |            |  |              |       |  |  |   |        |   |  |   |        |   |  |   |       | 
|--------------------------- |  | ---------------------------------------------- | ----- | ------------ |  | ------------ | --- | ------- |  | ------------- | ----- | ---------- |  | ------------ | ----- |  |  | - | ------ | - |  | - | ------ | - |  | - | ----- | 
|                            |  |                                               
|                            |  | Activity Twelve Months Ended December 31, 2002
|                            |  |                                               
|                            |  | Balance at                                     |       | Revisions to |  | Revisions to |     |         |  | Follow-On     |       | Balance at
|                            |  | December 31,                                   |       | January      |  | Follow-On    |     | Revised |  | January 2000  |       | Plan       |  | December 31,
|                            |  | 2001                                           |       | 2000 Plan    |  | Plan         |     | Accrual |  | Plan Payments |       | Payments   |  | 2002        
|                            |  |                                                |       |              |  |              |     |         |  |               |       |            |  |             
|Severance and related costs |  | $                                              | 894   |              |  | $            |    |         |  | $             |      |            |  | $            | 894   |  |  | $ | (476   | ) |  | $ | (301   | ) |  | $ | 117   | 
|Exit costs                  |  |                                                | 1,714 |              |  |              | 644 |         |  |               | 1,293 |            |  |              | 3,651 |  |  |   | (1,208 | ) |  |   | (1,000 | ) |  |   | 1,443 | 
|                            |  |                                                |       |              |  |              |     |         |  |               |       |            |  |              |       |  |  |   |        |   |  |   |        |   |  |   |       | 
|                            |  | $                                              | 2,608 |              |  | $            | 644 |         |  | $             | 1,293 |            |  | $            | 4,545 |  |  | $ | (1,684 | ) |  | $ | (1,301 | ) |  | $ | 1,560 | 
|                            |  |                                                |       |              |  |              |     |         |  |               |       |            |  |              |       |  |  |   |        |   |  |   |        |   |  |   |       | 



Quintiles Transnational 2002 Annual
Report  75




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of December 31, 2001, the following
amounts were recorded (in thousands):

|                            |  |                                                |        |              |  |         |       |               |  |               |        |              |  |   |        |   |  |   |        |   |  |   |       | 
|--------------------------- |  | ---------------------------------------------- | ------ | ------------ |  | ------- | ----- | ------------- |  | ------------- | ------ | ------------ |  | - | ------ | - |  | - | ------ | - |  | - | ----- | 
|                            |  |                                               
|                            |  | Activity Twelve Months Ended December 31, 2001
|                            |  |                                               
|                            |  | Balance at                                     |        | Revisions to |  |         |       | 2000          |  | Balance at   
|                            |  | December 31,                                   |        | January      |  | Revised |       | January 2000  |  | Follow-On     |        | December 31,
|                            |  | 2000                                           |        | 2000 Plan    |  | Accrual |       | Plan Payments |  | Plan Payments |        | 2001        
|                            |  |                                                |        |              |  |         |       |               |  |               |        |             
|Severance and related costs |  | $                                              | 8,867  |              |  | $       |      |               |  | $             | 8,867  |              |  | $ | (3,530 | ) |  | $ | (4,443 | ) |  | $ | 894   | 
|Exit costs                  |  |                                                | 5,788  |              |  |         | 1,085 |               |  |               | 6,873  |              |  |   | (4,351 | ) |  |   | (808   | ) |  |   | 1,714 | 
|                            |  |                                                |        |              |  |         |       |               |  |               |        |              |  |   |        |   |  |   |        |   |  |   |       | 
|                            |  | $                                              | 14,655 |              |  | $       | 1,085 |               |  | $             | 15,740 |              |  | $ | (7,881 | ) |  | $ | (5,251 | ) |  | $ | 2,608 | 
|                            |  |                                                |        |              |  |         |       |               |  |               |        |              |  |   |        |   |  |   |        |   |  |   |       | 

As of December 31, 2000, the following
amounts were recorded (in thousands):

|                            |  |                                                |        |              |  |           |        |         |  |                  |       |               |  |              |        |  |  |   |         |   |  |   |      |   |  |   |        | 
|--------------------------- |  | ---------------------------------------------- | ------ | ------------ |  | --------- | ------ | ------- |  | ---------------- | ----- | ------------- |  | ------------ | ------ |  |  | - | ------- | - |  | - | ---- | - |  | - | ------ | 
|                            |  |                                               
|                            |  | Activity Twelve Months Ended December 31, 2000
|                            |  |                                               
|                            |  | January                                        |        | Revisions to |  | 2000      |        |         |  | January 2000     |       | 2000          |  | Balance at  
|                            |  | 2000 Plan                                      |        | January      |  | Follow-On |        | Revised |  | Plan Write-offs/ |       | Follow-On     |  | December 31,
|                            |  | Accrual                                        |        | 2000 Plan    |  | Plan      |        | Accrual |  | Payments         |       | Plan Payments |  | 2000        
|                            |  |                                                |        |              |  |           |        |         |  |                  |       |               |  |             
|Severance and related costs |  | $                                              | 33,228 |              |  | $         | (6,321 | )       |  | $                | 5,833 |               |  | $            | 32,740 |  |  | $ | (23,136 | ) |  | $ | (737 | ) |  | $ | 8,867  | 
|Asset impairment write-offs |  |                                                | 11,315 |              |  |           |       |         |  |                  |      |               |  |              | 11,315 |  |  |   | (11,315 | ) |  |   |     |   |  |   |       | 
|Exit costs                  |  |                                                | 14,049 |              |  |           | (632   | )       |  |                  | 1,309 |               |  |              | 14,726 |  |  |   | (8,938  | ) |  |   |     |   |  |   | 5,788  | 
|                            |  |                                                |        |              |  |           |        |         |  |                  |       |               |  |              |        |  |  |   |         |   |  |   |      |   |  |   |        | 
|                            |  | $                                              | 58,592 |              |  | $         | (6,953 | )       |  | $                | 7,142 |               |  | $            | 58,781 |  |  | $ | (43,389 | ) |  | $ | (737 | ) |  | $ | 14,655 | 
|                            |  |                                                |        |              |  |           |        |         |  |                  |       |               |  |              |        |  |  |   |         |   |  |   |      |   |  |   |        | 

As a result of the restructuring plans, the
Company has approximately 284,000 square feet of abandoned
leased facilities as of December 31, 2002. A portion of
these facilities has been subleased and the Company is pursuing
disposition of the remaining abandoned facilities. Below is a
summary of the total lease obligations for the abandoned
facilities (in thousands):

|                                                                                                |  |   |         |  
|----------------------------------------------------------------------------------------------- |  | - | ------- | -
|2003                                                                                            |  | $ | 5,587   |  
|2004                                                                                            |  |   | 3,516   |  
|2005                                                                                            |  |   | 2,764   |  
|2006                                                                                            |  |   | 2,707   |  
|2007                                                                                            |  |   | 7,545   |  
|                                                                                                |  |   |         |  
|Gross abandoned lease obligations                                                               |  |   | 22,119  |  
|Less: sublease/restructuring accrual                                                            |  |   | (10,147 | )
|                                                                                                |  |   |         |  
|Total obligation in excess of existing subleases
    and related restructuring accrual balances |  | $ | 11,972  |  
|                                                                                                |  |   |         |  



76  Quintiles
Transnational 2002 Annual Report




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

22.     Income
Taxes

The components of income tax expense (benefit)
attributable to continuing operations are as follows (in
thousands):

|                            |                   |                         |        |         |   |      |          |          |   |   |         |         |  
|--------------------------- | ----------------- | ----------------------- | ------ | ------- | - | ---- | -------- | -------- | - | - | ------- | ------- | -
|                            |                   |                        
|                            |                   | Year Ended December 31,
|                            |                   |                        
|                            |                   | 2002                    |        | 2001    |   | 2000
|                            |                   |                         |        |         |   |     
|Current:                    |                   |                         |        |         |   |      |          |          |   |   |         |        
|                            | Federal           |                         | $      | 15,732  |   |      | $        | 13,130   |   |   | $       | (46,052 | )
|                            | State             |                         |        | 7,117   |   |      |          | 1,196    |   |   |         | 2,248   |  
|                            | Foreign           |                         |        | 18,258  |   |      |          | 17,617   |   |   |         | 15,752  |  
|                            |                   |                         |        |         |   |      |          |          |   |   |         |        
|                            |                   |                         | 41,107 |         |   |      | 31,943   |          |   |   | (28,052 | )      
|                            |                   |                         |        |         |   |      |          |          |   |   |         |        
|Deferred expense (benefit): |                   |                         |        |         |   |      |          |          |   |   |         |        
|                            | Federal and state |                         |        | 11,014  |   |      |          | (109,228 | ) |   |         | 24,213  |  
|                            | Foreign           |                         |        | (10,694 | ) |      |          | (9,338   | ) |   |         | (12,992 | )
|                            |                   |                         |        |         |   |      |          |          |   |   |         |        
|                            |                   |                         | 320    |         |   |      | (118,566 | )        |   |   | 11,221  |        
|                            |                   |                         |        |         |   |      |          |          |   |   |         |        
|                            |                   | $                       | 41,427 |         |   | $    | (86,623  | )        |   | $ | (16,831 | )      
|                            |                   |                         |        |         |   |      |          |          |   |   |         |        

Income tax expense (benefit) attributable to
continuing operations for 2000 excludes income tax expense from
the Companys discontinued operation.

The Company has allocated directly to additional
paid-in capital approximately $857,000 in 2002,
$15.9 million in 2001 and $6.8 million in 2000 related
to the tax benefit from non-qualified stock options exercised.

The differences between the Companys
consolidated income tax expense (benefit) attributable to
continuing operations and the expense (benefit) computed at the
35% U.S. statutory income tax rate were as follows (in
thousands):

|                                                                     |  |                         |        |      |  |      |         |   |  |   |         |  
|-------------------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                     |  |                        
|                                                                     |  | Year Ended December 31,
|                                                                     |  |                        
|                                                                     |  | 2002                    |        | 2001 |  | 2000
|                                                                     |  |                         |        |      |  |     
|Federal income tax provision (benefit) at
    statutory rate         |  | $                       | 43,281 |      |  | $    | (91,874 | ) |  | $ | (17,852 | )
|State and local income taxes, net of federal
    benefit (detriment) |  |                         | 1,764  |      |  |      | (1,407  | ) |  |   | (1,787  | )
|Non-deductible expenses and transaction costs                        |  |                         |       |      |  |      | 6,337   |   |  |   |        |  
|Foreign earnings taxed at different rates                            |  |                         | (4,656 | )    |  |      | (3,208  | ) |  |   | (8,833  | )
|Losses not utilized                                                  |  |                         |       |      |  |      | 911     |   |  |   | 12,725  |  
|Other                                                                |  |                         | 1,038  |      |  |      | 2,618   |   |  |   | (1,084  | )
|                                                                     |  |                         |        |      |  |      |         |   |  |   |         |  
|                                                                     |  | $                       | 41,427 |      |  | $    | (86,623 | ) |  | $ | (16,831 | )
|                                                                     |  |                         |        |      |  |      |         |   |  |   |         |  

Income (loss) before income taxes from
foreign operations was approximately $33.0 million,
$14.9 million, and ($40.3) million for the years 2002,
2001, and 2000, respectively. Income (loss) from foreign
operations was approximately $59.6 million,
$41.2 million, and ($11.6) million for the years 2002,
2001 and 2000, respectively. The difference between income from
operations and income (loss) before income taxes is due
primarily to intercompany charges which eliminate in
consolidation for financial statement purposes but, in some
cases, do not eliminate for tax purposes. Undistributed earnings
of the Companys foreign subsidiaries amounted to
approximately $180.7 million at December 31, 2002.
Those earnings are considered to be indefinitely reinvested,



Quintiles Transnational 2002 Annual
Report  77




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

and accordingly, no U.S. federal and state income
taxes have been provided thereon. Upon distribution of those
earnings in the form of dividends or otherwise, the Company
would be subject to both U.S. income taxes (subject to an
adjustment for foreign tax credits) and withholding taxes
payable to the various countries.

The income tax effects of temporary differences
from continuing operations that give rise to significant
portions of deferred income tax assets (liabilities) are
presented below (in thousands):

|                                                   |                                              |              |         |         |   |   |         |         |  
|-------------------------------------------------- | -------------------------------------------- | ------------ | ------- | ------- | - | - | ------- | ------- | -
|                                                   |                                              |             
|                                                   |                                              | December 31,
|                                                   |                                              |             
|                                                   |                                              | 2002         |         | 2001   
|                                                   |                                              |              |         |        
|Deferred income tax liabilities:                   |                                              |              |         |         |   |   |         |        
|                                                   | Depreciation and amortization                |              | $       |        |   |   | $       | (31,176 | )
|                                                   | Prepaid expenses                             |              |         | (5,804  | ) |   |         | (6,330  | )
|                                                   | Unrealized gain on equity investments        |              |         | (6,670  | ) |   |         | (12,082 | )
|                                                   | Deferred revenue and other                   |              |         | (12,540 | ) |   |         | (7,388  | )
|                                                   | Other                                        |              |         | (7,699  | ) |   |         | (15,054 | )
|                                                   |                                              |              |         |         |   |   |         |        
|Total deferred income tax liabilities              |                                              |              | (32,713 | )       |   |   | (72,030 | )      
|Deferred income tax assets:                        |                                              |              |         |         |   |   |         |        
|                                                   | Depreciation and amortization                |              |         | 16,323  |   |   |         |        |  
|                                                   | Net operating and capital loss carryforwards |              |         | 120,721 |   |   |         | 173,034 |  
|                                                   | Accrued expenses and unearned income         |              |         | 26,043  |   |   |         | 21,644  |  
|                                                   | Goodwill, net of amortization                |              |         | 65,397  |   |   |         | 72,719  |  
|                                                   | Other                                        |              |         | 11,882  |   |   |         | 8,067   |  
|                                                   |                                              |              |         |         |   |   |         |        
|                                                   |                                              |              | 240,366 |         |   |   | 275,464 |        
|Valuation allowance for deferred income tax assets |                                              |              | (19,366 | )       |   |   | (65,025 | )      
|                                                   |                                              |              |         |         |   |   |         |        
|Total deferred income tax assets                   |                                              |              | 221,000 |         |   |   | 210,439 |        
|                                                   |                                              |              |         |         |   |   |         |        
|Net deferred income tax assets                     |                                              | $            | 188,287 |         |   | $ | 138,409 |        
|                                                   |                                              |              |         |         |   |   |         |        

The decrease in the Companys valuation
allowance for deferred income tax assets to $19.4 million
at December 31, 2002 from $65.0 million at
December 31, 2001 is due to a change in the accounting
method for deferred income taxes. This change in accounting
method is explained in Note 19.



78  Quintiles
Transnational 2002 Annual Report




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Companys deferred income tax expense
(benefit) attributable to continuing operations results
from the following (in thousands):

|                                                                |                                              |                         |     |         |   |      |          |          |   |   |        |         |  
|--------------------------------------------------------------- | -------------------------------------------- | ----------------------- | --- | ------- | - | ---- | -------- | -------- | - | - | ------ | ------- | -
|                                                                |                                              |                        
|                                                                |                                              | Year Ended December 31,
|                                                                |                                              |                        
|                                                                |                                              | 2002                    |     | 2001    |   | 2000
|                                                                |                                              |                         |     |         |   |     
|Excess (deficiency) of income tax over financial
    reporting: |                                              |                         |     |         |   |      |          |          |   |   |        |        
|                                                                | Depreciation and amortization                |                         | $   | (40,145 | ) |      | $        | 3,731    |   |   | $      | 16,905  |  
|                                                                | Net operating and capital loss carryforwards |                         |     | 52,309  |   |      |          | (113,129 | ) |   |        | (29,880 | )
|                                                                | Valuation allowance increase (decrease)      |                         |     |        |   |      |          | 911      |   |   |        | 7,890   |  
|                                                                | Accrued expenses and unearned income         |                         |     | (4,377  | ) |      |          | (1,888   | ) |   |        | (4,379  | )
|                                                                | Prepaid expenses                             |                         |     | (526    | ) |      |          | (628     | ) |   |        | 919     |  
|                                                                | Deferred revenue                             |                         |     | 5,153   |   |      |          | (4,037   | ) |   |        | 12,050  |  
|                                                                | Other items, net                             |                         |     | (12,094 | ) |      |          | (3,526   | ) |   |        | 7,716   |  
|                                                                |                                              |                         |     |         |   |      |          |          |   |   |        |        
|                                                                |                                              | $                       | 320 |         |   | $    | (118,566 | )        |   | $ | 11,221 |        
|                                                                |                                              |                         |     |         |   |      |          |          |   |   |        |        

The U.K. subsidiaries qualify for Scientific
Research Allowances (SRAs) for 100% of capital expenditures on
certain assets under the Inland Revenue Service guidelines. For
2002, 2001 and 2000, these allowances were $1.4 million,
$7.8 million and $15.1 million, respectively, which
helped to generate net operating loss carryforwards of
$19.4 million to be used to offset taxable income in that
country. Assuming the U.K. subsidiaries continue to invest in
qualified capital expenditures at an adequate level, the portion
of the deferred income tax liability relating to the U.K.
subsidiaries may be deferred indefinitely. The Company
recognizes a deferred income tax benefit for foreign generated
operating losses at the time of the loss when the Company
believes it is more likely than not that the benefit will be
realized. The Company has net operating loss and capital loss
carryforwards of approximately $150.6 million in various
entities within the United Kingdom which have no expiration date
and has over $42.6 million of net operating loss
carryforwards from various foreign jurisdictions which have
different expiration periods. In addition, the Company has
approximately $219.1 million of U.S. state operating loss
carryforwards which expire through 2022 and has approximately
$1.5 million of U.S. federal operating loss carryforwards
which begin to expire in 2005. The Company also has a U.S.
capital loss carryforward of approximately $130.8 million which
expires in 2007. The Company evaluates its deferred income tax
assets for realization based upon the more likely than not
criteria prescribed in SFAS No. 109, Accounting for
Income Taxes. Based upon current estimates, management
believes it is more likely than not that the Companys
deferred income tax assets, after the effect of the recorded
valuation allowance, will be realizable. The ultimate
realization of deferred income tax assets is dependent upon the
Company generating future taxable income and capital gains in
sufficient amounts within the applicable carryforward period.
Actual results could differ materially from managements
estimates.



Quintiles Transnational 2002 Annual
Report  79




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

23.     Weighted
Average Shares Outstanding

The following table sets forth the computation of
the weighted-average shares used when calculating the basic and
diluted net income (loss) per share (in thousands):

|                         |                                 |                         |  |         |     |      |  |         |   |  |  |         |   | 
|------------------------ | ------------------------------- | ----------------------- |  | ------- | --- | ---- |  | ------- | - |  |  | ------- | - | 
|                         |                                 |                        
|                         |                                 | Year Ended December 31,
|                         |                                 |                        
|                         |                                 | 2002                    |  | 2001    |     | 2000
|                         |                                 |                         |  |         |     |     
|Weighted average shares: |                                 |                         |  |         |     |      |  |         |   |  |  |        
|                         | Basic weighted average shares   |                         |  | 118,135 |     |      |  | 118,223 |   |  |  | 115,968 |  
|                         | Effect of dilutive securities:  |                         |  |         |     |      |  |         |   |  |  |         |  
|                         |                                 | Stock options           |  |         | 323 |      |  |         |  |  |  |         |  | 
|                         |                                 |                         |  |         |     |      |  |         |   |  |  |        
|                         | Diluted weighted average shares |                         |  | 118,458 |     |      |  | 118,223 |   |  |  | 115,968 |  
|                         |                                 |                         |  |         |     |      |  |         |   |  |  |        

The effect of options to purchase
29.2 million shares of the Companys common stock were
outstanding during 2002 but were not included in the computation
of diluted net income per share because the options
exercise price was greater than the average market price of the
common shares and, therefore, the effect would be antidilutive.

The effect of options outstanding during 2001 and
2000 were not included in the computation of diluted net income
(loss) per share because the effect on loss from continuing
operations would have been antidilutive.

Warrants to purchase 10 million shares of
common stock were outstanding from May 2000 until October 2001,
but were not included in the computation of diluted net income
(loss) per share because the effect on loss from continuing
operations would have been antidilutive.

24.     Employee
Benefit Plans

The Company has numerous employee benefit plans,
which cover substantially all eligible employees in the
countries where the plans are offered. Contributions are
primarily discretionary, except in some countries where
contributions are contractually required. Plans include defined
contribution plans funded by Company stock in Australia,
Belgium, Canada and Singapore; defined contribution plans in
Austria, Belgium, Germany, Holland, Hungary, Israel,
Netherlands, Poland, Sweden and Great Britain; profit sharing
schemes in Canada and France; and defined benefit plans in
Germany, Japan, Sweden and the U.K. The defined benefit plan in
Germany is an unfunded plan, which is provided for in the
balance sheet. The Approved Profit Sharing Schemes in the U.K.
and Ireland are no longer funded. These plans were previously
funded with Company stock. Final distributions cannot occur
until 2004. In addition, the Company sponsors a supplemental
non-qualified deferred compensation plan, covering certain
management employees.

Effective May 1, 1999, the Company merged,
for administrative purposes only, its employee stock ownership
plan (the ESOP) and 401(k) plan (the
401(k)). The eligibility requirements and benefits
offered to employees under each plan were not affected by the
merger.

The ESOP expense recognized is equal to the cost
of the shares allocated to plan participants and the interest
expense on the leveraged loans for the year. In 2000, ESOP
expense totaled $6.2 million. No shares were allocated to
the Plan in either 2002 or 2001; therefore, there was no expense
in those years. As of December 31, 2002, 2001 and 2000,
1,315,380, 1,511,476 and 1,667,449 shares, respectively, were
allocated to participants. There are no unallocated shares held
in suspense as of December 31, 2002. All ESOP shares are
considered outstanding for income per share calculations.



80  Quintiles
Transnational 2002 Annual Report




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Under the 401(k), the Company matches employee
deferrals at varying percentages, set at the discretion of the
Board of Directors. For the years ended December 31, 2002,
2001 and 2000, the Company expensed $7.2 million,
$9.5 million and $5.1 million, respectively, as
matching contributions.

Participating employees in the Companys
employee stock purchase plan (the Purchase Plan)
have the option to purchase shares at 85% of the lower of the
closing price per share of common stock on the first or last day
of the calendar quarter. The Purchase Plan is intended to
qualify as an employee stock purchase plan under
Section 423 of the Internal Revenue Code of 1986, as
amended. During 2002, 2001 and 2000, 351,695, 382,968 and
663,531 shares, respectively, were purchased under the Purchase
Plan. At December 31, 2002, 957,573 shares were available
for issuance under the Purchase Plan.

The Company has stock option plans to provide
incentives to eligible employees, officers and directors in the
form of incentive stock options, non-qualified stock options,
stock appreciation rights and restricted stock. The Board of
Directors determines the option price (not to be less than fair
market value for incentive options) at the date of grant.
Options, particularly those assumed or exchanged as a result of
acquisitions, have various vesting schedules and terms. The
majority of options granted under the Companys stock
option plans typically vest 25% per year over four years and
expire 10 years from the date of grant.

As the Company has done in prior years, the
Company reimburses its Chairman for business-related travel
services he provides for himself and other Company employees
with the use of his own airplane. For 2002, these reimbursements
totaled approximately $2.8 million which includes the
granting of stock options with a Black-Scholes value of
$1.4 million.

Stock option activity during the periods
indicated is as follows:

|                                 |           |           |            |                  |   |   |       |       | 
|-------------------------------- | --------- | --------- | ---------- | ---------------- | - | - | ----- | ----- | 
|                                 |           | Number of |            | Weighted-Average
|                                 |           | Options   |            | Exercise Price  
|                                 |           |           |            |                 
|Outstanding at December 31, 1999 |           |           | 17,884,480 |                  |   | $ | 27.59 |      
|                                 | Granted   |           |            | 15,340,516       |   |   |       | 14.78 | 
|                                 | Exercised |           |            | (508,412         | ) |   |       | 9.24  | 
|                                 | Canceled  |           |            | (5,558,403       | ) |   |       | 21.98 | 
|                                 |           |           |            |                  |   |   |       |      
|Outstanding at December 31, 2000 |           |           | 27,158,181 |                  |   |   | 21.80 |      
|                                 | Granted   |           |            | 8,399,811        |   |   |       | 18.40 | 
|                                 | Exercised |           |            | (2,514,514       | ) |   |       | 12.88 | 
|                                 | Canceled  |           |            | (3,158,609       | ) |   |       | 22.89 | 
|                                 |           |           |            |                  |   |   |       |      
|Outstanding at December 31, 2001 |           |           | 29,884,869 |                  |   |   | 21.44 |      
|                                 | Granted   |           |            | 7,311,605        |   |   |       | 12.78 | 
|                                 | Exercised |           |            | (444,783         | ) |   |       | 11.26 | 
|                                 | Canceled  |           |            | (3,094,059       | ) |   |       | 21.47 | 
|                                 |           |           |            |                  |   |   |       |      
|Outstanding at December 31, 2002 |           |           | 33,657,632 |                  |   | $ | 19.69 |      
|                                 |           |           |            |                  |   |   |       |      



Quintiles Transnational 2002 Annual
Report  81




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Selected information regarding stock options as
of December 31, 2002 follows:

|                    |            |                      |  |                |                |                  |  |                  |       |                |  |                  |      |  |  |  |            |  |  |   |       | 
|------------------- | ---------- | -------------------- |  | -------------- | -------------- | ---------------- |  | ---------------- | ----- | -------------- |  | ---------------- | ---- |  |  |  | ---------- |  |  | - | ----- | 
|                    |            |                     
|Options Outstanding |            | Options Exercisable 
|                    |            |                     
|Number of           |            |                      |  |                |                | Weighted-Average |  | Weighted-Average |       | Number of      |  | Weighted-Average
|Options             |            | Exercise Price Range |  | Exercise Price |                | Remaining Life   |  | Options          |       | Exercise Price
|                    |            |                      |  |                |                |                  |  |                  |       |               
|                    | 6,093,006  |                      |  | $              | 1.04  $13.09  |                  |  | $                | 11.01 |                |  |                  | 8.83 |  |  |  | 898,722    |  |  | $ | 8.52  | 
|                    | 7,609,190  |                      |  | $              | 13.13  $13.44 |                  |  |                  | 13.44 |                |  |                  | 7.13 |  |  |  | 5,560,202  |  |  |   | 13.44 | 
|                    | 6,979,255  |                      |  | $              | 13.50  $17.75 |                  |  |                  | 15.62 |                |  |                  | 8.19 |  |  |  | 2,881,341  |  |  |   | 15.17 | 
|                    | 6,982,677  |                      |  | $              | 17.80  $25.25 |                  |  |                  | 20.81 |                |  |                  | 6.84 |  |  |  | 5,056,913  |  |  |   | 20.71 | 
|                    | 5,993,504  |                      |  | $              | 25.44  $56.25 |                  |  |                  | 39.90 |                |  |                  | 4.97 |  |  |  | 5,503,179  |  |  |   | 40.17 | 
|                    |            |                      |  |                |                |                  |  |                  |       |                |  |                  |      |  |  |  |            |  |  |   |       | 
|                    | 33,657,632 |                      |  |                |                |                  |  | $                | 19.69 |                |  |                  | 7.21 |  |  |  | 19,900,357 |  |  | $ | 22.71 | 
|                    |            |                      |  |                |                |                  |  |                  |       |                |  |                  |      |  |  |  |            |  |  |   |       | 



|    |                                  
|--- | ---------------------------------
|25. | Operations by Geographic Location

The table below presents the Companys
operations by geographical location. The Company attributes
revenues to geographical locations based upon (1) customer
service activities, (2) operational management,
(3) business development activities and (4) customer
contract coordination. Investment revenues are included in the
United States data. The Companys operations within each
geographical region are further broken down to show each country
which accounts for 10% or more of the totals (in thousands):

|                                       |                    |                |                   |         |         |         |           |         |         |         |           |         |         |         | 
|-------------------------------------- | ------------------ | -------------- | ----------------- | ------- | ------- | ------- | --------- | ------- | ------- | ------- | --------- | ------- | ------- | ------- | 
|                                       |                    | 2002           |                   | 2001    |         | 2000   
|                                       |                    |                |                   |         |         |        
|Revenues:                              |                    |                |                   |         |         |         |           |         |         |         |           |        
|                                       | Americas:          |                |                   |         |         |         |           |         |         |         |           |         |        
|                                       |                    | United States  |                   | $       | 694,809 |         |           | $       | 815,204 |         |           | $       | 930,495 |        
|                                       |                    | Other          |                   |         | 43,033  |         |           |         | 39,710  |         |           |         | 28,710  |        
|                                       |                    |                |                   |         |         |         |           |         |         |         |           |        
|                                       |                    |                | Americas          |         |         | 737,842 |           |         |         | 854,914 |           |         |         | 959,205 | 
|                                       | Europe and Africa: |                |                   |         |         |         |           |         |         |         |           |         |        
|                                       |                    | United Kingdom |                   |         | 344,392 |         |           |         | 330,087 |         |           |         | 348,267 |        
|                                       |                    | Other          |                   |         | 317,367 |         |           |         | 271,730 |         |           |         | 233,231 |        
|                                       |                    |                |                   |         |         |         |           |         |         |         |           |        
|                                       |                    |                | Europe and Africa |         |         | 661,759 |           |         |         | 601,817 |           |         |         | 581,498 | 
|                                       | Asia-Pacific       |                |                   | 193,158 |         |         |           | 163,752 |         |         |           | 119,786 |        
|                                       |                    |                |                   |         |         |         |           |         |         |         |           |        
|                                       |                    |                | 1,592,759         |         |         |         | 1,620,483 |         |         |         | 1,660,489 |        
|Reimbursed service costs               |                    |                | 399,650           |         |         |         | 263,429   |         |         |         | 210,588   |        
|                                       |                    |                |                   |         |         |         |           |         |         |         |           |        
|                                       |                    | $              | 1,992,409         |         |         | $       | 1,883,912 |         |         | $       | 1,871,077 |        
|                                       |                    |                |                   |         |         |         |           |         |         |         |           |        
|Property, equipment and software, net: |                    |                |                   |         |         |         |           |         |         |         |           |        
|                                       | Americas:          |                |                   |         |         |         |           |         |         |         |           |         |        
|                                       |                    | United States  |                   | $       | 165,628 |         |           | $       | 203,685 |         |           | $       | 222,727 |        
|                                       |                    | Other          |                   |         | 1,729   |         |           |         | 1,856   |         |           |         | 2,067   |        
|                                       |                    |                |                   |         |         |         |           |         |         |         |           |        
|                                       |                    |                | Americas          |         |         | 167,357 |           |         |         | 205,541 |           |         |         | 224,794 | 
|                                       | Europe and Africa: |                |                   |         |         |         |           |         |         |         |           |         |        
|                                       |                    | United Kingdom |                   |         | 127,390 |         |           |         | 125,702 |         |           |         | 133,025 |        
|                                       |                    | Other          |                   |         | 15,969  |         |           |         | 13,640  |         |           |         | 16,911  |        
|                                       |                    |                |                   |         |         |         |           |         |         |         |           |        
|                                       |                    |                | Europe and Africa |         |         | 143,359 |           |         |         | 139,342 |           |         |         | 149,936 | 
|                                       | Asia-Pacific       |                |                   | 17,186  |         |         |           | 17,423  |         |         |           | 17,230  |        
|                                       |                    |                |                   |         |         |         |           |         |         |         |           |        
|                                       |                    | $              | 327,902           |         |         | $       | 362,306   |         |         | $       | 391,960   |        
|                                       |                    |                |                   |         |         |         |           |         |         |         |           |        



82  Quintiles
Transnational 2002 Annual Report




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |         
|--- | --------
|26. | Segments

The following table presents the Companys
operations by reportable segment. The Company is managed through
three reportable segments, namely, the product development
group, the commercial services group, and the PharmaBio
Development group, which became a reportable segment in 2002.
The informatics group was transferred to a joint venture in May
2002. Management has distinguished these segments based on the
normal operations of the Company. The product development group
is primarily responsible for all phases of clinical research and
outcomes research consulting. The commercial services group is
primarily responsible for sales force deployment and strategic
marketing services. Before being transferred to the joint
venture, the informatics group was primarily responsible for
providing market research solutions and strategic analysis to
support healthcare decisions. The PharmaBio Development group is
primarily responsible for facilitating non-traditional customer
alliances and consists primarily of product revenues, royalties
and commissions and investment revenues relating to the
financial arrangements with customers and other third parties.
During 2002, the Late Phase, primarily Phase IV, operations
previously included in the commercial services group were
reclassified to the product development group in order to
consolidate the operational and business development activities.
These changes are reflected in all periods presented. The
Company does not include general and administrative expenses,
depreciation and amortization except amortization of commercial
rights, interest (income) expense, other
(income) expense and income tax expense (benefit) in
segment profitability. Intersegment revenues have been
eliminated. (in thousands):

|                                |                          |                              |           |            |           |             |         |             |         |              |        |              |        |  |         |   |         |  |         |         |         |   |           |           |           | 
|------------------------------- | ------------------------ | ---------------------------- | --------- | ---------- | --------- | ----------- | ------- | ----------- | ------- | ------------ | ------ | ------------ | ------ |  | ------- | - | ------- |  | ------- | ------- | ------- | - | --------- | --------- | --------- | 
|                                |                          |                             
|                                |                          | Year Ended December 31, 2002
|                                |                          |                             
|                                |                          | Product                      |           | Commercial |           |             |         | PharmaBio   |         |             
|                                |                          | development                  |           | services   |           | Informatics |         | Development |         | Eliminations |        | Consolidated
|                                |                          |                              |           |            |           |             |         |             |         |              |        |             
|Service revenues:               |                          |                              |           |            |           |             |         |             |         |              |        |              |        |  |         |   |         |  |         |         |         |   |           |          
|                                | External                 |                              | $         | 944,861    |           |             | $       | 503,466     |         |              | $      | 20,347       |        |  | $       |  |         |  | $       |        |         |   | $         | 1,468,674 |          
|                                | Intersegment             |                              |           |           |           |             |         | 54,548      |         |              |        |             |        |  |         |  |         |  |         | (54,548 | )       |   |           |          |          
|                                |                          |                              |           |            |           |             |         |             |         |              |        |              |        |  |         |   |         |  |         |         |         |   |           |          
|                                | Total net services       |                              |           | 944,861    |           |             |         | 558,014     |         |              |        | 20,347       |        |  |         |  |         |  |         | (54,548 | )       |   |           | 1,468,674 |          
|                                | Reimbursed service costs |                              |           | 312,669    |           |             |         | 86,959      |         |              |        | 22           |        |  |         |  |         |  |         |        |         |   |           | 399,650   |          
|                                |                          |                              |           |            |           |             |         |             |         |              |        |              |        |  |         |   |         |  |         |         |         |   |           |          
|Gross service revenues          |                          |                              | 1,257,530 |            |           |             | 644,973 |             |         |              | 20,369 |              |        |  |        |   |         |  | (54,548 | )       |         |   | 1,868,324 |          
|Commercial rights and royalties |                          |                              |          |            |           |             |        |             |         |              |       |              |        |  | 110,381 |   |         |  |        |         |         |   | 110,381   |          
|Investment                      |                          |                              |          |            |           |             |        |             |         |              |       |              |        |  | 13,704  |   |         |  |        |         |         |   | 13,704    |          
|                                |                          |                              |           |            |           |             |         |             |         |              |        |              |        |  |         |   |         |  |         |         |         |   |           |          
|                                |                          | Total revenues               |           | $          | 1,257,530 |             |         | $           | 644,973 |              |        | $            | 20,369 |  |         | $ | 124,085 |  |         | $       | (54,548 | ) |           | $         | 1,992,409 | 
|                                |                          |                              |           |            |           |             |         |             |         |              |        |              |        |  |         |   |         |  |         |         |         |   |           |          

Contribution (revenues less costs of revenues
excluding depreciation and amortization shown below):

| |  |   |         |  |  |   |         |  |  |   |       |  |  |   |        |  |  |   |   |  |  |   |         | 
| |  | - | ------- |  |  | - | ------- |  |  | - | ----- |  |  | - | ------ |  |  | - | - |  |  | - | ------- | 
| |  | $ | 477,492 |  |  | $ | 207,711 |  |  | $ | 8,024 |  |  | $ | 17,620 |  |  | $ |  |  |  | $ | 710,847 | 
| |  |   |         |  |  |   |         |  |  |   |       |  |  |   |        |  |  |   |   |  |  |   |         | 



Quintiles Transnational 2002 Annual
Report  83




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                |                          |                              |           |            |           |             |         |             |         |              |        |              |        |  |        |   |        |  |         |         |         |   |           |           |           | 
|------------------------------- | ------------------------ | ---------------------------- | --------- | ---------- | --------- | ----------- | ------- | ----------- | ------- | ------------ | ------ | ------------ | ------ |  | ------ | - | ------ |  | ------- | ------- | ------- | - | --------- | --------- | --------- | 
|                                |                          |                             
|                                |                          | Year Ended December 31, 2001
|                                |                          |                             
|                                |                          | Product                      |           | Commercial |           |             |         | PharmaBio   |         |             
|                                |                          | development                  |           | services   |           | Informatics |         | Development |         | Eliminations |        | Consolidated
|                                |                          |                              |           |            |           |             |         |             |         |              |        |             
|Service revenues:               |                          |                              |           |            |           |             |         |             |         |              |        |              |        |  |        |   |        |  |         |         |         |   |           |          
|                                | External                 |                              | $         | 913,947    |           |             | $       | 621,964     |         |              | $      | 58,169       |        |  | $      |  |        |  | $       |        |         |   | $         | 1,594,080 |          
|                                | Intersegment             |                              |           |           |           |             |         | 12,900      |         |              |        |             |        |  |        |  |        |  |         | (12,900 | )       |   |           |          |          
|                                |                          |                              |           |            |           |             |         |             |         |              |        |              |        |  |        |   |        |  |         |         |         |   |           |          
|                                | Total net services       |                              |           | 913,947    |           |             |         | 634,864     |         |              |        | 58,169       |        |  |        |  |        |  |         | (12,900 | )       |   |           | 1,594,080 |          
|                                | Reimbursed service costs |                              |           | 234,481    |           |             |         | 28,743      |         |              |        | 205          |        |  |        |  |        |  |         |        |         |   |           | 263,429   |          
|                                |                          |                              |           |            |           |             |         |             |         |              |        |              |        |  |        |   |        |  |         |         |         |   |           |          
|Gross service revenues          |                          |                              | 1,148,428 |            |           |             | 663,607 |             |         |              | 58,374 |              |        |  |       |   |        |  | (12,900 | )       |         |   | 1,857,509 |          
|Commercial rights and royalties |                          |                              |          |            |           |             |        |             |         |              |       |              |        |  | 25,792 |   |        |  |        |         |         |   | 25,792    |          
|Investment                      |                          |                              |          |            |           |             |        |             |         |              |       |              |        |  | 611    |   |        |  |        |         |         |   | 611       |          
|                                |                          |                              |           |            |           |             |         |             |         |              |        |              |        |  |        |   |        |  |         |         |         |   |           |          
|                                |                          | Total revenues               |           | $          | 1,148,428 |             |         | $           | 663,607 |              |        | $            | 58,374 |  |        | $ | 26,403 |  |         | $       | (12,900 | ) |           | $         | 1,883,912 | 
|                                |                          |                              |           |            |           |             |         |             |         |              |        |              |        |  |        |   |        |  |         |         |         |   |           |          

Contribution (revenues less costs of revenues
excluding depreciation and amortization shown below):

| |  |   |         |  |  |   |         |  |  |   |        |  |  |   |        |   |  |   |   |  |  |   |         | 
| |  | - | ------- |  |  | - | ------- |  |  | - | ------ |  |  | - | ------ | - |  | - | - |  |  | - | ------- | 
| |  | $ | 438,426 |  |  | $ | 197,452 |  |  | $ | 27,173 |  |  | $ | (2,311 | ) |  | $ |  |  |  | $ | 660,740 | 
| |  |   |         |  |  |   |         |  |  |   |        |  |  |   |        |   |  |   |   |  |  |   |         | 

|                                |                    |                              |                |            |         |             |         |             |        |              |        |              |    |        |        |   |   |        |   |   |   |   |           |           |         |           | 
|------------------------------- | ------------------ | ---------------------------- | -------------- | ---------- | ------- | ----------- | ------- | ----------- | ------ | ------------ | ------ | ------------ | -- | ------ | ------ | - | - | ------ | - | - | - | - | --------- | --------- | ------- | --------- | 
|                                |                    |                             
|                                |                    | Year Ended December 31, 2000
|                                |                    |                             
|                                |                    | Product                      |                | Commercial |         |             |         | PharmaBio   |        |             
|                                |                    | development                  |                | services   |         | Informatics |         | Development |        | Eliminations |        | Consolidated
|                                |                    |                              |                |            |         |             |         |             |        |              |        |             
|Service revenues:               |                    |                              |                |            |         |             |         |             |        |              |        |              |    |        |        |   |   |        |   |   |   |   |           |          
|                                | External           |                              | $              | 841,525    |         |             | $       | 748,494     |        |              | $      | 59,709       |    |        | $      |  |   |        | $ |  |   |   | $         | 1,649,728 |        
|                                | Intersegment       |                              |                |           |         |             |         |            |        |              |        |             |    |        |        |  |   |        |   |  |   |   |           |          |        
|                                |                    |                              |                |            |         |             |         |             |        |              |        |              |    |        |        |   |   |        |   |   |   |   |           |          
|                                | Total net services |                              |                | 841,525    |         |             |         | 748,494     |        |              |        | 59,709       |    |        |        |  |   |        |   |  |   |   |           | 1,649,728 |        
|                                |                    | Reimbursed service costs     |                |            | 191,092 |             |         |             | 19,471 |              |        |              | 25 |        |        |   |  |        |   |   |  |   |           |           | 210,588 |          
|                                |                    |                              |                |            |         |             |         |             |        |              |        |              |    |        |        |   |   |        |   |   |   |   |           |          
|Gross service revenues          |                    |                              | 1,032,617      |            |         |             | 767,965 |             |        |              | 59,734 |              |    |        |       |   |   |        |  |   |   |   | 1,860,316 |          
|Commercial rights and royalties |                    |                              |               |            |         |             |        |             |        |              |       |              |    |        | 10,182 |   |   |        |  |   |   |   | 10,182    |          
|Investment                      |                    |                              |               |            |         |             |        |             |        |              |       |              |    |        | 579    |   |   |        |  |   |   |   | 579       |          
|                                |                    |                              |                |            |         |             |         |             |        |              |        |              |    |        |        |   |   |        |   |   |   |   |           |          
|                                |                    |                              | Total revenues |            | $       | 1,032,617   |         |             | $      | 767,965      |        |              | $  | 59,734 |        |   | $ | 10,761 |   |   | $ |  |           |           | $       | 1,871,077 | 
|                                |                    |                              |                |            |         |             |         |             |        |              |        |              |    |        |        |   |   |        |   |   |   |   |           |          

Contribution (revenues less costs of revenues
excluding depreciation and amortization shown below):

| |  |   |         |  |  |   |         |  |  |   |        |  |  |   |       |  |  |   |   |  |  |   |         | 
| |  | - | ------- |  |  | - | ------- |  |  | - | ------ |  |  | - | ----- |  |  | - | - |  |  | - | ------- | 
| |  | $ | 382,611 |  |  | $ | 247,535 |  |  | $ | 33,239 |  |  | $ | 1,320 |  |  | $ |  |  |  | $ | 664,705 | 
| |  |   |         |  |  |   |         |  |  |   |        |  |  |   |       |  |  |   |   |  |  |   |         | 



84  Quintiles
Transnational 2002 Annual Report




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                             |                       |      |           |         |  |      |           |         |  |   |           |         | 
|------------------------------------------------------------ | --------------------- | ---- | --------- | ------- |  | ---- | --------- | ------- |  | - | --------- | ------- | 
|                                                             |                       | 2002 |           | 2001    |  | 2000
|                                                             |                       |      |           |         |  |     
|Total Assets:                                                |                       |      |           |         |  |      |           |         |  |   |           |        
|                                                             | Product development   |      | $         | 798,578 |  |      | $         | 750,640 |  |   | $         | 721,964 | 
|                                                             | Commercial services   |      |           | 400,157 |  |      |           | 252,717 |  |   |           | 306,031 | 
|                                                             | PharmaBio Development |      |           | 315,633 |  |      |           | 164,111 |  |   |           | 131,498 | 
|                                                             | Informatics           |      |           |        |  |      |           | 124,057 |  |   |           | 141,420 | 
|                                                             | Corporate             |      |           | 637,715 |  |      |           | 656,215 |  |   |           | 660,665 | 
|                                                             |                       |      |           |         |  |      |           |         |  |   |           |        
|                                                             |                       | $    | 2,152,083 |         |  | $    | 1,947,740 |         |  | $ | 1,961,578 |        
|                                                             |                       |      |           |         |  |      |           |         |  |   |           |        
|Expenditures to acquire long-lived assets:                   |                       |      |           |         |  |      |           |         |  |   |           |        
|                                                             | Product development   |      | $         | 34,402  |  |      | $         | 109,031 |  |   | $         | 72,146  | 
|                                                             | Commercial services   |      |           | 4,656   |  |      |           | 12,520  |  |   |           | 26,939  | 
|                                                             | PharmaBio Development |      |           | 247     |  |      |           |        |  |   |           |        | 
|                                                             | Informatics           |      |           | 666     |  |      |           | 9,962   |  |   |           | 6,964   | 
|                                                             | Corporate             |      |           | 186     |  |      |           | 2,470   |  |   |           | 2,733   | 
|                                                             |                       |      |           |         |  |      |           |         |  |   |           |        
|                                                             |                       | $    | 40,157    |         |  | $    | 133,983   |         |  | $ | 108,782   |        
|                                                             |                       |      |           |         |  |      |           |         |  |   |           |        
|Depreciation and amortization expense:                       |                       |      |           |         |  |      |           |         |  |   |           |        
|                                                             | Product development   |      | $         | 60,710  |  |      | $         | 60,255  |  |   | $         | 53,959  | 
|                                                             | Commercial Services   |      |           | 21,926  |  |      |           | 23,823  |  |   |           | 27,782  | 
|                                                             | Informatics           |      |           | 2,559   |  |      |           | 10,031  |  |   |           | 8,464   | 
|                                                             | Corporate             |      |           | 953     |  |      |           | 986     |  |   |           | 1,037   | 
|                                                             |                       |      |           |         |  |      |           |         |  |   |           |        
|Depreciation and amortization excluded from
    contribution |                       |      | 86,148    |         |  |      | 95,095    |         |  |   | 91,242    |        
|                                                             | PharmaBio Development |      |           | 3,676   |  |      |           | 1,008   |  |   |           | 1,325   | 
|                                                             |                       |      |           |         |  |      |           |         |  |   |           |        
|Total depreciation and amortization                          |                       | $    | 89,824    |         |  | $    | 96,103    |         |  | $ | 92,567    |        
|                                                             |                       |      |           |         |  |      |           |         |  |   |           |        



Quintiles Transnational 2002 Annual
Report  85




---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

27.     Quarterly
Financial Data (Unaudited)

The following is a summary of unaudited quarterly
results of operations (in thousands, except per share amounts):

|                                                                                                                                       |                                                         |                              |         |             |  |         |               |         |  |         |               |      |  |   |              |      |  |   |              |      | 
|-------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ---------------------------- | ------- | ----------- |  | ------- | ------------- | ------- |  | ------- | ------------- | ---- |  | - | ------------ | ---- |  | - | ------------ | ---- | 
|                                                                                                                                       |                                                         |                             
|                                                                                                                                       |                                                         | Year Ended December 31, 2002
|                                                                                                                                       |                                                         |                             
|                                                                                                                                       |                                                         | First                        |         | First       |  |        
|                                                                                                                                       |                                                         | Quarter                      |         | Quarter     |  | Second  |               | Third   |  | Fourth 
|                                                                                                                                       |                                                         | As Reported                  |         | As Restated |  | Quarter |               | Quarter |  | Quarter
|                                                                                                                                       |                                                         |                              |         |             |  |         |               |         |  |        
|Gross revenues                                                                                                                         |                                                         | $                            | 493,296 |             |  | $       | 493,296       |         |  | $       | 498,233       |      |  | $ | 490,965      |      |  | $ | 509,915      |     
|Income from continuing operations before income
    taxes                                                                              |                                                         |                              | 25,762  |             |  |         | 25,762        |         |  |         | 30,074        |      |  |   | 33,798       |      |  |   | 34,026       |     
|Income (loss) from continuing operations                                                                                               |                                                         |                              | 17,261  |             |  |         | 17,261        |         |  |         | 20,626        |      |  |   | 21,179       |      |  |   | 22,598       |     
|Cumulative effect on prior years (to
    December 31, 2001) of changing to a different method of
    recognizing deferred income taxes |                                                         |                              |        |             |  |         | 45,659        |         |  |         |              |      |  |   |             |      |  |   |             |     
|Net income                                                                                                                             |                                                         | $                            | 17,261  |             |  | $       | 62,920        |         |  | $       | 20,626        |      |  | $ | 21,179       |      |  | $ | 22,598       |     
|                                                                                                                                       |                                                         |                              |         |             |  |         |               |         |  |         |               |      |  |   |              |      |  |   |              |     
|Basic net income per share:                                                                                                            |                                                         |                              |         |             |  |         |               |         |  |         |               |      |  |   |              |      |  |   |              |     
|                                                                                                                                       | Income from continuing operations                       |                              | $       | 0.15        |  |         | $             | 0.15    |  |         | $             | 0.17 |  |   | $            | 0.18 |  |   | $            | 0.19 | 
|                                                                                                                                       | Cumulative effect of change in accounting
    principle |                              |         |            |  |         |               | 0.38    |  |         |               |     |  |   |              |     |  |   |              |     | 
|                                                                                                                                       |                                                         |                              |         |             |  |         |               |         |  |         |               |      |  |   |              |      |  |   |              |     
|                                                                                                                                       | Basic net income per share                              |                              | $       | 0.15        |  |         | $             | 0.53    |  |         | $             | 0.17 |  |   | $            | 0.18 |  |   | $            | 0.19 | 
|                                                                                                                                       |                                                         |                              |         |             |  |         |               |         |  |         |               |      |  |   |              |      |  |   |              |     
|Diluted net income per share:                                                                                                          |                                                         |                              |         |             |  |         |               |         |  |         |               |      |  |   |              |      |  |   |              |     
|                                                                                                                                       | Income from continuing operations                       |                              | $       | 0.14        |  |         | $             | 0.14    |  |         | $             | 0.17 |  |   | $            | 0.18 |  |   | $            | 0.19 | 
|                                                                                                                                       | Cumulative effect of change in accounting
    principle |                              |         |            |  |         |               | 0.38    |  |         |               |     |  |   |              |     |  |   |              |     | 
|                                                                                                                                       |                                                         |                              |         |             |  |         |               |         |  |         |               |      |  |   |              |      |  |   |              |     
|                                                                                                                                       | Diluted net income per share                            |                              | $       | 0.14        |  |         | $             | 0.52    |  |         | $             | 0.17 |  |   | $            | 0.18 |  |   | $            | 0.19 | 
|                                                                                                                                       |                                                         |                              |         |             |  |         |               |         |  |         |               |      |  |   |              |      |  |   |              |     
|Range of stock prices                                                                                                                  |                                                         |                              |         |             |  | $       | 14.680-19.300 |         |  | $       | 11.300-17.700 |      |  | $ | 8.350-12.457 |      |  | $ | 7.650-12.360 |     

As discussed in Note 19, the Company changed
its method for calculating deferred income taxes related to
multi-jurisdictional tax transactions effective January 1,
2002.

|                                                                         |                                                            |                              |               |         |  |         |               |         |  |   |               |       |   |   |               |      | 
|------------------------------------------------------------------------ | ---------------------------------------------------------- | ---------------------------- | ------------- | ------- |  | ------- | ------------- | ------- |  | - | ------------- | ----- | - | - | ------------- | ---- | 
|                                                                         |                                                            |                             
|                                                                         |                                                            | Year Ended December 31, 2001
|                                                                         |                                                            |                             
|                                                                         |                                                            | First                        |               | Second  |  | Third   |               | Fourth 
|                                                                         |                                                            | Quarter                      |               | Quarter |  | Quarter |               | Quarter
|                                                                         |                                                            |                              |               |         |  |         |               |        
|Gross revenues                                                           |                                                            | $                            | 464,141       |         |  | $       | 471,718       |         |  | $ | 464,683       |       |   | $ | 483,370       |     
|Income (loss) from continuing operations
    before income taxes         |                                                            |                              | 11,628        |         |  |         | 14,438        |         |  |   | (398,605      | )     |   |   | 110,043       |     
|Income (loss) from continuing operations                                 |                                                            |                              | 7,791         |         |  |         | 9,674         |         |  |   | (265,911      | )     |   |   | 72,573        |     
|Extraordinary gain from sale of discontinued
    operation, net of taxes |                                                            |                              |              |         |  |         |              |         |  |   | 142,030       |       |   |   |              |     
|Net income (loss)                                                        |                                                            | $                            | 7,791         |         |  | $       | 9,674         |         |  | $ | (123,881      | )     |   | $ | 72,573        |     
|                                                                         |                                                            |                              |               |         |  |         |               |         |  |   |               |       |   |   |               |     
|Basic net income (loss) per share:                                       |                                                            |                              |               |         |  |         |               |         |  |   |               |       |   |   |               |     
|                                                                         | Income (loss) from continuing operations                   |                              | $             | 0.07    |  |         | $             | 0.08    |  |   | $             | (2.22 | ) |   | $             | 0.61 | 
|                                                                         | Extraordinary gain from sale of discontinued
    operation |                              |               |        |  |         |               |        |  |   |               | 1.19  |   |   |               |     | 
|                                                                         |                                                            |                              |               |         |  |         |               |         |  |   |               |       |   |   |               |     
|                                                                         | Basic net income (loss) per share                          |                              | $             | 0.07    |  |         | $             | 0.08    |  |   | $             | (1.03 | ) |   | $             | 0.61 | 
|                                                                         |                                                            |                              |               |         |  |         |               |         |  |   |               |       |   |   |               |     
|Diluted net income (loss) per share:                                     |                                                            |                              |               |         |  |         |               |         |  |   |               |       |   |   |               |     
|                                                                         | Income (loss) from continuing operations                   |                              | $             | 0.06    |  |         | $             | 0.08    |  |   | $             | (2.22 | ) |   | $             | 0.60 | 
|                                                                         | Extraordinary gain from sale of discontinued
    operation |                              |               |        |  |         |               |        |  |   |               | 1.19  |   |   |               |     | 
|                                                                         |                                                            |                              |               |         |  |         |               |         |  |   |               |       |   |   |               |     
|                                                                         | Diluted net income (loss) per share                        |                              | $             | 0.06    |  |         | $             | 0.08    |  |   | $             | (1.03 | ) |   | $             | 0.60 | 
|                                                                         |                                                            |                              |               |         |  |         |               |         |  |   |               |       |   |   |               |     
|Range of stock prices                                                    |                                                            | $                            | 14.688-22.875 |         |  | $       | 15.000-26.050 |         |  | $ | 12.450-25.500 |       |   | $ | 13.610-18.900 |     



86  Quintiles
Transnational 2002 Annual Report




---



##### 



Report of Independent Accountants

The Board of Directors and Shareholders of
Quintiles Transnational Corp.

In our opinion, the accompanying consolidated
balance sheet as of December 31, 2002 and the related
consolidated statements of operations, of cash flows, and of
shareholders equity present fairly, in all material
respects, the financial position of Quintiles Transnational
Corp. and subsidiaries at December 31, 2002 and the results
of their operations and their cash flows for the year then
ended, in conformity with accounting principles generally
accepted in the United States of America. These financial
statements are the responsibility of the Companys
management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit
of these statements in accordance with auditing standards
generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. The financial
statements of Quintiles Transnational Corp. as of
December 31, 2001, and for each of the two years in the
period ended December 31, 2001, before the revisions
described in Note 2, 11 and 26, were audited by other
independent accountants who have ceased operations. Those
independent accountants expressed an unqualified opinion on
those financial statements in their report dated
January 23, 2002, except with respect to the matters
discussed in Note 23, as to which the date is March 22,
2002*.

As discussed in Note 19 to the financial
statements, the Company changed its method for recording the
benefit of international, multi-jurisdictional tax strategies on
January 1, 2002.

As discussed in Note 11 to the financial
statements, the Company changed its method of accounting for
goodwill upon the adoption of the accounting guidance of
Statement of Financial Accounting Standards No. 142 on
January 1, 2002.

As discussed above, the financial statements of
Quintiles Transnational Corp. and subsidiaries as of
December 31, 2001, and for each of two years in the period
ended December 31, 2001, were audited by other independent
accountants who have ceased operations. As described in
Notes 2 and 26, these financial statements have been
restated to reflect the adoption of Emerging Issues Task Force
01-14, Income Statement Characterization of Reimbursements
Received for Out-of-Pocket Expenses Incurred,
and the change in the composition of the Companys
reportable segments, respectively. As described in Note 11,
these financial statements have also been revised to include the
transitional disclosures required by Statement of Financial
Accounting Standards No. 142, Goodwill and Other
Intangible Assets, which was adopted by the Company as of
January 1, 2002. We audited the adjustments described in
Notes 2 and 26 that were applied to revise the 2001 and 2000
financial statements. We also audited the transitional
disclosures described in Note 11. In our opinion, such
adjustments are appropriate and have been properly applied and
the transitional disclosures for 2001 and 2000 in Note 11 are
appropriate. However, we were not engaged to audit, review, or
apply any procedures to the 2001 or 2000 financial statements of
the Company other than with respect to such adjustments and
disclosure and, accordingly, we do not express an opinion or any
other form of assurance on the 2001 or 2000 financial statements
taken as a whole.

/s/ PricewaterhouseCoopers LLP

Raleigh, North Carolina

January 29, 2003


*This reference refers to Note 23 on
Form 10-K for the year ended December 31, 2001.



Quintiles Transnational 2002 Annual
Report  87




---



##### 



This is a copy of the audit report previously
issued by Arthur Andersen LLP in connection with our filing on
Form 10-K for the fiscal year ended December 31, 2001.
This audit report has not been reissued by Arthur Andersen LLP
in connection with this filing on Form 10-K nor has Arthur
Andersen LLP provided a consent to the inclusion of its report
in this Form 10-K. For further discussion, see
Exhibit 23.02 to this Form 10-K of which this report
forms a part. The financial statements to which this report
relates have been revised as discussed in Note 2. These changes
are not covered by the copy of the report of Arthur Andersen LLP
and were audited by PricewaterhouseCoopers LLP as described in
their report.

REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To Quintiles Transnational Corp.:

We have audited the accompanying consolidated
balance sheets of Quintiles Transnational Corp. (a North
Carolina corporation) and subsidiaries as of December 31,
2001 and 2000, and the related consolidated statements of
operations, shareholders equity and cash flows for each of
the three years in the period ended December 31, 2001.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Quintiles Transnational
Corp. and subsidiaries as of December 31, 2001 and 2000,
and the results of their operations and their cash flows for
each of the three years in the period ended December 31,
2001, in conformity with accounting principles generally
accepted in the United States.



| |                    
| | -------------------
| | ARTHUR ANDERSEN LLP

Raleigh, North Carolina,

January 23, 2002, except with respect to


the matters discussed in Note 23, as to


which the date is March 22, 2002*


*This reference refers to Note 23 on
Form 10-K for the year ended December 31, 2001.



88  Quintiles
Transnational 2002 Annual Report




---



##### 





|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

On May 22, 2002, the Company filed a Current
Report on Form 8-K reporting that on May 17, 2002, the
Companys Board of Directors dismissed Arthur Anderson LLP
and engaged PricewaterhouseCoopers LLP as the Companys
independent public accountants for the Companys fiscal
year ended December 31, 2002.

PART III



|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

Information on the Companys directors is
incorporated by reference from the Companys definitive
proxy statement to be filed with respect to the 2003 Annual
Meeting of Shareholders. Information on the Companys
executive officers is included in Part I under the caption
Executive Officers of the Registrant on page 18 of this
report.



|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

This information is incorporated by reference
from our definitive proxy statement to be filed with respect to
the 2003 Annual Meeting of Shareholders.



|         |                                                                                                       
|-------- | ------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder
    Matters

This information is incorporated by reference
from our definitive proxy statement to be filed with respect to
the 2003 Annual Meeting of Shareholders.



|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

This information is incorporated by reference
from our definitive proxy statement to be filed with respect to
the 2003 Annual Meeting of Shareholders.



|         |                        
|-------- | -----------------------
|Item 14. | Controls and Procedures

Based on the our most recent evaluation, which
was completed within 90 days of the filing of this
Form 10-K, our Chairman (principal executive officer) and
Chief Financial Officer believe our disclosure controls and
procedures (as defined in Rules 13a-14 and 15d-14 of the
Securities Exchange Act of 1934, as amended) are effective.
There have been no significant changes in internal controls or
in other factors that could significantly affect these controls
subsequent to the date of the most recent evaluation of our
internal controls, including any corrective actions with regard
to significant deficiencies and material weaknesses.



Quintiles Transnational 2002 Annual
Report  89




---



##### 



PART IV



|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K

(a)(1) Financial Statements. The
following financial statements and supplementary data are
included in Item 8 of this report.

|                                                                                                                                   |  |                |    | 
|---------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | -- | 
|Financial Statements                                                                                                               |  | Form 10-K Page
|                                                                                                                                   |  |               
|Consolidated Statements of Operations for the
    years ended December 31, 2002, 2001 and 2000                                     |  |                | 46 | 
|Consolidated Balance Sheets as of
    December 31, 2002 and 2001                                                                   |  |                | 47 | 
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2002, 2001 and 2000                                     |  |                | 48 | 
|Consolidated Statements of Shareholders
    Equity for the years ended December 31, 2002, 2001 and 2000                           |  |                | 49 | 
|Notes to Consolidated Financial Statements                                                                                         |  |                | 50 | 
|Report of Independent Public Accountants,
    PricewaterhouseCoopers LLC, dated January 29, 2003                                   |  |                | 87 | 
|Report of Independent Public Accountants, Arthur
    Andersen LLC, dated January 23, 2002 (previously issued and
    not reissued) |  |                | 88 | 

(a)(2) Financial Statement Schedules.
All applicable financial statement schedules required under
Regulation S-X have been included in the Notes to the
Consolidated Financial Statements.

(a)(3) Exhibits. The exhibits
required by Item 601 of Regulation S-K are listed
below.

|        |             |  |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|------- | ----------- |  |  | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |             |  |  | Description
|        |             |  |  |            
|        | 3.01(1)     |  |  |            |  | Amended and Restated Articles of Incorporation,
    as amended                                                                                                                                                                                                                                                                                                                     
|        | 3.02(2)     |  |  |            |  | Amended and Restated Bylaws, as amended                                                                                                                                                                                                                                                                                                                                            
|        | 4.01        |  |  |            |  | Amended and Restated Articles of Incorporation,
    as amended (see Exhibit 3.01)                                                                                                                                                                                                                                                                                                  
|        | 4.02        |  |  |            |  | Amended and Restated Bylaws, as amended (see
    Exhibit 3.02)                                                                                                                                                                                                                                                                                                                     
|        | 4.03(3)     |  |  |            |  | Specimen certificate for Common Stock, $0.01 par
    value per share                                                                                                                                                                                                                                                                                                               
|        | 4.04(4)     |  |  |            |  | Amended and Restated Rights Agreement, dated as
    of November 5, 1999 and amended and restated as of
    May 4, 2000 between Quintiles Transnational Corp. and First
    Union National Bank, including form of Articles of Amendment of
    Amended and Restated Articles of Incorporation, form of Rights
    Certificate and the Summary of Rights to Purchase Preferred Stock
|        | 10.01(5)(6) |  |  |            |  | Employment Agreement, dated March 13, 2001,
    by and between Dr. Pamela J. Kirby and Quintiles
    Transnational Corp.                                                                                                                                                                                                                                                           
|        | 10.02(5)(7) |  |  |            |  | Employment Agreement, dated February 22,
    1994, by and between Dr. Dennis B. Gillings and
    Quintiles Transnational Corp.                                                                                                                                                                                                                                                     
|        | 10.03(5)(8) |  |  |            |  | Amendment to Contract of Employment, dated
    October 26, 1999, by and between Dr. Dennis B.
    Gillings and Quintiles Transnational Corp.                                                                                                                                                                                                                                       
|        | 10.04(5)(9) |  |  |            |  | Second Amendment to Contract of Employment, dated
    April 1, 2002, by and between Dr. Dennis B.
    Gillings and Quintiles Transnational Corp.                                                                                                                                                                                                                                   
|        | 10.05(5)(8) |  |  |            |  | Executive Employment Agreement, dated
    June 16, 1998, by and between James L. Bierman and
    Quintiles Transnational Corp.                                                                                                                                                                                                                                                     
|        | 10.06(5)(8) |  |  |            |  | Executive Employment Agreement, dated
    December 3, 1998, by and between John S. Russell and
    Quintiles Transnational Corp.                                                                                                                                                                                                                                                   
|        | 10.07(5)(8) |  |  |            |  | Amendment to Executive Employment Agreement,
    dated October 26, 1999, by and between John S. Russell
    and Quintiles Transnational Corp.                                                                                                                                                                                                                                      
|        | 10.08(5)(9) |  |  |            |  | Quintiles Transnational Corp. Equity Compensation
    Plan, as amended and restated on January 1, 2001                                                                                                                                                                                                                                                                             



90  Quintiles
Transnational 2002 Annual Report




---



##### 



|        |             |  |  |             |  |                                                                                                                                                                                                                                                                                                                                    
|------- | ----------- |  |  | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |             |  |  | Description
|        |             |  |  |            
|        | 10.09(5)(8) |  |  |            |  | Quintiles Transnational Corp. Elective Deferred
    Compensation Plan, as amended and restated                                                                                                                                                                                                                                     
|        | 10.10(5)(9) |  |  |            |  | Quintiles Transnational Corp. Nonqualified Stock
    Option Plan, amended January 1, 2001                                                                                                                                                                                                                                          
|        | 10.11       |  |  |            |  | Quintiles Transnational Corp. 2002 Stock Option
    Plan                                                                                                                                                                                                                                                                           
|        | 10.12       |  |  |            |  | Quintiles Transnational Corp. Special Bonus Plan                                                                                                                                                                                                                                                                                   
|        | 10.13(10)   |  |  |            |  | Underlease, dated November 28, 1997, by and
    between PDFM Limited and Quintiles (UK) Limited and
    guaranteed by the Company                                                                                                                                                                                                  
|        | 10.15(11)   |  |  |            |  | Agreement for the Provision of Research Services
    and Purchase of Business Assets, dated as of January 1,
    1999, between Hoescht Marion Roussel, Inc. and Quintiles, Inc.                                                                                                                                                    
|        | 10.16(12)   |  |  |            |  | Agreement and Plan of Merger, dated as of
    January 22, 2000, among Quintiles Transnational Corp.,
    Healtheon/WebMD Corporation, Pine Merger Corp., Envoy Corp. and
    QFinance, Inc.                                                                                                                                        
|        | 10.17(13)   |  |  |            |  | Settlement Agreement, dated October 12,
    2001, between Quintiles Transnational Corp. and WebMD
    Corporation.                                                                                                                                                                                                                 
|        | 10.18(9)    |  |  |            |  | Master Services Agreement dated as of
    January 1, 2001 between Quintiles Transnational Corp. and
    A.M. Pappas & Associates, LLC. [Note: Certain confidential
    portions of this exhibit have been omitted as indicated in the
    exhibit with an asterisk (*), and filed with the Securities and
    Exchange Commission.]
|        | 16.01(14)   |  |  |            |  | Letter regarding change in the Companys
    certifying accountant dated May 17, 2002                                                                                                                                                                                                                                              
|        | 18.01       |  |  |            |  | Letter regarding change in accounting principle                                                                                                                                                                                                                                                                                    
|        | 21          |  |  |            |  | Subsidiaries                                                                                                                                                                                                                                                                                                                       
|        | 23.01       |  |  |            |  | Consent of PricewaterhouseCoopers LLP                                                                                                                                                                                                                                                                                              
|        | 23.02       |  |  |            |  | Information Regarding the Consent of Arthur
    Andersen LLP                                                                                                                                                                                                                                                                       
|        | 24.01       |  |  |            |  | Power of Attorney (included on the signature page
    hereto)                                                                                                                                                                                                                                                                      
|        | 99.01       |  |  |            |  | Certification Pursuant to 18 U.S.C.
    Section 1350, As Adopted Pursuant to Section 906 of
    The Sarbanes-Oxley Act of 2002                                                                                                                                                                                                     
|        | 99.02       |  |  |            |  | Certification Pursuant to 18 U.S.C.
    Section 1350, As Adopted Pursuant to Section 906 of
    The Sarbanes-Oxley Act of 2002                                                                                                                                                                                                     



---



| |     |                                                                                                                                                                                                                    
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Exhibit to our Quarterly Report on Form 10-Q
    for the period ended September 30, 1999, as filed with the
    Securities and Exchange Commission on November 15, 1999,
    and incorporated herein by reference. 
|
| | (2) | Exhibit to our Current Report on Form 8-K
    dated November 5, 1999, as filed with the Securities and
    Exchange Commission on November 5, 1999 and incorporated
    herein by reference.                       
|
| | (3) | Exhibit to our Registration Statement on
    Form S-8 as filed with the Securities and Exchange
    Commission (File No. 333-92987) effective December 17,
    1999, and incorporated herein by reference.         
|
| | (4) | Exhibit to our Registration Statement on
    Form 8-A/A, Amendment No. 1 (File No. 000-23520),
    as filed with the Securities and Exchange Commission on
    May 10, 2000, and incorporated herein by reference. 
|
| | (5) | Executive compensation plans and arrangements                                                                                                                                                                      
|
| | (6) | Exhibit to our Quarterly Report on Form 10-Q
    for the period ended March 31, 2001, as filed with the
    Securities and Exchange Commission on May 15, 2001, and
    incorporated herein by reference.          
|
| | (7) | Exhibit to our Registration Statement on
    Form S-1, as amended, as filed with the Securities and
    Exchange Commission (File No. 33-75766) effective
    April 20, 1994, and incorporated herein by reference.



Quintiles Transnational 2002 Annual
Report  91




---



##### 





| |     |                                                                                                                                                                                                                 
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (8) | Exhibit to our Annual Report on Form 10-K
    for the fiscal year ended December 31, 1999, as filed with
    the Securities and Exchange Commission on March 30, 2000,
    and incorporated herein by reference.
|
| | (9) | Exhibit to our Annual Report on Form 10-K
    for the fiscal year ended December 31, 2001, as filed with
    the Securities and Exchange Commission on March 22, 2002,
    and incorporated herein by reference.



|     |                                                                                                                                                                                                                  
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Exhibit to our Annual Report on Form 10-K
    for the fiscal year ended December 31, 1997, as filed with
    the Securities and Exchange Commission on March 30, 1998,
    and incorporated herein by reference. 
|    
|(11) | Exhibit to our Current Report on Form 8-K
    dated March 3, 1999, as filed with the Securities and
    Exchange Commission on March 3, 1999, and incorporated herein by
    reference.                          
|    
|(12) | Exhibit to our Current Report on Form 8-K,
    dated January 25, 2000, as filed with the Securities and
    Exchange Commission on January 25, 2000, and incorporated
    herein by reference.                   
|    
|(13) | Exhibit to our Quarterly Report on Form 10-Q
    for the period ended September 30, 2001, as filed with the
    Securities and Exchange Commission on November 1, 2001, and
    incorporated herein by reference.
|    
|(14) | Exhibit to our Current Report on Form 8-K
    dated May 17, 2002, as filed with the Securities and
    Exchange Commission on May 22, 2002, and incorporated
    herein by reference.                            

(b)     Reports on
Form 8-K.

We filed the following four Current Reports on
From 8-K between October 1, 2002 and December 31, 2002:

On October 15, 2002, we filed a Current
Report on Form 8-K attaching a press release announcing
that an entity wholly owned by Dennis Gillings, our Chairman of
the Board and Founder, had made a non-binding proposal to
acquire all of our outstanding shares. The Current Report on
Form 8-K dated October 15, 2002 was furnished pursuant to
Regulation FD. This report shall not be deemed to be
incorporated by reference into this Form 10-K or filed
hereunder for purposes of liability under the Securities
Exchange Act of 1934.

On October 17, 2002, we filed a Current
Report on Form 8-K reporting the commencement of several
purported class action lawsuits seeking to enjoin the
consummation of the transaction contemplated by the non-binding
proposal made by Pharma Services Company, a newly formed company
wholly owned by Dennis B. Gillings, Ph.D., to acquire
all of our outstanding shares for $11.25 per share in cash. The
Current Report on Form 8-K dated October 17, 2002 was
furnished pursuant to Regulation FD. This report shall not be
deemed to be incorporated by reference into this Form 10-K
or filed hereunder for purposes of liability under the
Securities Exchange Act of 1934.

On October 28, 2002, we filed a Current
Report on Form 8-K attaching a press release updating the
activities of the special committee of our Board of Directors
and identifying the members of the special committee. The
Current Report on Form 8-K dated October 28, 2002 was
furnished pursuant to Regulation FD. This report shall not be
deemed to be incorporated by reference into this Form 10-K
or filed hereunder for purposes of liability under the
Securities Exchange Act of 1934.

On November 12, 2002, we filed a Current
Report on Form 8-K attaching a press release in which the
special committee of our Board of Directors announced that it
had rejected the proposal by Pharma Services Company, an entity
wholly owned by Dennis B. Gillings, Ph.D., our Chairman of
the Board and Founder, to acquire all of our outstanding shares.
The Current Report on Form 8-K dated November 12, 2002
was furnished pursuant to Regulation FD. This report shall
not be deemed to be incorporated by reference into this
Form 10-K or filed hereunder for purposes of liability
under the Securities Exchange Act of 1934.

(c)     Exhibits
Required by this Form 10-K.

See (a)(3) above.

(d)     Financial
Statements and Schedules.

See (a)(2) above.



92  Quintiles
Transnational 2002 Annual Report




---



##### 



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in Durham, North
Carolina, on the 24th day of February, 2003.



| |                              
| | -----------------------------
| | QUINTILES TRANSNATIONAL CORP.



| |     |                       
| | --- | ----------------------
| | By: | /s/ DENNIS B. GILLINGS

| |                                   
| | ----------------------------------
| |                                   
| | Dennis B. Gillings, Ph.D.         
| | Chairman of the Board of Directors



Quintiles Transnational 2002 Annual
Report  93




---



##### 



CERTIFICATIONS

I, Dennis B. Gillings, Ph.D., certify that:

1. I have reviewed this annual report on
Form 10-K of Quintiles Transnational Corp.;

2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual
report;

4. The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b. evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c. presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons
performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b. any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6. The registrants other certifying
officers and I have indicated in this annual report whether or
not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.

Date: February 24, 2003



| |                          
| | -------------------------
| | /s/ Dennis B. Gillings   
| |                          
| | Dennis B. Gillings, Ph.D.
| | Chairman                 



94  Quintiles
Transnational 2002 Annual Report




---



##### 



I, James L. Bierman, certify that:

1. I have reviewed this annual report on
Form 10-K of Quintiles Transnational Corp.;

2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual
report;

4. The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b. evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c. presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons
performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b. any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6. The registrants other certifying
officers and I have indicated in this annual report whether or
not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.

Date: February 24, 2003



| |                        
| | -----------------------
| | /s/ James L. Bierman   
| |                        
| | James L. Bierman       
| | Chief Financial Officer



Quintiles Transnational 2002 Annual
Report  95




---



##### 



SIGNATURES AND POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person
whose signature appears below constitutes and appoints
Dennis B. Gillings and James L. Bierman and each of
them, each with full power to act without the other, his true
and lawful attorneys-in-fact and agents, with full powers of
substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any or all
amendments to this report, and to file the same, with all
exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises, as fully for all intents and
purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do or cause to be
done by virtue hereof.

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant in the capacities
and on the dates indicated.

|                                                       |  |                                        |  |                  
|------------------------------------------------------ |  | -------------------------------------- |  | -----------------
|Signature                                              |  | Title                                  |  | Date             
|                                                       |  |                                        |  |                  
|                                                      
|/s/ PAMELA J. KIRBYPamela J. Kirby, Ph.D.              |  | Chief Executive Officer                |  | February 24, 2003
|                                                      
|/s/ DENNIS B. GILLINGSDennis B. Gillings, Ph.D.        |  | Chairman of the
    Board of Directors |  | February 24, 2003
|                                                      
|/s/ JAMES L. BIERMANJames L. Bierman                   |  | Chief Financial Officer                |  | February 24, 2003
|                                                      
|/s/ ROBERT C. BISHOPRobert C. Bishop, Ph.D.            |  | Director                               |  | February 24, 2003
|                                                      
|/s/ E. G. F. BROWNE. G. F. Brown                       |  | Director                               |  | February 24, 2003
|                                                      
|/s/ VAUGHN D. BRYSONVaughn D. Bryson                   |  | Director                               |  | February 24, 2003
|                                                      
|/s/ CHESTER W. DOUGLASSChester W. Douglass, DMD, Ph.D. |  | Director                               |  | February 24, 2003
|                                                      
|/s/ ARTHUR M. PAPPASArthur M. Pappas                   |  | Director                               |  | February 24, 2003
|                                                      
|/s/ WILLIAM L. ROPERWilliam L. Roper, M.D., M.P.H.     |  | Director                               |  | February 24, 2003
|                                                      
|/s/ VIRGINIA V. WELDONVirginia V. Weldon, M.D.         |  | Director                               |  | February 24, 2003



96  Quintiles
Transnational 2002 Annual Report




---



##### 



EXHIBIT INDEX

|        |             |  |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                    
|------- | ----------- |  |  | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |             |  |  | Description
|        |             |  |  |            
|        | 3.01(1)     |  |  |            |  | Amended and Restated Articles of Incorporation,
    as amended                                                                                                                                                                                                                                                                                                                     
|        | 3.02(2)     |  |  |            |  | Amended and Restated Bylaws, as amended                                                                                                                                                                                                                                                                                                                                            
|        | 4.01        |  |  |            |  | Amended and Restated Articles of Incorporation,
    as amended (see Exhibit 3.01)                                                                                                                                                                                                                                                                                                  
|        | 4.02        |  |  |            |  | Amended and Restated Bylaws, as amended (see
    Exhibit 3.02)                                                                                                                                                                                                                                                                                                                     
|        | 4.03(3)     |  |  |            |  | Specimen certificate for Common Stock, $0.01 par
    value per share                                                                                                                                                                                                                                                                                                               
|        | 4.04(4)     |  |  |            |  | Amended and Restated Rights Agreement, dated as
    of November 5, 1999 and amended and restated as of
    May 4, 2000 between Quintiles Transnational Corp. and First
    Union National Bank, including form of Articles of Amendment of
    Amended and Restated Articles of Incorporation, form of Rights
    Certificate and the Summary of Rights to Purchase Preferred Stock
|        | 10.01(5)(6) |  |  |            |  | Employment Agreement, dated March 13, 2001,
    by and between Dr. Pamela J. Kirby and Quintiles
    Transnational Corp.                                                                                                                                                                                                                                                           
|        | 10.02(5)(7) |  |  |            |  | Employment Agreement, dated February 22,
    1994, by and between Dr. Dennis B. Gillings and Quintiles
    Transnational Corp.                                                                                                                                                                                                                                                     
|        | 10.03(5)(8) |  |  |            |  | Amendment to Contract of Employment, dated
    October 26, 1999, by and between Dr. Dennis B.
    Gillings and Quintiles Transnational Corp.                                                                                                                                                                                                                                       
|        | 10.04(5)(9) |  |  |            |  | Second Amendment to Contract of Employment, dated
    April 1, 2002, by and between Dr. Dennis B. Gillings
    and Quintiles Transnational Corp.                                                                                                                                                                                                                                   
|        | 10.05(5)(8) |  |  |            |  | Executive Employment Agreement, dated
    June 16, 1998, by and between James L. Bierman and
    Quintiles Transnational Corp.                                                                                                                                                                                                                                                     
|        | 10.06(5)(8) |  |  |            |  | Executive Employment Agreement, dated
    December 3, 1998, by and between John S. Russell and
    Quintiles Transnational Corp.                                                                                                                                                                                                                                                   
|        | 10.07(5)(8) |  |  |            |  | Amendment to Executive Employment Agreement,
    dated October 26, 1999, by and between John S. Russell
    and Quintiles Transnational Corp.                                                                                                                                                                                                                                      
|        | 10.08(5)(9) |  |  |            |  | Quintiles Transnational Corp. Equity Compensation
    Plan, as amended and restated on January 1, 2001                                                                                                                                                                                                                                                                             
|        | 10.09(5)(8) |  |  |            |  | Quintiles Transnational Corp. Elective Deferred
    Compensation Plan, as amended and restated                                                                                                                                                                                                                                                                                     
|        | 10.10(5)(9) |  |  |            |  | Quintiles Transnational Corp. Nonqualified Stock
    Option Plan, amended January 1, 2001                                                                                                                                                                                                                                                                                          
|        | 10.11       |  |  |            |  | Quintiles Transnational Corp. 2002 Stock Option
    Plan                                                                                                                                                                                                                                                                                                                           
|        | 10.12       |  |  |            |  | Quintiles Transnational Corp. Special Bonus Plan                                                                                                                                                                                                                                                                                                                                   
|        | 10.13(10)   |  |  |            |  | Underlease, dated November 28, 1997, by and
    between PDFM Limited and Quintiles (UK) Limited and
    guaranteed by the Company                                                                                                                                                                                                                                                  
|        | 10.15(11)   |  |  |            |  | Agreement for the Provision of Research Services
    and Purchase of Business Assets, dated as of January 1,
    1999, between Hoescht Marion Roussel, Inc. and Quintiles, Inc.                                                                                                                                                                                                    
|        | 10.16(12)   |  |  |            |  | Agreement and Plan of Merger, dated as of
    January 22, 2000, among Quintiles Transnational Corp.,
    Healtheon/WebMD Corporation, Pine Merger Corp., Envoy Corp. and
    QFinance, Inc.                                                                                                                                                                                        
|        | 10.17(13)   |  |  |            |  | Settlement Agreement, dated October 12,
    2001, between Quintiles Transnational Corp. and WebMD
    Corporation.                                                                                                                                                                                                                                                                 





---



##### 



|        |           |  |  |             |  |                                                                                                                                                                                                                                                                                                                                    
|------- | --------- |  |  | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |           |  |  | Description
|        |           |  |  |            
|        | 10.18(9)  |  |  |            |  | Master Services Agreement dated as of
    January 1, 2001 between Quintiles Transnational Corp. and
    A.M. Pappas & Associates, LLC. [Note: Certain confidential
    portions of this exhibit have been omitted as indicated in the
    exhibit with an asterisk (*), and filed with the Securities and
    Exchange Commission.]
|        | 16.01(14) |  |  |            |  | Letter regarding change in the Companys
    certifying accountant dated May 17, 2002                                                                                                                                                                                                                                              
|        | 18.01     |  |  |            |  | Letter regarding change in accounting principle                                                                                                                                                                                                                                                                                    
|        | 21        |  |  |            |  | Subsidiaries                                                                                                                                                                                                                                                                                                                       
|        | 23.01     |  |  |            |  | Consent of PricewaterhouseCoopers LLP                                                                                                                                                                                                                                                                                              
|        | 23.02     |  |  |            |  | Information Regarding the Consent of Arthur
    Andersen LLP                                                                                                                                                                                                                                                                       
|        | 24.01     |  |  |            |  | Power of Attorney (included on the signature page
    hereto)                                                                                                                                                                                                                                                                      
|        | 99.01     |  |  |            |  | Certification Pursuant to 18 U.S.C.
    Section 1350, As Adopted Pursuant to Section 906 of
    The Sarbanes-Oxley Act of 2002                                                                                                                                                                                                     
|        | 99.02     |  |  |            |  | Certification Pursuant to 18 U.S.C.
    Section 1350, As Adopted Pursuant to Section 906 of
    The Sarbanes-Oxley Act of 2002                                                                                                                                                                                                     



---



|    |                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Exhibit to our Quarterly Report on Form 10-Q
    for the period ended September 30, 1999, as filed with the
    Securities and Exchange Commission on November 15, 1999,
    and incorporated herein by reference. 
|   
|(2) | Exhibit to our Current Report on Form 8-K
    dated November 5, 1999, as filed with the Securities and
    Exchange Commission on November 5, 1999 and incorporated
    herein by reference.                       
|   
|(3) | Exhibit to our Registration Statement on
    Form S-8 as filed with the Securities and Exchange
    Commission (File No. 333-92987) effective December 17,
    1999, and incorporated herein by reference.         
|   
|(4) | Exhibit to our Registration Statement on
    Form 8-A/A, Amendment No. 1 (File No. 000-23520),
    as filed with the Securities and Exchange Commission on
    May 10, 2000, and incorporated herein by reference. 
|   
|(5) | Executive compensation plans and arrangements                                                                                                                                                                      
|   
|(6) | Exhibit to our Quarterly Report on Form 10-Q
    for the period ended March 31, 2001, as filed with the
    Securities and Exchange Commission on May 15, 2001, and
    incorporated herein by reference.          
|   
|(7) | Exhibit to our Registration Statement on
    Form S-1, as amended, as filed with the Securities and
    Exchange Commission (File No. 33-75766) effective
    April 20, 1994, and incorporated herein by reference.
|   
|(8) | Exhibit to our Annual Report on Form 10-K
    for the fiscal year ended December 31, 1999, as filed with
    the Securities and Exchange Commission on March 30, 2000,
    and incorporated herein by reference.   
|   
|(9) | Exhibit to our Annual Report on Form 10-K
    for the fiscal year ended December 31, 2001, as filed with
    the Securities and Exchange Commission on March 22, 2002,
    and incorporated herein by reference.   



|     |                                                                                                                                                                                                                 
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Exhibit to our Annual Report on Form 10-K
    for the fiscal year ended December 31, 1997, as filed with
    the Securities and Exchange Commission on March 30, 1998,
    and incorporated herein by reference.
|    
|(11) | Exhibit to our Current Report on Form 8-K
    dated March 3, 1999, as filed with the Securities and
    Exchange Commission on March 3, 1999, and incorporated
    herein by reference.                         
|    
|(12) | Exhibit to our Current Report on Form 8-K,
    dated January 25, 2000, as filed with the Securities and
    Exchange Commission on January 25, 2000, and incorporated
    herein by reference.                  





---



##### 





|     |                                                                                                                                                                                                                  
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(13) | Exhibit to our Quarterly Report on Form 10-Q
    for the period ended September 30, 2001, as filed with the
    Securities and Exchange Commission on November 1, 2001, and
    incorporated herein by reference.
|    
|(14) | Exhibit to our Current Report on Form 8-K
    dated May 17, 2002, as filed with the Securities and
    Exchange Commission on May 22, 2002, and incorporated
    herein by reference.