##### 









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,
2003

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(Address of principal executive
    office) |  | 27703-8411(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

(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.     þ

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 30, 2003 held by those persons deemed by the
registrant to be non-affiliates was approximately $1,566,418,759.

As
of March 1, 2004 (the latest practicable date), there were
125,000,000 shares of the registrants Common Stock,
$.01 par value per share, outstanding.



---






---



##### 



QUINTILES TRANSNATIONAL CORP.

Form 10-K Annual Report

INDEX

|         |           |  |  |                                                                                                    |  |  |     | 
|-------- | --------- |  |  | -------------------------------------------------------------------------------------------------- |  |  | --- | 
|         |           |  |  | Page                                                                                              
|         |           |  |  |                                                                                                   
|PART I  
|         | Item  1.  |  |  | Business                                                                                           |  |  | 2   | 
|         | Item  2.  |  |  | Properties                                                                                         |  |  | 19  | 
|         | Item  3.  |  |  | Legal Proceedings                                                                                  |  |  | 19  | 
|         | Item  4.  |  |  | Submission of Matters to a Vote of Security
    Holders                                            |  |  | 21  | 
|PART II 
|         | Item  5.  |  |  | Market for Registrants Common Equity and
    Related Stockholder Matters                          |  |  | 22  | 
|         | Item  6.  |  |  | Selected Consolidated Financial Data                                                               |  |  | 23  | 
|         | Item  7.  |  |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operation           |  |  | 25  | 
|         | Item  7A. |  |  | Quantitative and Qualitative Disclosures about
    Market Risk                                     |  |  | 53  | 
|         | Item  8.  |  |  | Financial Statements and Supplementary Data                                                        |  |  | 54  | 
|         | Item  9.  |  |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure           |  |  | 121 | 
|         | Item  9A. |  |  | Controls and Procedures                                                                            |  |  | 121 | 
|PART III
|         | Item  10. |  |  | Directors and Executive Officers of the Registrant                                                 |  |  | 122 | 
|         | Item  11. |  |  | Executive Compensation                                                                             |  |  | 126 | 
|         | Item  12. |  |  | Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters |  |  | 139 | 
|         | Item  13. |  |  | Certain Relationships and Related Transactions                                                     |  |  | 144 | 
|         | Item  14. |  |  | Principal Accountant Fees and Services                                                             |  |  | 147 | 
|PART IV 
|         | Item  15. |  |  | Exhibits, Financial Statement Schedules, and
    Reports on Form 8-K                               |  |  | 148 | 

1



---



##### 



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, or the Securities Act, and
Section 21E of the Securities Exchange Act of 1934, as
amended, or the Exchange Act. 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, 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 efficiently distribute
backlog among project management groups and match demand to
resources, our actual operating performance, the risk that our
substantial indebtedness could adversely affect our financial
condition, the limitations on the operation of our business
imposed by the covenants contained in our senior subordinated
notes and our senior secured credit facility, variations in the
actual savings and operating improvements resulting from our
restructurings, our ability to maintain large customer contracts
or to enter into new contracts, delays in obtaining or failure
to receive required regulatory approvals of our customers
products or projects, changes in trends in the pharmaceutical
industry, our ability to operate successfully in new lines of
business, the risk that Verispan, our joint venture with
McKesson Corporation relating to the informatics business, will
not be successful, changes in existing, and the adoption of new,
regulations affecting the pharmaceutical industry 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

Founded in 1982 by Dennis B. Gillings, Ph.D.,we
have grown to become a market leader in providing a full range
of integrated product development and commercial development
solutions to the pharmaceutical, biotechnology and medical
device industries. Based on our competitors press releases
and public filings with the United States Securities and
Exchange Commission, or the SEC, we are the largest company in
the pharmaceutical outsourcing services industry as ranked by
2003 gross revenues. We also provide market research
services and strategic analyses to support healthcare decisions
and healthcare policy consulting to governments and other
organizations worldwide. This broad range of services helps our
customers lower their costs, reduce the length of time from the
beginning of development to peak sales of a new drug or medical
device and increase the sales of their products.

Our business is organized into three segments:
the Product Development Group, the Commercial Services Group and
the PharmaBio Development Group. The combination of these three
business segments, together with Verispan, LLC, our joint
venture with McKesson Corporation, which provides research and
market data to help drug sponsors better market their products,
enables us to provide a broad range of outsourcing services to
the pharmaceutical and biotechnology industries. We believe this
comprehensive suite of services offers customers the opportunity
to outsource through Quintiles all key phases of a
products development and sales from the preclinical phase
through patent expiration and beyond.

Product Development Group.Our Product Development Group provides
global expertise in drug development from early compound
analysis through regulatory submission. Our capabilities span
preclinical

2



---



##### 



and all phases of clinical testing with
particular strength in Phase I, Phase II and
Phase III clinical studies. The Product Development Group
has been divided into two lines of business: 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
clinical trials for regulatory approval of products under
investigation. We also emphasize and target strong opportunity
in Phase IIIb and Phase IV clinical and marketing
studies, traditionally known as Late Phase studies, which are
developing into a third line of business in the Product
Development Group called Strategic Research Services, or SRS.
Late Phase studies may be recommended by regulators and utilized
by our customers marketing departments to assess safety
issues and responses to drug therapy for commonly occurring
patient profiles.


Commercial Services Group.Our Commercial Services Group provides
our customers with a comprehensive range of specialized
pre-launch, launch and post-launch fee-for-service contract
sales and strategic marketing services. The Commercial Services
Group is comprised of our Commercialization business and our
Medical Communications and Consulting business. Our Commercial
Services Group not only provides contract sales, but also
provides contract marketing and other services. This group
delivers integrated, strategic and tactical solutions in sales
and marketing across the product life cycle for pharmaceutical
and biotechnology companies as well as for other entities across
the healthcare spectrum. In addition, our Commercial Services
Group provides 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.

PharmaBio Development Group.Our PharmaBio Development Group enters
into partnering transactions with certain of our customers.
These transactions typically involve providing funding to the
customer, either through direct payments or loans (sometimes
convertible into capital stock of the customer) to help
customers develop and/or market their particular drug(s). We
also may invest in customers equity and/or provide
services through our Commercial Services Group. Furthermore, the
transactions often grant us royalties or commissions based on
sales of the customers product. We believe these
partnering transactions allow us to explore new opportunities
and areas for incremental growth in a controlled manner that
draws upon our skill and industry knowledge. Our professional
clinical staff numbers in the thousands and provides a very
broad base of knowledge and experience with considerable numbers
of pharmaceutical products. This expertise enables us to conduct
an in-depth assessment of a products potential in the
marketplace before we enter into a partnering transaction with
any of our customers. At the end of 2001, the PharmaBio
Development Group expanded its scope of activities to include
the acquisition of rights to market products and has
significantly expanded the sales of a number of these products.

Pharma Services Transaction

On September 25, 2003, Pharma Services
Holding, Inc., or Pharma Services, acquired all of the issued
and outstanding shares of our common stock. Pharma Services
Intermediate Holding Corp., or Intermediate Holding, currently
holds 99.2% of our outstanding common stock with Pharma Services
owning the remainder. Intermediate Holding is wholly owned by
Pharma Services. Pharma Services was formed for purposes of the
going private transaction by Dennis B. Gillings, Ph.D., our
Executive Chairman, Chief Executive Officer and founder, and One
Equity Partners LLC, or One Equity, the private equity arm of
Bank One Corporation. Pharma Services acquisition of our
common stock is sometimes referred to in this Annual Report on
Form 10-K as the Pharma Services transaction. Financing for
the Pharma Services transaction was provided by:



| |   |                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | equity investments from One Equity, TPG
    Advisors III, Inc., or TPG, and Temasek Holdings, or
    Temasek, among others;                                                                                   
|
| |  | equity rollovers of our common stock and options
    to purchase our common stock, including shares and options held
    by Dr. Gillings and his affiliates, as well as certain of
    our executive officers;
|
| |  | a six-year $310.0 million senior term loan
    as part of a $385.0 million senior credit facility;                                                                                                            

3



---



##### 





| |   |                                                                                      
| | - | -------------------------------------------------------------------------------------
| |  | the issuance of $450.0 million principal
    amount of senior subordinated notes; and
|
| |  | our available cash.                                                                  

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.
Additionally, we offer our customers the possibility of a
strategic partnering relationship. We can support our customers
through the entire life cycle of a drug from initial testing to
patent expiration. We currently operate in three reportable
segments: Product Development, Commercial Services, and
PharmaBio Development. We provide our customers with a continuum
of services that spans these 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. Note 26 of the notes to our
consolidated financial statements, included in Item 8 of
this Form 10-K, provides financial information regarding
each segment.

The following discussion describes our service
offerings in greater detail.

Product Development Offerings

Our Product Development Group has historically
been divided into two lines of business: 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 clinical
trials for regulatory approval of products under investigation.
We also emphasize and target a strong opportunity in
Phase IIIb and Phase IV clinical and marketing
studies, traditionally known as Late Phase studies, which are
developing into a third line of business in the Product
Development Group, known as SRS. SRS studies may be recommended
by regulators and utilized by our customers marketing
departments to assess safety issues and responses to drug
therapy for commonly occurring patient profiles.



| |                                              
| | ---------------------------------------------
| | 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, 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.

Pharmaceutical 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. We recently
completed construction of a new GMP sterile clinical supplies
manufacturing facility in Kansas City, Missouri.

Clinical Trial Services.At our clinical trial supplies
facilities, medications for use in clinical (both pre- and
post-marketing) studies are received, packaged according to the
appropriate protocol, labeled and distributed globally. We also
provide services to reconcile these drugs in connection with a
particular clinical trial. These services can expedite the drug
development process because clinical trials are often postponed
by delays in the manufacture and distribution 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 studies,

4



---



##### 



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 life cycle of a product. This life cycle
includes the following steps to obtaining FDA approval:



| |   |                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Pre-clinical, which involves testing to identify,
    quantify and evaluate biological activity and safety;                                                                           
|
| |  | Phase I, which involves determining how a
    drug is processed by the body and the duration of the
    drugs actions on the body;                                                   
|
| |  | Phase II, which involves controlled testing
    of a drug to determine the safe dosage range of a drug and a
    broader safety profile;                                              
|
| |  | Phase IIIa, which involves extensive testing
    to confirm the effectiveness and safety of a drug;                                                                                   
|
| |  | Phase IIIb, which involves conducting
    additional studies following submission to the FDA and/or
    foreign regulatory authorities and agencies; and                              
|
| |  | Phase IV, which involves conducting
    additional studies to further evaluate the effectiveness, side
    effects and cost effectiveness of a drug following regulatory
    approval.

In addition to Phase I through III
clinical 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 clinical and marketing 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
cardiovascular, central nervous system, allergy/respiratory,
genitourinary, anti-infectives, ophthalmology, gastrointestinal,
oncology, endocrinology, immunology and dermatology. 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.

5



---



##### 





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 conduct 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 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 one of the few
companies able to provide such services in numerous countries,
including the key regions of focus for pharmaceutical companies,
to meet our customers needs to launch products in multiple
countries simultaneously.

Late Phase Clinical Studies.Designed to meet the increasing demand
for information from patients, prescribers, payors and
regulators for information and to deepen customers
understanding of physician practices and product adoption
patterns, Quintiles Late Phase provides non-registration
research and consulting services. SRS specializes in providing
strategic Phase IIIb and Phase IV clinical services
such as post-marketing pharmacovigilance programs, health
outcomes studies and other market-relevant research activities
to 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. SRS
studies are developing into a third line of business in the
Product Development Group.

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

The Commercial Services Group is comprised of our
Innovex-branded commercialization business, which includes the
largest global contract sales organization, or CSO, based on
reported revenues in 2003 and the integrated strategic solutions
business. We entered the CSO industry in 1996 when we acquired
Innovex, a U.K.-based company with global operations, and have
since grown the business organically as well as through
acquisitions. We continue to operate our CSO business under the
Innovex brand. We have specialized therapeutic expertise in the
areas of cardiovascular, central nervous system,
gastrointestinal, womens health, endocrinology,
allergy-respiratory, anti-infectives and oncology.

6



---



##### 





| |                            
| | ---------------------------
| | 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.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 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.

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.

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
114,000 U.S. 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.

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.

7



---



##### 





| |                                                    
| | ---------------------------------------------------
| | Quintiles Medical Communications and
    Consulting

Strategic Marketing Services.Our expert consultants support
pharmaceutical and biotechnology product commercialization
through a continuum of services. We begin in the
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.
These services 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, biotechnology,
medical device development and manufacturing industries.
Services include global regulatory consulting, quality systems
and engineering and validation. We assist companies in preparing
for interactions with the FDA, and other foreign regulatory
authorities or agencies, 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.

PharmaBio Development Offerings

Our PharmaBio Development Group manages our
investment portfolio and enters into partnering transactions
with certain of our customers. These transactions typically
involve providing funding to the customer, either through direct
payments or loans (sometimes convertible into capital stock of
the customer) or through the provision of services to these
customers. We also may invest in our customers equity
and/or provide services through our Commercial Services Group to
these customers. Furthermore, these transactions often grant us
royalties or commissions based on sales of the customers
product.

In all cases, the PharmaBio Development Group
engages in a rigorous due diligence and internal review process
which involves the relevant aspects of our organization prior to
making its investments. This process helps us to develop
transaction structures that are designed to balance targeted
returns with our perceived risk.

8



---



##### 



In addition to the rigorous due diligence and
internal review process, we further attempt to mitigate the risk
of PharmaBio Development Group investments by:



| |   |                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Focusing primarily on compounds that already have
    regulatory approval or are in the later stages of clinical
    development, thus reducing regulatory risk;                                                                                                                          
|
| |  | Structuring all transactions in a prudent manner
    which, in some instances, may include structuring financial
    commitments in the form of milestone payments, whereby payments
    are made based on the successful completion of different stages
    of the development cycle; and
|
| |  | In some instances, requiring an option to reduce
    our financial commitment if the drug sponsor does not invest a
    certain minimum amount on promotion of the drug.                                                                                                                  

Overall, our revenues and operating income from
these transactions depend on the performance of the
customers capital stock and/or its product. Since we
created the PharmaBio Development Group in 2000, it has entered
into numerous transactions. In 2003 (combining predecessor and
successor), 2002 and 2001, we recognized net gains on PharmaBio
Development Group investments of approximately
$31.0 million, $13.7 million and $611,000,
respectively.



| |                   
| | ------------------
| | Transaction Models

Our PharmaBio Development Group enters into the
following types of transactions:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Risk-Based Commercialization.Risk-based commercialization
    investments include transactions in which we provide
    commercialization services in exchange for fees and/or 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. 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 presented by the transaction.                    
|
| |  | Strategic Investments.The PharmaBio Development Group 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
    our arrangements with Columbia Laboratories, Inc. and Discovery
    Laboratories, Inc. As of December 31, 2003, the PharmaBio
    Development Group had a total of $106.9 million in such
    investments, including $48.6 million of investments in
    marketable equities and $58.3 million of investments in
    non-marketable equity securities and loans.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In addition, the PharmaBio Development Group has
    acquired the rights to market certain pharmaceutical products.
    We arrange for the manufacture of, and directly market, a number
    of dermatology compounds, including SolarazeTM and
    ADOXATM, through our specialty pharmaceuticals
    subsidiary, Bioglan Pharmaceuticals Company. The PharmaBio
    Development Group 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, the PharmaBio Development Group recognizes the
    revenues from the sales of these pharmaceutical products.



| |   |                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Risk-Based Development Services.In such transactions, we would provide
    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.

9



---



##### 





| |                           
| | --------------------------
| | Recent Strategic Alliances

The PharmaBio Development Group has entered into
the following recent transactions.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In January 2002, we entered into a series of
    agreements 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, commercialized 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. In the first quarter of 2003 and the third
    quarter of 2003, the agreements in Germany and Belgium,
    respectively, were terminated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | In July 2002, we entered into an agreement with
    Eli Lilly and Company, or Lilly, 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 totaling
    $110 million of which $70 million was paid in 2002 and
    the remaining $40 million is due in equal installments
    during each of the four quarters following FDA approval, we will
    receive an 8.25% percent-of-sales royalty over the five-year
    service period followed by a three percent royalty over the
    subsequent three years. On September 29, 2003, Lilly
    received an approvable letter for CymbaltaTM from the
    FDA (Lilly received an initial approvable letter for
    CymbaltaTM in September 2002) indicating that
    approval was contingent upon resolution of manufacturing issues,
    a pre-approval site inspection at its Indianapolis dry products
    facility, and the completion of label negotiations. The agency
    later informed Lilly that its Indianapolis facilities had
    reached a level of current GMP compliance that would allow for
    pre-approval inspections as deemed necessary. Furthermore, the
    FDA has indicated that it does not currently believe a
    pre-approval site inspection will be required for
    CymbaltaTM, however a pre-approval site inspection
    remains at the discretion of the FDA. Final FDA approval for
    CymbaltaTM is now contingent upon completion of label
    negotiations. The FDA also is reviewing a serious adverse event
    resulting from a patients suicide in February 2004 while
    participating in a follow-up Phase I study related to
    Lillys application for the drug to treat stress-induced
    urinary incontinence. Lilly has indicated that, based on what is
    known so far, it does not believe the subjects death is
    related to her participation in the study and has stated that it
    still anticipates U.S. approval of CymbaltaTM
    will occur in the summer of 2004.
|
| |  | In July 2002, we entered into a series of
    agreements with Columbia Laboratories, Inc. to assist them in
    the U.S. commercialization of the following womens
    health products: ProchieveTM 8%,
    ProchieveTM 4%, Advantage-S® and
    RepHreshTM Vaginal Gel. Under the terms of these
    agreements, we purchased shares of Columbia common stock. We
    have paid Columbia an aggregate of $4.5 million 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. During January 2004, we restructured the sales force
    agreement to allow for an accelerated transfer of responsibility
    to Columbia.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | In March 2003, we entered into an additional
    agreement with Columbia to assist them in the commercialization
    of StriantTM, Columbias testosterone buccal
    bioadhesive product, in the United                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

10



---



##### 



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | States. We have paid Columbia an aggregate of
    $12.0 million of a total $15.0 million in exchange for
    royalties on the sales of StriantTM for a seven-year
    period beginning in the third 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. During January 2004, we restructured the sales force
    agreement to allow for an accelerated transfer of responsibility
    to Columbia.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | In July 2003, we entered into a new agreement
    with CV Therapeutics, Inc. that superceded our prior agreement.
    Under the terms of the July 2003 agreement, all rights to
    RanexaTM reverted back to CV Therapeutics and
    CV Therapeutics will owe us no royalty payments. Under the
    July 2003 agreement, we received 200,000 warrants to purchase
    shares of CV Therapeutics common stock at $32.93 per
    share during the five-year term commencing July 9, 2003.
    CV Therapeutics also is obligated to purchase from us,
    within six months of the approval of RanexaTM,
    services of at least $10 million in aggregate value or to
    pay us a lump sum amount equal to 10% of any shortfall from
    $10 million in purchased services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | In February 2004, we entered into an agreement
    with a large pharmaceutical customer to provide services in
    connection with the customers development and
    U.S. launch of a Phase III product, or the new
    product, which is related to one of the customers
    currently marketed pharmaceutical products, or the existing
    product. The existing product is a multi-hundred million dollar
    per year product. Under the agreement, we will provide up to
    $90 million of development and commercialization services
    for the new and existing products. Our customer has agreed that
    at least $67.5 million of those services will be performed
    by our affiliates, at agreed upon rates. The customer, though,
    may direct us to use third parties to perform up to
    $22.5 million of the $90 million of services. The
    agreement contains quarterly limits on our service obligations
    with a maximum of $10 million of services in any quarter.
    Our service obligations are anticipated to occur through the end
    of 2006, but may run longer depending on the customers
    actual use of services and when, and if, FDA approval of the new
    product occurs. Until the FDA approves the new product, we are
    obligated to provide no more than $57.5 million in
    services. In return for performing our obligations, we will
    receive (1) beginning in the first quarter of 2005, a low,
    single-digit royalty on U.S. net sales of the existing
    product and (2) beginning on the U.S. launch of the
    new product, a declining tiered royalty (beginning in the low
    teens) on U.S. net sales of the new product. Our royalty
    period under the agreement lasts for approximately 9 years;
    however, the agreement limits the amount of royalties we receive
    each year and also caps the aggregate amount of royalties we can
    receive under the agreement at $180 million. We will also
    receive a $20 million payment from the customer upon the
    U.S. launch of the new product. If the new product is not
    approved by the FDA or a significant delay occurs in its
    approval process, we may terminate our remaining service
    obligations and continue to receive the royalty on the existing
    product subject to a return ceiling of no less than 8%. The
    agreement also provides for royalty term extensions, in the
    event of certain other specified unfavorable circumstances such
    as product shortages or recalls. The customer may terminate the
    agreement at any time subject to the customers payment to
    us of the then-present value of its remaining expected royalties.

We review many candidates for strategic alliances
under our PharmaBio Development Group business models. In
addition to the transactions already under way, we are
continually evaluating new strategic possibilities, and we may
enter into additional transactions in the future.

Informatics Offerings

Prior to May 2002, we had a fourth business
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
providers, 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.

11



---



##### 



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 an equal co-owner with McKesson of a majority of
the equity of Verispan. A minority portion of the equity in
Verispan is 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
$10.0 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

In order to coordinate the multiple contracts and
service offerings we may have with each customer and leverage
these into new business opportunities, we operate our business
development efforts across our service offerings through
integrated business development functions. These integrated
business development functions 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. In each of the last four years, we
provided services to all of the worlds 20 largest
pharmaceutical companies and to many of the worlds leading
biotechnology and smaller and mid-sized pharmaceutical companies.

For the year ended December 31, 2003,
approximately 37.3% of our net service revenue from external
customers was attributed to operations in the United States and
62.7% 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 42.6%, 42.5%,
and 41.1% of our net revenue was attributed to our clinical
development services in 2003, 2002 and 2001, respectively;
approximately 17.2%, 17.3% and 15.4% of our net revenue was
attributed to our early development and laboratory services in
2003, 2002 and 2001, respectively; and approximately 23.9%,
25.8% and 32.6% of our net revenue was attributed to our
commercialization services in 2003, 2002 and 2001, respectively.
Neither our medical communications and consulting services, our
commercial rights and royalties, nor our informatics services
accounted for more than 10% of our net revenue in any of these
years.

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; for example, Aventis S.A. accounted
for approximately 11% of our consolidated net service revenue in
each of 2002 and 2001. No single customer accounted for 10% of
our consolidated net revenue for any 2003 periods presented
herein.

Competition

The market for our product development services
is highly competitive, and we compete against traditional
contract research organizations, or 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. Our primary CRO
competitors include Covance Inc., PPD Inc., PAREXEL
International Corporation and ICON plc. Competitive factors for
product development services include:



| |   |                                                                     
| | - | --------------------------------------------------------------------
| |  | previous experience,                                                
|
| |  | medical and scientific experience in specific
    therapeutic areas,

12



---



##### 





| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | 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 deploy and integrate information
    technology systems to improve the efficiency of contract
    research,
|
| |  | an international presence with strategically
    located facilities and                                                   
|
| |  | financial viability and price.                                                                                            

In our commercial services segment, we compete
against the in-house sales and marketing departments of
pharmaceutical companies and other CSOs 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, Inc. and PDI, 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 provide such risk-based
commercialization or development efforts, as does the PharmaBio
Development Group. 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,
Inc. and PDI, 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 Health Corporation.

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, 2004, we had approximately
15,991 full-time equivalent employees, comprised of
approximately 5,379 in the Americas, 8,387 in Europe and Africa
and 2,225 in the Asia-Pacific region. As of January 31,
2004, our Product Development Group had 9,254 full-time
equivalent employees, our Commercial Services Group had
6,027 full-time equivalent employees, and our PharmaBio
Development Group had 136 full-time equivalent employees.
In addition, 574 full-time equivalent employees were in our
centralized operations/corporate office.

13



---



##### 



Backlog 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, 2003, backlog was approximately
$1.9 billion, as compared to approximately
$1.7 billion at December 31, 2002. The backlog at
December 31, 2003 and 2002 includes approximately
$28.8 million and $87.0 million, respectively, 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 or commissions
related to our commercial rights.

We believe that backlog may not be a consistent
indicator of future results because it has been and likely will
be affected by a number of factors, including the variable size
and duration of projects, many of which are performed over
several years. 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 in those clinical trials. Such testing creates risk
of liability for personal injury to or death of participants,
particularly to participants 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.

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 injury, errors or omissions or breach
of contract if one of our labs inaccurately reports or fails to
report lab results, or if direct or indirect contact with a
patient or clinical trial participant causes harm. 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 contract to contract. Additionally, financial performance
of these indemnities is not secured. We do, however, seek to
ensure through the contracting process that our customers and
vendors are contractually obliged to carry certain minimum
amounts of applicable liability insurance and provide evidence
of insurance upon request or prior to commencement of work.
Because of the volume of contracts and geographic breadth of
operations, it is not always possible to obtain such
certificates of insurance nor do we have ability to confirm that
such insurance remains in place or whether it may have been
reduced in the aggregate by ongoing claims. 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 our worldwide operations in the countries in which we
currently do business. We could be materially and adversely
affected if we were required to pay

14



---



##### 



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 for which coverage is not provided by our insurance
program. 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, since settled by the
parties subject to court approval. 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, which were the only claims
outstanding under the policies. We believe both of these claims
of our insurance carrier are without merit and intend to contest
them vigorously. Please refer to Item 3 of this
Form 10-K for a description of our legal proceedings.


Our rights to commercialize and sell certain
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 or death, 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 other
than through periodic audits that we conduct of the manufacturer
and distributor.

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,                                                                                                                                          

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 the FDA
and the European Medicines Evaluation Agency, or EMEA. By way of
example, these regulations include the FDAs regulations on
electronic records and signatures (21 CFR Part 11)
which set out requirements for data in electronic format
regarding submissions made to the FDA, and the 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 EMEAs Note for Guidance
Good Clinical Practice for Trials on Medicinal Products in
the European Community. All clinical trials (other than
those defined as non-international) 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 and in Latin America 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 assuming or beginning employment. We follow similar
regulations currently in effect in the other countries where we
offer commercial services.

Our U.S. 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. Companies holding or distributing controlled substances are
subject to regulation by the United States Drug Enforcement
Agency, or DEA. For example, accounting for 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, which
was resolved to the DEAs satisfaction by our providing a
corrected accounting of these drugs to the DEA. Since the
inspection, we have reviewed and strengthened our procedures
relating to the handling, storage and record keeping for
controlled drugs. These new procedures have been reviewed at our
request by a reputed firm of independent experts. 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

16



---



##### 



handling and disposal of medical specimens,
hazardous waste and radioactive materials, as well as the health
and safety of laboratory employees.


Moreover, from time to time, including the
present, one or more of our customers are investigated by
regulatory authorities or enforcement agencies with respect to
regulatory compliance of their clinical trials and programs. In
these situations, we often have provided services to our
customers with respect to the trials and programs being
investigated, and we are called upon to respond to requests for
information by these authorities and agencies. There is a risk
that either our customers or regulatory authorities could claim
that we performed our services improperly or that we are
responsible for trial or program compliance. For example, our
customer Biovail Corporation recently became the subject of
government inquiries relating to the Cardizem LA P.L.A.C.E.,
late phase clinical program, and has asserted publicly that we
have warranted that this program complies with all laws and
regulations, to which we have taken exception. If our customers
or regulatory authorities make such claims against us and prove
them, we could be subject to substantial damages, fines or
penalties.

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 with such laws 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. In
addition, privacy legislation in non-U.S. jurisdictions
could have a limiting effect on some of our services, including,
for example, the European Data Protection Directive, the
Directive, which applies in each member state of the European
Union, or EU. The Directive seeks to protect the personal data
of individuals and, among other things, places restrictions on
the manner in which such personal data can be collected,
processed and disclosed and the purposes for which such data can
be used.

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 by covered entities,
that is healthcare providers, health plans and healthcare
clearinghouses. The U.S. law instructs the Secretary of the
Department of Health and Human Services, or HHS, to promulgate
regulations implementing these standards in the United States.

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 final rule had an effective date of
April 14, 2001 and a compliance date of April 14,
2003. The final regulation for the HIPAA security standards was
issued by HHS on February 20, 2003.

17



---



##### 



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
from the research participant or an exception under the HIPAA
Privacy Rule. Depending on the facts, the possible permissions
include where a research participant signs an authorization for
research; 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 other exception; 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 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 affecting similar areas of
our business. For instance, the Directive applies standards for
the protection of all personal data, not just health
information, in the EU and requires the EU member states to
enact national laws implementing the Directive. Such legislation
or regulations could materially affect our business.

Various aspects of the U.S. Medicare program
may also apply to certain drug and device research and marketing
practices. In 1977, Congress adopted the Medicare and Medicaid
Anti-Fraud and Abuse Amendments of 1977, or the Anti-Fraud and
Abuse Law, which have been strengthened by subsequent amendments
and the creation of the Office of Inspector General, or OIG, to
enforce compliance with the statute, as amended. The Anti-Fraud
and Abuse Law prohibits the knowing and willful offer, payment,
solicitation, or receipt of any remuneration in any form as an
inducement or reward for either the referral of patients or the
arranging for reimbursable services. For example, the Anti-Fraud
and Abuse Law prohibits the use of research grants or clinical
trials if the purpose is to induce the purchase or prescription
of products or services paid for by Medicare or Medicaid, rather
than the collection of research data. A violation of the statute
may result in criminal and/or civil penalties, including
exclusion from the Medicare program, even if no criminal
prosecution is initiated.

HHS has issued regulations from time to time
setting forth so-called safe harbors, which would
protect certain limited types or arrangements from prosecution
under the statute. To date, twenty-one final safe harbors have
been developed. Failure to comply with each element of a
particular safe harbor does not mean that an arrangement is
per se in violation of the Anti-Fraud and Abuse Law.
Nevertheless, if an arrangement implicates the Anti-Fraud and
Abuse Law and no safe harbor is available, we risk greater
scrutiny from OIG and, potentially, civil and/or criminal
sanctions. Federal law also provides for minimum periods of
exclusion from federal and state healthcare programs for certain
offenses and frauds.

In addition to the Anti-Fraud and Abuse Law, the
federal Civil False Claims Act may apply to certain drug and
device research and marketing practices. The Civil False Claims
Act prohibits knowingly presenting or causing to be presented a
false, fictitious or fraudulent claim for payment to the United
States. Actions under the Civil False Claims Act may be brought
by the Attorney General or as a qui tam action by a private
individual in the name of the government. Violations of the
Civil False Claims Act can result in significant monetary
penalties. The federal government is using the Civil False
Claims Act, and the threat of significant liability, in its
investigations of healthcare providers, suppliers and drug and
device manufacturers throughout the country for a wide variety
of drug and device marketing and research practices, and has
obtained multi-million dollar settlements. The government may
continue to devote

18



---



##### 



substantial resources toward investigating
healthcare providers, suppliers and drug and device
manufacturers compliance with the Civil False Claims Act
and other fraud and abuse laws.


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 SEC.



|        |           
|------- | ----------
|Item 2. | Properties

As of February 16, 2004 we had approximately
110 offices located in 50 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; Bracknell, 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. On
September 27, 2003, the parties entered into a settlement
memorandum following a mediated settlement conference. The
parties are in the process of preparing final settlement
documents, which would memorialize payments by several
defendants to individual study participants or their
representatives. We believe that our contribution will be
covered by insurance or, in the alternative, will not represent
a material amount to us.

On January 22, 2002, Federal Insurance
Company, or Federal, and Chubb Custom Insurance Company, or
Chubb, 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 for coverage years 2000-2001 and 2001-2002,
and Federal, our excess liability carrier for coverage years
2000-2001 and 2001-2002, seek to rescind the policies issued to
us 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 class action lawsuit filed on January 26, 2001 and
described above 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.
In order to preserve our rights, on March 27, 2003, we also
filed a separate action against AON

19



---



##### 



Risk Services in the United States District Court
for the Middle District of North Carolina. 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 certain of our shareholders seeking to enjoin the
consummation of the initial transaction proposed by Pharma
Services (a company among whom the controllers is Dennis
Gillings) 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 named as defendants Dr. Gillings, other
members of our board of directors, us and, in some cases Pharma
Services. The complaints alleged, among other things, a breach
of fiduciary duties by the directors with respect to the
proposal. The complaints sought to enjoin the transaction
proposed by Pharma Services, and the plaintiffs sought to
recover damages. On November 11, 2002, a special committee
of our board of directors announced its rejection of the
proposal by Pharma Services and its intention to investigate
strategic alternatives available to us for purposes of enhancing
shareholder value, including the possibility of a sale and
alternatives that would keep us 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 we provided notice of a change-of-control
transaction.

On March 28, 2003, the Court entered an
Order Maintaining the Status Quo, which continued its prior Case
Management Order in all respects until the earlier of a date
selected by the Court or until we provide the notice
contemplated by the Case Management Order. On April 10,
2003, our board of directors approved a merger agreement with
Pharma Services which provided for payment to our shareholders
of $14.50 per share in cash. On June 25, 2003, counsel
for the parties signed a Memorandum of Understanding, in which
they agreed upon the terms of a settlement of the litigation,
which would include the dismissal with prejudice of all claims
against all defendants including us and our board of directors.
On August 28, 2003, lead counsel for the plaintiffs and
counsel for the defendants executed a formal Stipulation and
Agreement of Compromise, Settlement and Release, referred to as
the Stipulation of Settlement. On August 29, 2003, the
Court entered an Order for Notice and Hearing on Settlement of
Class Action, or the Order for Notice, and a Notice of
Pendency of Class Action, Preliminary and Proposed
Class Action Certification, Proposed Settlement of
Class Action, Settlement Hearing and Right to Appear, or
the Class Notice. The Class Notice set a hearing date
of October 10, 2003, the Settlement Hearing, to determine
whether the Court should approve the settlement as fair,
adequate and in the best interest of the settlement class, end
the action, and to consider other matters including a request by
plaintiffs counsel for attorneys fees and
reimbursement of costs, in an amount not to exceed a total of
$450,000. In accordance with the terms of the Order of Notice,
we mailed the Class Notice to the record holders of our common
stock and options, as of the record date of August 19,
2003. A special meeting of the shareholders was held
September 25, 2003, at which time the shareholders approved
the proposed transaction and the merger was consummated. On
October 10, 2003, the Court certified a class for purposes
of the settlement, approved the settlement as fair and
reasonable and entered an Order and Final Judgment dismissing
the lawsuit with prejudice. The Court also awarded
plaintiffs counsel $450,000 in attorneys fees and
costs, which have been paid pursuant to the terms of the
settlement. No other payments are required from us or any other
party under the terms of the settlement and the Courts
Order.

On June 13, 2003, ENVOY Corporation, or
ENVOY, and Federal filed suit against us, in the United States
District Court for the Middle District of Tennessee. One or both
plaintiffs in this case have alleged claims for breach of
contract, contractual subrogation, equitable subrogation, and
equitable contribution. Plaintiffs reached settlement in
principle, in the amount of $11 million, of the case
pending in the same court captioned In Re Envoy Corporation
Securities Litigation, Case No. 3-98-0760. Plaintiffs claim
that we are responsible for payment of the settlement amount and
associated fees and costs in the Envoy securities litigation
based on merger and settlement agreements between WebMD
Corporation, ENVOY and us. We have filed a motion to dismiss the
suit, and the plaintiffs have filed motions for summary
judgment. These motions are pending before the court. All
parties have agreed to a stay of discovery. We believe that the
allegations made by ENVOY and Federal are without merit and
intend to defend the case vigorously.

20



---



##### 



We are also party to other legal proceedings
incidental to our business. While we currently believe 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 for the period in which the ruling occurs.



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

Not applicable.

21



---



##### 



PART II



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

Market Prices

There is no established public trading market for
our common stock. We are an indirect wholly-owned subsidiary of
Pharma Services. Our common stock was traded on The Nasdaq Stock
Market under the symbol QTRN until the Pharma
Services transaction. The following table shows, for the periods
indicated through the date of the Pharma Services transaction,
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, 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  | 
|Quarter ended March 31, 2003            |  |      | 13.210 |     |  |   | 11.990 | 
|Quarter ended June 30, 2003             |  |      | 14.250 |     |  |   | 12.190 | 
|July 1, 2003 through September 25, 2003 |  | $    | 14.490 |     |  | $ | 13.660 | 

Dividend Policies

Prior to the Pharma Services transaction, we had
not declared or paid any cash dividends on our common stock.
Following the Pharma Services transaction, our senior secured
credit facility and the indenture governing our 10% senior
subordinated notes place significant restrictions on our ability
to pay dividends on our common stock. In compliance with these
restrictions, we intend to pay dividends in an amount necessary,
not to exceed $5,000,000 per year, to pay the general
corporate and overhead expenses of Pharma Services and
Intermediate Holding. We also intend to pay dividends in the
amounts necessary, not to exceed $5,000,000 per year, for
Pharma Services to exercise applicable stock repurchase rights
under the Pharma Services Holding, Inc. Stock Incentive Plan, or
the Pharma Services Plan.

Recent Sales of Unregistered
Securities

Not applicable.

22



---



##### 





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

The selected Consolidated Statement of Operations
Data set forth below for the periods from January 1, 2003
through September 25, 2003 and September 26, 2003
through December 31, 2003 and for each of the years in the
two-year period ended December 31, 2002 and the
Consolidated Balance Sheet Data set forth below as of
December 31, 2003 and 2002 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, 2000 and 1999, and the Consolidated Balance
Sheet Data set forth below as of December 31, 2001, 2000
and 1999 are derived from our consolidated financial statements
not included herein. During 2000, we completed the sale of our
electronic data interchange unit, ENVOY, 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.

|                                                                                                                                       |                                                            |                                       |         |               |   |                         |           |             |  |             |           |             |  |   |           |         |   |   |           |         |   |   |           |         | 
|-------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ------------------------------------- | ------- | ------------- | - | ----------------------- | --------- | ----------- |  | ----------- | --------- | ----------- |  | - | --------- | ------- | - | - | --------- | ------- | - | - | --------- | ------- | 
|                                                                                                                                       |                                                            | September 26,                         |         | January 1,    |   |                        
|                                                                                                                                       |                                                            | 2003 through                          |         | 2003 through  |   | Year ended December 31,
|                                                                                                                                       |                                                            | December 31,                          |         | September 25, |   |                        
|                                                                                                                                       |                                                            | 2003                                  |         | 2003          |   | 2002                    |           | 2001        |  | 2000        |           | 1999       
|                                                                                                                                       |                                                            |                                       |         |               |   |                         |           |             |  |             |           |            
|                                                                                                                                       |                                                            | Successor                             |         | Predecessor   |   | Predecessor             |           | Predecessor |  | Predecessor |           | Predecessor
|                                                                                                                                       |                                                            |                                      
|                                                                                                                                       |                                                            | (In thousands, except per share data)
|Gross revenues                                                                                                                         |                                                            | $                                     | 547,165 |               |   | $                       | 1,498,822 |             |  | $           | 1,992,409 |             |  | $ | 1,883,912 |         |   | $ | 1,871,077 |         |   | $ | 1,830,365 |        
|Income (loss) from continuing operations before
    income taxes                                                                       |                                                            |                                       | 3,395   |               |   |                         | 65,341    |             |  |             | 123,660   |             |  |   | (262,496  | )       |   |   | (51,005   | )       |   |   | 115,910   |        
|Income (loss) from continuing operations                                                                                               |                                                            |                                       | (7,427  | )             |   |                         | 37,161    |             |  |             | 81,664    |             |  |   | (175,873  | )       |   |   | (34,174   | )       |   |   | 73,168    |        
|Income (loss) from discontinued operation, net of
    income taxes                                                                     |                                                            |                                       |        |               |   |                         |          |             |  |             |          |             |  |   |          |         |   |   | 16,770    |         |   |   | 36,123    |        
|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 (loss) income available for common
    shareholders                                                                                |                                                            | $                                     | (7,427  | )             |   | $                       | 37,161    |             |  | $           | 127,323   |             |  | $ | (33,843   | )       |   | $ | 418,923   |         |   | $ | 109,291   |        
|                                                                                                                                       |                                                            |                                       |         |               |   |                         |           |             |  |             |           |             |  |   |           |         |   |   |           |         |   |   |           |        
|Basic net (loss) income per share:                                                                                                     |                                                            |                                       |         |               |   |                         |           |             |  |             |           |             |  |   |           |         |   |   |           |         |   |   |           |        
|                                                                                                                                       | (Loss) income from continuing operation                    |                                       | $       | (0.06         | ) |                         | $         | 0.31        |  |             | $         | 0.69        |  |   | $         | (1.49   | ) |   | $         | (0.29   | ) |   | $         | 0.64    | 
|                                                                                                                                       | Income from discontinued operation                         |                                       |         |              |   |                         |           |            |  |             |           |            |  |   |           |        |   |   |           | 0.14    |   |   |           | 0.32    | 
|                                                                                                                                       | Extraordinary gain from sale of discontinued
    operation |                                       |         |              |   |                         |           |            |  |             |           |            |  |   |           | 1.20    |   |   |           | 3.76    |   |   |           |        | 
|                                                                                                                                       | Cumulative effect of change in accounting
    principle    |                                       |         |              |   |                         |           |            |  |             |           | 0.39        |  |   |           |        |   |   |           |        |   |   |           |        | 
|                                                                                                                                       |                                                            |                                       |         |               |   |                         |           |             |  |             |           |             |  |   |           |         |   |   |           |         |   |   |           |        
|                                                                                                                                       | Basic net (loss) income per share                          |                                       | $       | (0.06         | ) |                         | $         | 0.31        |  |             | $         | 1.08        |  |   | $         | (0.29   | ) |   | $         | 3.61    |   |   | $         | 0.96    | 
|                                                                                                                                       |                                                            |                                       |         |               |   |                         |           |             |  |             |           |             |  |   |           |         |   |   |           |         |   |   |           |        
|Diluted net (loss) income per share:                                                                                                   |                                                            |                                       |         |               |   |                         |           |             |  |             |           |             |  |   |           |         |   |   |           |         |   |   |           |        
|                                                                                                                                       | (Loss) income from continuing operations                   |                                       | $       | (0.06         | ) |                         | $         | 0.31        |  |             | $         | 0.69        |  |   | $         | (1.49   | ) |   | $         | (0.29   | ) |   | $         | 0.63    | 
|                                                                                                                                       | Income from discontinued operation                         |                                       |         |              |   |                         |           |            |  |             |           |            |  |   |           |        |   |   |           | 0.14    |   |   |           | 0.31    | 
|                                                                                                                                       | Extraordinary gain from sale of discontinued
    operation |                                       |         |              |   |                         |           |            |  |             |           |            |  |   |           | 1.20    |   |   |           | 3.76    |   |   |           |        | 
|                                                                                                                                       | Cumulative effect of change in accounting
    principle    |                                       |         |              |   |                         |           |            |  |             |           | 0.39        |  |   |           |        |   |   |           |        |   |   |           |        | 
|                                                                                                                                       |                                                            |                                       |         |               |   |                         |           |             |  |             |           |             |  |   |           |         |   |   |           |         |   |   |           |        
|                                                                                                                                       | Diluted net (loss) income per share                        |                                       | $       | (0.06         | ) |                         | $         | 0.31        |  |             | $         | 1.07        |  |   | $         | (0.29   | ) |   | $         | 3.61    |   |   | $         | 0.94    | 
|                                                                                                                                       |                                                            |                                       |         |               |   |                         |           |             |  |             |           |             |  |   |           |         |   |   |           |         |   |   |           |        
|Weighted average shares outstanding:                                                                                                   |                                                            |                                       |         |               |   |                         |           |             |  |             |           |             |  |   |           |         |   |   |           |         |   |   |           |        
|                                                                                                                                       | Basic                                                      |                                       |         | 125,000       |   |                         |           | 118,358     |  |             |           | 118,135     |  |   |           | 118,223 |   |   |           | 115,968 |   |   |           | 113,525 | 
|                                                                                                                                       | Diluted                                                    |                                       |         | 125,000       |   |                         |           | 119,050     |  |             |           | 118,458     |  |   |           | 118,223 |   |   |           | 115,968 |   |   |           | 115,687 | 

23



---



##### 



|                                                                |  |                                      |           |             |  |             |           |             |  |             |           |  |  |   |           |  |  |   |           | 
|--------------------------------------------------------------- |  | ------------------------------------ | --------- | ----------- |  | ----------- | --------- | ----------- |  | ----------- | --------- |  |  | - | --------- |  |  | - | --------- | 
|                                                                |  |                                     
|                                                                |  | As of December 31,                  
|                                                                |  |                                     
|                                                                |  | 2003                                 |           | 2002        |  | 2001        |           | 2000        |  | 1999       
|                                                                |  |                                      |           |             |  |             |           |             |  |            
|                                                                |  | Successor                            |           | Predecessor |  | Predecessor |           | Predecessor |  | Predecessor
|                                                                |  |                                     
|                                                                |  | (In thousands, except employee data)
|Cash and cash equivalents                                       |  | $                                    | 375,163   |             |  | $           | 644,284   |             |  | $           | 565,063   |  |  | $ | 330,214   |  |  | $ | 191,653   | 
|Working capital, excluding discontinued operation               |  |                                      | 133,462   |             |  |             | 568,473   |             |  |             | 617,552   |  |  |   | 308,684   |  |  |   | 78,039    | 
|Total assets                                                    |  |                                      | 1,992,711 |             |  |             | 2,054,195 |             |  |             | 1,853,794 |  |  |   | 1,961,578 |  |  |   | 1,607,565 | 
|Long-term debt and capital leases including
    current portion |  |                                      | 794,314   |             |  |             | 40,574    |             |  |             | 37,866    |  |  |   | 38,992    |  |  |   | 185,765   | 
|Shareholders equity                                            |  | $                                    | 535,098   |             |  | $           | 1,598,386 |             |  | $           | 1,455,088 |  |  | $ | 1,404,706 |  |  | $ | 991,759   | 
|Full-time equivalent employees                                  |  |                                      | 15,662    |             |  |             | 15,801    |             |  |             | 17,639    |  |  |   | 18,060    |  |  |   | 20,496    | 

24



---



##### 





|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|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 our competitors press releases and public filings with
the SEC, we are the largest company in the pharmaceutical
outsourcing services industry as ranked by 2003 gross
revenues. The revenues of the second largest company were
approximately $1.07 billion less than our 2003 revenues.

On April 10, 2003, following the unanimous
recommendation of a special committee of independent directors,
our Board of Directors approved a merger transaction with Pharma
Services for our public shareholders to receive $14.50 per
share in cash. In order to finance the Pharma Services
transaction, Pharma Services sold equity units consisting of
preferred and common stock for $390.5 million. In addition,
we entered into a secured credit facility which consists of a
$310.0 million principal senior term loan and a
$75.0 million revolving loan facility. We also issued
$450.0 million principal amount of 10% senior
subordinated notes due 2013. Pharma Services also used
approximately $558.3 million of our existing cash to fund
the Pharma Services transaction.

The Pharma Services transaction was completed on
September 25, 2003, after receiving regulatory and
shareholder approval. As a result of the Pharma Services
transaction, Pharma Services Acquisition Corp., a subsidiary of
Pharma Services, was merged with and into us, and, we as the
surviving corporation, became an indirect wholly owned
subsidiary of Pharma Services. Consequently, our results of
operations, financial position and cash flows prior to the date
of the Pharma Services transaction are presented as the
predecessor. The financial effects of the Pharma
Services transaction and our results of operations, financial
position and cash flows as the surviving corporation following
the Pharma Services transaction are presented as the
successor. To clarify and emphasize that the
successor company has been presented on an entirely new basis of
accounting, we have separated predecessor and successor
operations with a vertical black line, where appropriate.

Results of Operations

In accordance with generally accepted accounting
principles in the United States, or GAAP, our predecessor
results have not been aggregated with our successor results and,
accordingly, our Condensed Consolidated Financial Statements do
not show results of operations or cash flows for the twelve
months ended December 31, 2003. However, in order to
facilitate an understanding of our results of operations for the
twelve months ended December 31, 2003 in comparison with
the twelve months ended December 31, 2002, we present and
discuss our predecessor results and our successor results on a
combined basis. The combined results of operations are non-GAAP
financial measures and should not be used in isolation or
substitution of the predecessor and successor results.

25



---



##### 



Below is a reconciliation of the combined results
for the year ended December 31, 2003:

|                                                                                   |  |                    |         |                    |  |                   |           |   |  |   |           |  
|---------------------------------------------------------------------------------- |  | ------------------ | ------- | ------------------ |  | ----------------- | --------- | - |  | - | --------- | -
|                                                                                   |  | September 26, 2003 |         | January 1, 2003    |  |                  
|                                                                                   |  | through            |         | through            |  | Year ended       
|                                                                                   |  | December 31, 2003  |         | September 25, 2003 |  | December 31, 2003
|                                                                                   |  |                    |         |                    |  |                  
|                                                                                   |  | Successor          |         | Predecessor        |  | Combined         
|Gross revenues                                                                     |  | $                  | 547,165 |                    |  | $                 | 1,498,822 |   |  | $ | 2,045,987 |  
|Costs, expenses and other:                                                         |  |                    |         |                    |  |                   |           |   |  |   |           |  
|Costs of revenues                                                                  |  |                    | 375,598 |                    |  |                   | 997,822   |   |  |   | 1,373,420 |  
|General and administrative                                                         |  |                    | 154,688 |                    |  |                   | 397,318   |   |  |   | 552,006   |  
|Interest (income) expense, net                                                     |  |                    | 15,890  |                    |  |                   | (10,374   | ) |  |   | 5,516     |  
|Other (income) expense, net                                                        |  |                    | (2,406  | )                  |  |                   | (5,433    | ) |  |   | (7,839    | )
|Transaction and restructuring                                                      |  |                    |        |                    |  |                   | 54,148    |   |  |   | 54,148    |  
|                                                                                   |  |                    |         |                    |  |                   |           |   |  |   |           |  
|                                                                                   |  |                    | 543,770 |                    |  |                   | 1,433,481 |   |  |   | 1,977,251 |  
|                                                                                   |  |                    |         |                    |  |                   |           |   |  |   |           |  
|Income (loss) before income taxes                                                  |  |                    | 3,395   |                    |  |                   | 65,341    |   |  |   | 68,736    |  
|Income tax expense (benefit)                                                       |  |                    | 10,712  |                    |  |                   | 28,184    |   |  |   | 38,896    |  
|                                                                                   |  |                    |         |                    |  |                   |           |   |  |   |           |  
|Income (loss) before equity in earnings of
    unconsolidated affiliates and other |  |                    | (7,317  | )                  |  |                   | 37,157    |   |  |   | 29,840    |  
|Equity in earnings of unconsolidated affiliates
    and other                      |  |                    | (110    | )                  |  |                   | 4         |   |  |   | (106      | )
|                                                                                   |  |                    |         |                    |  |                   |           |   |  |   |           |  
|Net (loss) income                                                                  |  | $                  | (7,427  | )                  |  | $                 | 37,161    |   |  | $ | 29,734    |  
|                                                                                   |  |                    |         |                    |  |                   |           |   |  |   |           |  

Below is a reconciliation of the results by
segment on a combined basis for the year ended December 31,
2003:

|              |                       |                    |         |                    |   |                   |           |         |   |   |           |           |  
|------------- | --------------------- | ------------------ | ------- | ------------------ | - | ----------------- | --------- | ------- | - | - | --------- | --------- | -
|              |                       | September 26, 2003 |         | January 1, 2003    |   |                  
|              |                       | through            |         | through            |   | Year ended       
|              |                       | December 31, 2003  |         | September 25, 2003 |   | December 31, 2003
|              |                       |                    |         |                    |   |                  
|              |                       | Successor          |         | Predecessor        |   | Combined         
|Net revenues: |                       |                    |         |                    |   |                   |           |         |   |   |           |          
|              | Product development   |                    | $       | 270,247            |   |                   | $         | 734,729 |   |   | $         | 1,004,976 |  
|              | Commercial services   |                    |         | 141,163            |   |                   |           | 392,050 |   |   |           | 533,213   |  
|              | PharmaBio Development |                    |         | 49,958             |   |                   |           | 133,137 |   |   |           | 183,095   |  
|              | Eliminations          |                    |         | (10,458            | ) |                   |           | (29,777 | ) |   |           | (40,235   | )
|              |                       |                    |         |                    |   |                   |           |         |   |   |           |          
|              |                       | $                  | 450,910 |                    |   | $                 | 1,230,139 |         |   | $ | 1,681,049 |          
|              |                       |                    |         |                    |   |                   |           |         |   |   |           |          
|Contribution: |                       |                    |         |                    |   |                   |           |         |   |   |           |          
|              | Product development   |                    | $       | 141,046            |   |                   | $         | 375,125 |   |   | $         | 516,171   |  
|              | Commercial services   |                    |         | 55,353             |   |                   |           | 142,144 |   |   |           | 197,497   |  
|              | PharmaBio Development |                    |         | 9,736              |   |                   |           | 43,001  |   |   |           | 52,737    |  
|              |                       |                    |         |                    |   |                   |           |         |   |   |           |          
|              |                       | $                  | 206,135 |                    |   | $                 | 560,270   |         |   | $ | 766,405   |          
|              |                       |                    |         |                    |   |                   |           |         |   |   |           |          

26



---



##### 



Below is a reconciliation of certain items of the
combined statement of cash flows for the year ended
December 31, 2003:

|                                                        |                                                                   |                    |            |                    |   |                   |         |         |   |   |            |            |  
|------------------------------------------------------- | ----------------------------------------------------------------- | ------------------ | ---------- | ------------------ | - | ----------------- | ------- | ------- | - | - | ---------- | ---------- | -
|                                                        |                                                                   | September 26, 2003 |            | January 1, 2003    |   |                  
|                                                        |                                                                   | through            |            | through            |   | Year ended       
|                                                        |                                                                   | December 31, 2003  |            | September 25, 2003 |   | December 31, 2003
|                                                        |                                                                   |                    |            |                    |   |                  
|                                                        |                                                                   | Successor          |            | Predecessor        |   | Combined         
|Net cash provided by operating activities               |                                                                   | $                  | 105,615    |                    |   | $                 | 169,869 |         |   | $ | 275,484    |           
|                                                       
|Investing activities:                                   |                                                                   |                    |            |                    |   |                   |         |         |   |   |            |           
|                                                        | Acquisition of property, equipment and software                   |                    |            | (14,894            | ) |                   |         | (39,682 | ) |   |            | (54,576    | )
|                                                        | Repurchase of common stock in Transaction                         |                    |            | (1,617,567         | ) |                   |         |        |   |   |            | (1,617,567 | )
|                                                        | Payment of transaction costs in Transaction                       |                    |            | (64,734            | ) |                   |         | (2,896  | ) |   |            | (67,630    | )
|                                                        | Acquisition of businesses, net of cash acquired                   |                    |            | (3,363             | ) |                   |         | (1,379  | ) |   |            | (4,742     | )
|                                                        | Acquisition of intangible assets                                  |                    |            |                   |   |                   |         | (4,519  | ) |   |            | (4,519     | )
|                                                        | Acquisition of commercial rights and royalties                    |                    |            | (3,000             | ) |                   |         | (17,710 | ) |   |            | (20,710    | )
|                                                        | Proceeds from disposition of property and
    equipment           |                    |            | 1,960              |   |                   |         | 6,219   |   |   |            | 8,179      |  
|                                                        | Proceeds from (purchases of) debt securities, net                 |                    |            | (886               | ) |                   |         | 25,267  |   |   |            | 24,381     |  
|                                                        | Purchases of equity securities and other
    investments          |                    |            | (6,020             | ) |                   |         | (10,830 | ) |   |            | (16,850    | )
|                                                        | Proceeds from sale of equity securities and other
    investments |                    |            | 7,633              |   |                   |         | 61,926  |   |   |            | 69,559     |  
|                                                        |                                                                   |                    |            |                    |   |                   |         |         |   |   |            |           
|Net cash used in (provided by) investing
    activities |                                                                   |                    | (1,700,871 | )                  |   |                   | 16,396  |         |   |   | (1,684,475 | )         
|                                                       
|Financing activities:                                   |                                                                   |                    |            |                    |   |                   |         |         |   |   |            |           
|                                                        | Borrowings, net of costs, in Transaction                          |                    |            | 733,433            |   |                   |         |        |   |   |            | 733,433    |  
|                                                        | Capital contribution in Transaction                               |                    |            | 390,549            |   |                   |         |        |   |   |            | 390,549    |  
|                                                        | Principal payments on credit arrangements, net                    |                    |            | (5,647             | ) |                   |         | (13,219 | ) |   |            | (18,866    | )
|                                                        | Issuance of common stock (predecessor)                            |                    |            |                   |   |                   |         | 7,042   |   |   |            | 7,042      |  
|                                                        |                                                                   |                    |            |                    |   |                   |         |         |   |   |            |           
|Net cash provided by (used in) financing
    activities |                                                                   |                    | 1,118,335  |                    |   |                   | (6,177  | )       |   |   | 1,112,158  |           



| |                                                                            
| | ---------------------------------------------------------------------------
| | Year Ended December 31, 2003 Compared
    with Year Ended December 31, 2002

Gross Revenues.Gross revenues for the year ended
December 31, 2003 were $2.05 billion versus
$1.99 billion for the year ended December 31, 2002.
Gross revenues include service revenues, revenues from
commercial rights and royalties and revenues from investments.
Net revenues exclude reimbursed

27



---



##### 



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):


|                                |  |      |           |      |  |   |           | 
|------------------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                                |  | 2003 |           | 2002
|                                |  |      |           |     
|Service revenues                |  | $    | 1,862,892 |      |  | $ | 1,868,324 | 
|Less: reimbursed service costs  |  |      | 364,938   |      |  |   | 399,650   | 
|                                |  |      |           |      |  |   |           | 
|Net service revenues            |  |      | 1,497,954 |      |  |   | 1,468,674 | 
|Commercial rights and royalties |  |      | 152,162   |      |  |   | 110,381   | 
|Investments                     |  |      | 30,933    |      |  |   | 13,704    | 
|                                |  |      |           |      |  |   |           | 
|Total net revenues              |  | $    | 1,681,049 |      |  | $ | 1,592,759 | 
|                                |  |      |           |      |  |   |           | 
|Reimbursed service costs        |  |      | 364,938   |      |  |   | 399,650   | 
|                                |  |      |           |      |  |   |           | 
|Gross revenues                  |  | $    | 2,045,987 |      |  | $ | 1,992,409 | 
|                                |  |      |           |      |  |   |           | 



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Service Revenues.Service revenues were
    $1.86 billion for 2003 compared to $1.87 billion for
    2002. Service revenues less reimbursed service costs, or net
    service revenues, for 2003 were $1.50 billion, an increase
    of $29.3 million or 2.0% over net service revenues of
    $1.47 billion in 2002. Included in net service revenues for
    2002 was $20.3 million from our informatics group, which
    was transferred to a joint venture during May 2002 and,
    therefore, there were no net service revenues from that group
    for 2003. Net service revenues for 2003 were positively impacted
    by approximately $98.7 million due to the effect of the
    weakening of the U.S. Dollar relative to the euro, the British
    pound, the South African Rand and the Japanese yen. Net service
    revenues increased in the Asia Pacific region $44.3 million
    or 23.0% to $237.5 million, which was positively impacted
    by approximately $17.8 million due to the effect of foreign
    currency fluctuations. Net service revenues decreased
    $2.0 million or (0.3%) to $656.7 million in the Europe
    and Africa region, although they were positively impacted by
    $80.0 million due to the effect of foreign currency
    fluctuations. During 2003, our commercial services group
    experienced difficult business conditions due to the
    under-utilization of its syndicated sales forces in primarily
    two markets, the United Kingdom and France. Net service revenues
    decreased $13.1 million or (2.1%) to $603.7 million in
    the Americas primarily as a result of increased competition in
    the product development group and a decrease in commercial
    services provided under our PharmaBio contracts during 2003.                                                                                                                                                                                                                                                                                                               
|
| |  | Commercial Rights and Royalties Revenues.Commercial rights and royalties
    revenues, which include product revenues, royalties and
    commissions, for 2003 were $152.2 million, an increase of
    $41.8 million over 2002 commercial rights and royalties
    revenues of $110.4 million. Commercial rights and royalties
    revenues were positively impacted by approximately
    $14.6 million due to the effect of foreign currency
    fluctuations related to the weakening of the U.S. Dollar
    relative to the euro. Commercial rights and royalties revenues
    for 2003 were reduced by approximately $3.5 million versus
    $19.8 million for 2002, for payments made by us to our
    customers. These payments are considered incentives and are
    amortized against revenues over the service period of the
    contract. The $41.8 million increase in commercial rights
    and royalties revenues is primarily the result of (1) our
    March 2002 acquisition of certain assets of Bioglan Pharma,
    Inc., or Bioglan, and its successful launch of dermatology
    products which contributed approximately $53.2 million of
    revenues for 2003 versus $22.4 million for 2002,
    (2) our contracts with Kos and Columbia, which contributed
    approximately $36.9 million of revenues for 2003 versus
    $22.3 million for 2002, and (3) our contracts in
    Europe with two large pharmaceutical customers which contributed
    approximately $40.4 million of revenues for 2003 versus
    $18.9 million for 2002. These increases were partially
    offset by a reduction in revenue of approximately
    $25.6 million as a result of the completion of the services
    portion of our Scios, Inc., or Scios, contract during the fourth
    quarter of 2002. For 2003, approximately 34.9% of our commercial
    rights and royalties revenues was attributable to our suite of
    dermatology products, approximately 26.6% was attributable to
    our contracts with two large pharmaceutical customers in Europe,
    approximately 24.2% was attributable

28



---



##### 



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | to our contracts with Kos and Columbia,
    approximately 10.5% was attributable to the termination of the
    Scios contract, and the remaining 3.8% was attributable to
    miscellaneous contracts and activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Investment Revenues.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, were
    $30.9 million for 2003 versus $13.7 million for 2002.
    Investment revenues for 2003 included $23.6 million of gain
    on the sale of equity investments in Triangle Pharmaceuticals,
    Inc., or Triangle, The Medicines Company and CV Therapeutics,
    and a $12.1 million gain on warrants to acquire
    700,000 shares of Scios as a result of the acquisition of
    Scios by Johnson & Johnson, Inc. During 2003 and 2002,
    we recognized $11.8 million and $4.3 million,
    respectively, of impairment losses on investments whose decline
    in fair value was considered to be other than temporary.

Cost of Revenues.Costs of revenues were
$1.37 billion in both 2003 and 2002. Below is a summary of
these costs (in thousands):

|                                      |  |      |           |      |  |   |           | 
|------------------------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                                      |  | 2003 |           | 2002
|                                      |  |      |           |     
|Reimbursed service costs              |  | $    | 364,938   |      |  | $ | 399,650   | 
|Service costs                         |  |      | 784,286   |      |  |   | 775,447   | 
|Commercial rights and royalties costs |  |      | 130,358   |      |  |   | 106,146   | 
|Investment costs                      |  |      |          |      |  |   | 320       | 
|Depreciation and amortization         |  |      | 93,838    |      |  |   | 86,148    | 
|                                      |  |      |           |      |  |   |           | 
|                                      |  | $    | 1,373,420 |      |  | $ | 1,367,711 | 
|                                      |  |      |           |      |  |   |           | 



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Reimbursed Service Costs.Reimbursed service costs were
    $364.9 million and $399.7 million for 2003 and 2002,
    respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Service Costs.Service costs, which include
    compensation and benefits for billable employees, and certain
    other expenses directly related to service contracts, were
    $784.3 million or 52.4% of 2003 net service revenues
    versus $775.4 million or 52.8% of 2002 net service
    revenues. Service costs were negatively impacted by
    approximately $52.3 million from the effect of foreign
    currency fluctuations. Bonus expense included in service costs
    increased approximately $3.2 million in 2003 as compared to
    2002 as a result of our migration to a cash-based incentive
    program for our employees. The reduction in service costs, as a
    percentage of net service revenues, is primarily a result of the
    residual effect of our process enhancements and cost reduction
    efforts.                                                                                                                                             
|
| |  | Commercial Rights and Royalties Costs.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 $130.4 million for
    2003 versus $106.1 million for 2002. These costs include
    services and products provided by third parties, as well as
    services provided by our other service groups totaling
    approximately $40.2 million for 2003 and $54.5 million
    for 2002. The year 2003 includes twelve months of expenses of
    our Bioglan operations, which we acquired in March 2002, and
    approximately $7.6 million of expenses relating to
    CymbaltaTM, as well as the costs related to the
    launch and marketing of SolarazeTM and
    ADOXATM and our contracts in Europe with two large
    pharmaceutical customers.
|
| |  | Investment Costs.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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | Depreciation and Amortization.Depreciation and amortization, which
    include depreciation of our property and equipment and
    amortization of our definite-lived intangible assets except
    commercial                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

29



---



##### 



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | rights, increased to $93.8 million for 2003
    versus $86.1 million for 2002. Amortization expense
    increased approximately $14.3 million as a result of the
    amortization of the identifiable intangible assets with finite
    lives that was recorded in connection with the Pharma Services
    transaction. This increase was partially offset by a decrease in
    depreciation expense of approximately $6.7 million
    primarily resulting from the transfer of our informatics group
    to Verispan.

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
$552.0 million or 32.8% of total net revenues in 2003
versus $508.1 million or 31.9% of total net revenues in
2002. General and administrative expenses increased
approximately $43.9 million primarily due to a negative
impact of approximately $34.9 million as a result of the
effect of foreign currency fluctuations and a $4.0 million
increase in expenses associated with changes to our employee
cash-based incentive program. These increases offset the
reduction of approximately $8.6 million due to the transfer
of our informatics group into the Verispan joint venture.

Interest income increased slightly in 2003 to
$16.9 million as compared to $16.7 million in 2002.

Interest expense was $22.4 million in 2003
as compared to $2.6 million in 2002. The increase is a
result of the interest on the debt we incurred at the end of
September, 2003, totaling approximately $760.0 million, to
fund the Pharma Services transaction.

Other income was $7.8 million in 2003 versus
other expense of $3.8 million in 2002. Included in 2003
were approximately $6.4 million in foreign currency
translation gains compared to $5.2 million in 2002.
Included in 2002 are approximately $2.7 million of expenses
associated with the formation of the Verispan joint venture.

We recognized $54.l million of transaction
expenses and restructuring charges in 2003 as compared to
$3.4 million during 2002. These amounts included
$48.7 million and $3.4 million of transaction related
expenses including expenses of the special committee of our
Board of Directors and its financial and legal advisors during
2003 and 2002, respectively. In addition, 2003 included a
$5.5 million restructuring charge. During the third quarter
of 2003, in connection with the Pharma Services transaction, we
reviewed our estimates of the restructuring plans adopted in
prior years. This review resulted in a net increase of
approximately $5.5 million in our accruals, including an
increase of $6.8 million in exit costs for abandoned leased
facilities and a decrease of approximately $1.3 million for
severance payments. The increase in exit costs was due to
several factors including: (1) an increase in our estimated
time required to sublet, (2) a decrease in the expected
price per square foot to sublet or (3) an increase in the
estimated cost to otherwise terminate our obligations under
those leases brought about by prolonged stagnant conditions in
local real estate markets. The decrease in severance payments
was a result of an increase in the number of actual voluntary
employee terminations beyond our estimates.

Income before income taxes was $68.7 million
or 4.1% of total net revenues for 2003 versus
$123.7 million or 7.8% of total net revenues for 2002.

The effective income tax rate was 56.6% for 2003
(on a combined basis) versus 33.5% for 2002. Our effective
income tax rate for the period from January 1, 2003 through
September 25, 2003 was 43.1% due to the negative impact of
transaction related expenses which are not deductible for income
tax purposes. Our effective income tax rate for the period from
September 26, 2003 through December 31, 2003 was
315.5%. Our effective income tax rate was negatively impacted by
providing deferred income taxes on earnings of our foreign
subsidiaries and transaction related expenses which were not
deductible for income tax purposes. Due to the Pharma Services
transaction, we no longer consider the undistributed earnings of
our foreign subsidiaries to be indefinitely reinvested.
Accordingly, in connection with recording the Pharma Services
transaction, we provided a deferred income tax liability related
to those undistributed earnings. Since we conduct operations on
a global basis, our effective income tax rate may vary. See
Income Taxes.

During 2003 and 2002, respectively, we recognized
($106,000) and ($569,000) of earnings (losses) from equity in
unconsolidated affiliates and other, which represents our pro
rata share of the net loss of

30



---



##### 



unconsolidated affiliates, primarily
Verispans net income (loss), net of a 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 in 2002 which represents the reversal of
the valuation allowance related to deferred income taxes on
these multi-jurisdictional income tax transactions.

Net income was $29.7 million for 2003 versus
$127.3 million for 2002.



| |                     
| | --------------------
| | Analysis by Segment:

The following table summarizes the operating
activities for our reportable segments for the years ended
December 31, 2003 and 2002, 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
|                      |  | 2003               |         | 2002         |  | Growth % |         | 2003 |  | Revenues |        | 2002 |  | Revenues
|                      |  |                    |         |              |  |          |         |      |  |          |        |      |  |         
|Product Development   |  | $                  | l,005.0 |              |  | $        | 944.9   |      |  |          | 6.4    | %    |  | $        | 516.2 |  |  |  | 51.4 | % |  | $ | 477.5 |  |  |  | 50.5 | %
|Commercial Services   |  |                    | 533.2   |              |  |          | 558.0   |      |  |          | (4.4   | )    |  |          | 197.5 |  |  |  | 37.0 |   |  |   | 207.7 |  |  |  | 37.2 |  
|PharmaBio Development |  |                    | 183.1   |              |  |          | 124.1   |      |  |          | 47.6   |      |  |          | 52.7  |  |  |  | 28.8 |   |  |   | 17.6  |  |  |  | 14.2 |  
|Informatics           |  |                    |        |              |  |          | 20.3    |      |  |          | (100.0 | )    |  |          |      |  |  |  |     |   |  |   | 8.0   |  |  |  | 39.4 |  
|Eliminations          |  |                    | (40.2   | )            |  |          | (54.5   | )    |  |          | (26.2  | )    |  |          |      |  |  |  |     |   |  |   |      |  |  |  |     |  
|                      |  |                    |         |              |  |          |         |      |  |          |        |      |  |          |       |  |  |  |      |   |  |   |       |  |  |  |      |  
|                      |  | $                  | 1,681.0 |              |  | $        | 1,592.8 |      |  |          | 5.5    | %    |  | $        | 766.4 |  |  |  | 45.6 | % |  | $ | 710.8 |  |  |  | 44.6 | %

Product Development Group.Net service revenues for the Product
Development Group were $1.01 billion for 2003 compared to
$944.9 million for 2002. Net services revenues for 2003
were positively impacted by approximately $62.0 million due
to the effect of foreign currency fluctuations. Net service
revenues increased in the Asia Pacific region $16.0 million
or 16.3% to $114.2 million including a positive impact of
approximately $8.4 million due to the effect of foreign
currency fluctuations. Net service revenues increased
$55.8 million or 14.7% to $435.8 million in the Europe
and Africa region primarily as a result of the positive impact
of approximately $52.0 million due to the effect of foreign
currency fluctuations. Net service revenues decreased
$11.6 million or (2.5%) to $455.0 million in the
Americas region including a positive impact of approximately
$1.6 million due to the effect of the strengthening U.S.
dollar relative to the Canadian dollar, primarily as a result of
increased competition.

Contribution for the Product Development Group
was $516.2 million for 2003 compared to $477.5 million
for 2002. As a percentage of net service revenues, contribution
margin was 51.4% for 2003 compared to 50.5% for 2002. Our
Product Development Group experiences slight fluctuations in
contribution as a percent of net service revenues from period to
period as a result of executed contract scope changes and the
timing of project expenses for which revenue is not recognized,
such as start-up or

31



---



##### 



setup costs. We believe this group has realized
most of the efficiencies that we originally set out to achieve
from the prior years restructurings.


Commercial Services Group.Net service revenues for the
Commercial Services Group were $533.2 million for 2003
compared to $558.0 million for 2002. Net service revenues
for 2003 were positively impacted by approximately
$37.9 million due to the effect of foreign currency
fluctuations. Net service revenues increased in the Asia Pacific
region $29.1 million or 34.2% to $113.9 million,
primarily as a result of a positive impact of foreign currency
fluctuations. Net service revenues decreased $5.2 million
or (2.2%) to $231.3 million in the Europe and Africa
region, although it was positively impacted by
$29.5 million due to the effect of foreign currency
fluctuations. Difficult business conditions due to the
under-utilization of our syndicated sales forces in primarily
two of the markets, the United Kingdom and France, contributed
to the decrease in net revenues for this region in 2003. Net
service revenues decreased $48.7 million or (20.6%) to
$188.0 million in the Americas region primarily as a result
of a decrease in the services provided under our PharmaBio
contracts during the year including the effect of the settlement
of the services element of our contract with Scios.

Contribution for the Commercial Services Group
was $197.5 million for 2003 compared to $207.7 million
for 2002. As a percentage of net service revenues, contribution
margin was 37.0% for 2003 compared to 37.2% for 2002.

PharmaBio Development Group.Net revenues for the PharmaBio
Development Group increased approximately $59.0 million
during 2003 as compared to 2002 due to a $41.8 million
increase in commercial rights and royalties revenues and a
$17.2 million increase in investment revenues. Although
distributor inventory levels for the products sold by our
Bioglan business unit remained at normal levels at the end of
2003, we experienced significant fluctuations in the distributor
purchasing patterns during the year. This variation resulted in
increased commercial rights and royalties revenues during the
first half of 2003, followed by reduced revenues in the third
quarter, as the distributors normalized their inventory levels.
The commercial rights and royalties costs increased
approximately $24.2 million due to the following key
factors: approximately $17.4 million of costs associated
with the marketing of Solaraze and ADOXA during 2003
as compared to $9.3 million during 2002, approximately
$7.6 million of expenses relating to Cymbalta and an
increase of approximately $7.8 million of expenses relating
to our risk-sharing contracts in Europe, including the 2003
termination of the contracts in Germany and Belgium. These
increases were partially offset by a $25.7 million decrease
in service costs provided by our Commercial Services Group
resulting primarily from the termination of the services portion
of our contract with Scios in the fourth quarter of 2002.

The contribution for the PharmaBio Development
Group increased by $35.1 million from 2002 to 2003. The
commercial rights and royalties revenues (net of related costs)
in 2003 increased the contribution of this group by
approximately $17.6 million when compared to 2002 due to
the successful launch of the dermatology products and the
successful performance of our commercial rights and royalties
contracts. The contribution from the commercial rights and
royalties revenues was negatively impacted by costs of
approximately $7.6 million related to the Cymbalta
contract for which no revenues are being recognized. Investment
revenues (net of related costs) in 2003 increased the
contribution of this group by approximately $17.5 million
when compared to 2002.

The informatics group was transferred into the
Verispan joint venture in May 2002 and is no longer a segment in
2003.



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

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

32



---



##### 



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.


Gross Revenues.Gross revenues for the year ended
December 31, 2002 were $1.99 billion versus
$1.88 billion for the year ended December 31, 2001.
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 | 
|                                |  |      |           |      |  |   |           | 
|Reimbursed service costs        |  |      | 399,650   |      |  |   | 263,429   | 
|                                |  |      |           |      |  |   |           | 
|Gross revenues                  |  | $    | 1,992,409 |      |  | $ | 1,883,912 | 
|                                |  |      |           |      |  |   |           | 



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Services Revenues.Service revenues were
    $1.87 billion for 2002 compared to $1.86 billion for
    2001. 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 U.S. Dollar relative to the euro and
    the British pound was partially offset by the strengthening of
    the U.S. Dollar relative to the South African Rand and the
    Japanese yen. 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.Commercial rights and royalties
    revenues 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 U.S. Dollar
    relative to the euro. These revenues include products for which
    we acquired certain commercial rights, such as the dermatology
    products, SolarazeTM and ADOXATM.
    Commercial rights and royalties revenues for 2002 were reduced
    by approximately $19.8 million versus $8.1 million for
    2001 for amortization of payments made by us to our customers.
    The 2001 amount reflects the Scios contract becoming operational
    in the third quarter of 2001. These payments are considered
    incentives and are amortized against revenues over the service
    period of the contract. The $84.6 million increase in
    commercial rights and royalties revenues is primarily the result
    of (1) our 2002 acquisition of certain assets of Bioglan
    and its suite of dermatology products, which contributed
    approximately $22.4 million of 2002 revenues, (2) a
    new risk sharing contract in Europe with a large pharmaceutical
    customer which contributed approximately $18.9 million of
    2002 revenues, and (3) our contracts with Scios and Kos,
    which contributed $61.3 million of 2002 revenues versus
    $12.9 million of 2001 revenues. These increases were
    partially offset by a decrease of approximately
    $5.1 million in the revenues attributable to miscellaneous
    contracts and activities.

33



---



##### 



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 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
    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. 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.
|
| |  | Investment Revenues.Investment revenues related to our
    PharmaBio Development Groups financing arrangements 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Cost of Revenues.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.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.Service costs 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.Commercial rights and royalties costs
    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 SolarazeTM and
    ADOXATM and expenses relating to the risk sharing
    contract in Europe.                                                                                                                                                                                                                                                                                                                
|
| |  | Investment Costs.Investment costs were $320,000 in 2002
    versus $1.9 million in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Depreciation and Amortization.Depreciation and amortization
    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.

34



---



##### 



General and administrative expenses 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 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 $3.8 million in 2002
versus $489,000 in 2001. The increase is a result of several
factors, including the effects of foreign currency translations
and disposals of assets. Included in 2002 are approximately
$2.7 million of expenses associated with the formation of
the Verispan joint venture.

We recognized $3.4 million of transaction
expenses in 2002 and $54.2 million of restructuring charges
in 2001. Included in 2002 were expenses relating to the
activities of the special committee of our Board of Directors
and its financial and legal advisors. 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.

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.

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.

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.

35



---



##### 



Effective January 2002, we changed our method for
calculating deferred income taxes related to our
multi-jurisdictional 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.

Because the original acquisition of ENVOY, our
electronic data interchange unit, qualified as a tax-free
reorganization, our tax basis in the acquisition is allowed to
be determined by substituting the tax basis of the previous
shareholders of ENVOY. However, when we sold ENVOY to WebMD
during 2000, the tax basis of the previous shareholders was not
available to us since ENVOY had been a publicly traded
corporation at the time of the original acquisition. Therefore,
we had to estimate our tax basis in ENVOY by reviewing financial
statements, tax returns and other public documents which were
available to us at that time. We used the estimated tax basis to
calculate the extraordinary gain on the sale of ENVOY, net of
income taxes, as reported in our 2000 financial statements. In
September 2001, we received the results of a tax basis study
completed by our external tax advisors, which was prepared so
that we could prepare and file our 2000 U.S. Corporate
income tax return. Based on this study, we adjusted the estimate
of our tax basis in ENVOY, resulting in an approximate
$142.0 million reduction in the income taxes. This change
in estimate resulted in an increase for the same amount in the
extraordinary gain on the sale of ENVOY. In January 2004, we
received a communication from the Internal Revenue Service
proposing an increase in our income taxes owed for 2000 by
approximately $153.1 million. The increase relates to the
Internal Revenue Service challenging our method for determining
the basis that we applied to the sale of ENVOY. We are
contesting the Internal Revenue Services proposed increase.

Net income was $127.3 million for 2002
versus a net loss of $33.8 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
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 | %

36



---



##### 



Product Development Group.Net service revenues for the Product
Development Group were $944.9 million for 2002 compared to
$913.9 million for 2001. Net service revenues for 2002 were
positively impacted by approximately $6.7 million due to
the effect of foreign currency fluctuations. Net service
revenues increased in the Asia Pacific region $21.2 million
or 27.5% to $98.2 million including a negative impact of
approximately $1.3 million due to the effect of foreign
currency fluctuations. Net service revenues increased
$18.8 million or 5.2% to $380.0 million in the Europe
and Africa region, which was positively impacted by
$8.4 million due to the effect of foreign currency
fluctuations. Net service revenues decreased $9.0 million
or (1.9%) to $466.6 million in the Americas region
primarily as a result of increased competition.

Contribution for the Product Development Group
was $477.5 million for 2002 compared to $438.4 million
for 2001. As a percentage of net service revenues, contribution
margin was 50.5% for 2002 compared to 48.0% for 2001. Although
billable headcount remained relatively constant for the product
development group, billable headcount decreased approximately 3%
in the clinical development, or CDS, line of business while
billable headcount increased approximately 11% in the early
development and laboratory services, or EDLS, line of business.
Service costs in our EDLS line of business tend to be
proportional to net revenues. The improvement of
$39.1 million and 250 basis points in contribution
margin was directly related to our reduction in billable
headcount in CDS, as well as the realignment of our billable
headcount in CDS from higher cost countries such as the United
States to lower cost countries, such as South Africa.

Commercial Services Group.Net service revenues for the
Commercial Services Group were $558.0 million for 2002
compared to $634.9 million for 2001. Net service revenues
for 2002 were positively impacted by approximately
$8.7 million due to the effect of foreign currency
fluctuations. Net service revenues increased in the Asia Pacific
region $7.7 million or 9.9% to $84.9 million, which
was negatively impacted by $935,000 due to the effect of foreign
currency fluctuations. Net service revenues increased
$15.7 million or 7.1% to $236.5 million in the Europe
and Africa region, which was positively impacted by
$10.0 million due to the effect of foreign currency
fluctuations. Net service revenues decreased $100.2 million
or (29.8%) to $236.6 million in the Americas region
primarily as a result of a reduction in new product launches and
an increase in the number of drugs losing patent protection.

Contribution for the Commercial Services Group
was $207.7 million for 2002 compared to $197.5 million
for 2001. As a percentage of net service revenues, contribution
margin was 37.2% for 2002 compared to 31.1% for 2001. The
improvement of $10.3 million and 610 basis points in
contribution margin was directly related to our reduction in
billable headcount of approximately 22.2%, as we migrated from
being dependent on large primary care sales forces with low
margins to a balanced mix of strategic consulting services and
specialty sales forces with greater margins.

PharmaBio Development Group.Net revenues for the PharmaBio
Development Group increased approximately $97.7 million
during 2002 as compared to 2001 due to the $84.6 million
increase in commercial rights and royalties revenues and the
$13.1 million increase in investment revenues. The
commercial rights and royalties costs increased approximately
$79.3 million during the same period primarily as a result
of several factors including an approximate $41.6 million
increase in service costs provided by our commercial services
group relating primarily to our contracts with Scios and Kos,
$9.3 million of costs associated with the launch and
marketing of SolarazeTM and ADOXATM and
$25.8 million of expenses relating to our risk sharing
contracts in Europe. The investment costs decreased
approximately $1.6 million during 2002 as compared to 2001.
The contribution for this segment increased by
$19.9 million from 2001 to 2002. The commercial rights and
royalties revenues (net of related costs) increased the
contribution of this group by approximately $5.2 million
when compared to 2001 due to the successful launch of the
dermatology products and the successful performance of our
commercial rights and royalties contracts. The investment
revenues (net of related costs) increased the contribution of
this group by approximately $14.7 million when compared to
2001.

Informatics Group.Net revenues, service costs and
contribution for the informatics group decreased approximately
$37.9 million, $18.7 million and $19.2 million,
respectively, during 2002 as compared to

37



---



##### 



2001. These decreases are primarily due to the
transfer of this group into the joint venture in May 2002;
therefore, the 2002 results include only five months of revenues
and service costs for the informatics group.


Liquidity and Capital Resources

Cash and cash equivalents were
$375.2 million at December 31, 2003 as compared to
$644.3 million at December 31, 2002.

Cash provided by operations were
$275.5 million in 2003 versus $246.5 million and
$247.4 million in 2002 and 2001, respectively. Increasing
cash 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 used in investing activities during 2003,
2002, and 2001 were $1.68 billion, $152.3 million, and
$16.4 million, respectively. Investing activities in 2003
consisted primarily of the payments relating to the Pharma
Services transaction including the repurchase of our common
stock and the payment of transaction costs. Investing activities
also included the purchases and sales of equity securities and
other investments, capital asset purchases, and the acquisition
of commercial rights.

Capital asset purchases required cash outlays of
$54.6 million, $40.2 million, and $134.0 million
in 2003, 2002 and 2001, respectively. Capital asset purchases by
our informatics group were $666,000 in 2002 versus
$10.0 million in 2001. 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.

During 2003, cash used to acquire commercial
rights and royalties related assets was $25.2 million
versus $88.3 million during 2002 and $36.7 million
during 2001. The 2003 acquisitions included payments of
$14.3 million for the contracts with Columbia,
$6.5 million for the contract with Scios, $3.2 million
for the contract with a large pharmaceutical customer in Belgium
and approximately $1.3 million for the acquisition of
product and marketing rights. The 2002 acquisitions included
$70.0 million of advances to a customer representing
payments under our agreement with Lilly. In 2001, we acquired
the rights to market for 14 years in the United States,
Canada and Mexico SkyePharmas SolarazeTM, a
treatment of actinic keratosis, for $26.7 million.

Cash used in the acquisition of businesses, net
of cash acquired was $4.7 million during 2003 versus
$28.0 million and $6.6 million in 2002 and 2001,
respectively. 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.

Purchases of equity securities and other
investments required an outlay of cash of $19.4 million for
2003 compared to an outlay of $19.7 million for 2002 and
$52.9 million for 2001. Proceeds from the sale of equity
securities and other investments were $96.5 million during
2003 as compared to $27.9 million for 2002 and
$206.3 million for 2001. The proceeds received during 2003
included approximately $22.7 million from the sale of our
investment in Triangle (which was acquired by Gilead Sciences,
Inc. in January 2003), approximately $17.5 million from
warrants to acquire Scios stock (which was acquired by
Johnson & Johnson, Inc. in May 2003), and the sale of
other equity investments, including The Medicines Company and
CV Therapeutics. 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

38



---



##### 



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, |          | December 31,
|                                               |  | 2003         |          | 2002        
|                                               |  |              |          |             
|Trade accounts receivable, net                 |  | $            | 122,496  |              |  | $ | 129,748  |  
|Unbilled services                              |  |              | 102,802  |              |  |   | 120,383  |  
|Unearned income                                |  |              | (190,918 | )            |  |   | (141,710 | )
|                                               |  |              |          |              |  |   |          |  
|Net service receivables outstanding            |  | $            | 34,380   |              |  | $ | 108,421  |  
|                                               |  |              |          |              |  |   |          |  
|Number of days of service revenues outstanding |  |              | 7        |              |  |   | 21       |  
|                                               |  |              |          |              |  |   |          |  

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, as well as an increased effort to
negotiate for and receive upfront payments. Although we intend
to continue to focus on these business objectives, it may be
difficult to maintain the number of days of service revenues
outstanding at the December 31, 2003 level.

Investments in debt securities were
$11.0 million at December 31, 2003 versus
$36.7 million at December 31, 2002. Our investments in
debt securities consist primarily of state and municipal
securities. The decrease is a result of the redemption of our
investments in debt securities, primarily money funds.

Investments in marketable equity securities
decreased $6.6 million to $58.3 million at
December 31, 2003 as compared to $64.9 million at
December 31, 2002 primarily as a result of sales of equity
securities which was partially offset by an increase in the
market value of the securities.

Investments in non-marketable equity securities
and loans at December 31, 2003 were $48.6 million, as
compared to $46.4 million at December 31, 2002. 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 losses totaling approximately
$11.8 million in 2003 to establish a new cost basis for
certain investments.

Investments in unconsolidated affiliates,
primarily Verispan, were $121.2 million at
December 31, 2003 as compared to $121.l million at
December 31, 2002.

On September 25, 2003, we completed the
Pharma Services transaction for a total purchase price of
approximately $1.88 billion. We used approximately
$558.3 million of cash to fund this transaction and
received $390.5 million in cash for capital contributions.
In addition, we entered into a secured credit facility which
consists of a $310.0 million principal senior term loan and
a $75.0 million revolving loan facility. We also issued
$450.0 million principal amount of 10% senior
subordinated notes due 2013. As of December 31, 2003, we
did not have any outstanding balance on the revolving loan
facility.

Our various long-term debt agreements contain
usual and customary negative covenants that, among other things,
place limitations on our ability to (1) incur additional
indebtedness, including capital leases and liens; (2) pay
dividends and repurchase our capital stock; (3) enter into
mergers, consolidations, acquisitions, asset dispositions and
sale-leaseback transactions; (4) make capital expenditures;
and (5) issue capital stock of our subsidiaries. The
agreements also contain financial covenants requiring us to
maintain minimum interest coverage ratios and maximum
consolidated leverage and senior leverage ratios, as defined
therein.

We also have available to us a
£1.5 million (approximately $2.6 million) general
bank facility with a U.K. bank. At December 31, 2003 and
2002, we did not have any outstanding balance on the facility.

39



---



##### 



Below is a summary of our future payment
commitments by year under contractual obligations as of
December 31, 2003 (in thousands):

|                                                                                          |  |      |         |      |  |      |        |      |  |      |        |            |  |       |        |  |  |   |        |  |  |   |         |  |  |   |           | 
|----------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ---------- |  | ----- | ------ |  |  | - | ------ |  |  | - | ------- |  |  | - | --------- | 
|                                                                                          |  | 2004 |         | 2005 |  | 2006 |        | 2007 |  | 2008 |        | Thereafter |  | Total
|                                                                                          |  |      |         |      |  |      |        |      |  |      |        |            |  |      
|Long-term debt                                                                            |  | $    | 5,583   |      |  | $    | 5,370  |      |  | $    | 5,038  |            |  | $     | 4,185  |  |  | $ | 3,907  |  |  | $ | 744,857 |  |  | $ | 768,940   | 
|Obligations held under capital leases                                                     |  |      | 15,939  |      |  |      | 7,759  |      |  |      | 1,825  |            |  |       | 679    |  |  |   | 266    |  |  |   | 132     |  |  |   | 26,600    | 
|Operating leases                                                                          |  |      | 61,866  |      |  |      | 42,688 |      |  |      | 31,510 |            |  |       | 25,258 |  |  |   | 17,579 |  |  |   | 74,235  |  |  |   | 253,136   | 
|Service Agreements                                                                        |  |      | 30,860  |      |  |      | 25,532 |      |  |      | 22,424 |            |  |       | 21,131 |  |  |   | 15,848 |  |  |   |        |  |  |   | 115,795   | 
|PharmaBio funding commitments in various
    commercial rights and royalties:             |  |      |         |      |  |      |        |      |  |      |        |            |  |       |        |  |  |   |        |  |  |   |         |  |  |   |           | 
|Milestone payments                                                                        |  |      | 3,000   |      |  |      |       |      |  |      |       |            |  |       |       |  |  |   |       |  |  |   |        |  |  |   | 3,000     | 
|Sales force commitments                                                                   |  |      | 16,548  |      |  |      | 15,069 |      |  |      | 3,806  |            |  |       | 3,916  |  |  |   | 403    |  |  |   |        |  |  |   | 39,742    | 
|Licensing and distribution rights                                                         |  |      | 2,346   |      |  |      | 1,500  |      |  |      |       |            |  |       |       |  |  |   |       |  |  |   |        |  |  |   | 3,846     | 
|PharmaBio funding commitments to purchase
    non-marketable equity securities and loans: |  |      |         |      |  |      |        |      |  |      |        |            |  |       |        |  |  |   |        |  |  |   |         |  |  |   |           | 
|Venture capital funds                                                                     |  |      | 15,164  |      |  |      | 1,582  |      |  |      |       |            |  |       |       |  |  |   |       |  |  |   |        |  |  |   | 16,746    | 
|Convertible loans                                                                         |  |      | 66      |      |  |      |       |      |  |      |       |            |  |       |       |  |  |   |       |  |  |   |        |  |  |   | 66        | 
|Loans                                                                                     |  |      | 6,055   |      |  |      |       |      |  |      |       |            |  |       |       |  |  |   |       |  |  |   |        |  |  |   | 6,055     | 
|                                                                                          |  |      |         |      |  |      |        |      |  |      |        |            |  |       |        |  |  |   |        |  |  |   |         |  |  |   |           | 
|Total                                                                                     |  | $    | 157,427 |      |  | $    | 99,500 |      |  | $    | 64,603 |            |  | $     | 55,169 |  |  | $ | 38,003 |  |  | $ | 819,224 |  |  | $ | 1,233,926 | 
|                                                                                          |  |      |         |      |  |      |        |      |  |      |        |            |  |       |        |  |  |   |        |  |  |   |         |  |  |   |           | 

We also have 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
time period, then we estimate these commitments to be a minimum
of approximately $90-110 million per year for a period of
five to six years, subject to certain limitations and varying
time periods.

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 which was
subsequently extended to 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 or
during the period from January 1, 2003 through
September 25, 2003. During 2001, we entered into agreements
to repurchase approximately 1.7 million shares for an
aggregate price of $27.5 million.

Shareholders equity at December 31,
2003 was $535.1 million (on a successor basis) versus
$1.598 billion (on a predecessor basis) at
December 31, 2002. The difference results from the effect
of the Pharma Services transaction.

Based on our current operating plan, we believe
that our available cash and cash equivalents, together with
future cash flows from operations and borrowings available under
our revolving portion of our senior credit facility and line of
credit agreements will be sufficient to meet our foreseeable
cash needs in connection with our operations and debt repayment
obligations. 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 commercial rights, which may include 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. Any such
acquisitions or equity or debt financings may be limited by the
terms and restrictions contained in the credit agreement
governing the senior secured facility or the indenture.

40



---



##### 



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.



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

We recognize revenue for service contracts based
upon (1) the ratio of outputs or performance obligations
completed to the total contractual outputs or performance
obligations to be provided for fixed-fee 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. We do not recognize
revenue with respect to start-up activities associated with
contracts, which include contract and scope negotiation,
feasibility analysis and conflict of interest review. We expense
these costs as incurred. We estimate the total expected
revenues, costs, profitability, duration of the contract and
outputs for each contract to evaluate for anticipated losses. If
anticipated losses result from this evaluation, we recognize the
loss in earnings in the period identified. These estimates are
reviewed periodically and, if any of these estimates change then
an adjustment for the anticipated loss is recorded. 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 often contain provisions requiring us to make
payments to the customer and to receive payments from the
customer. We account for the contracts as single element
contracts. We recognize revenue over the related service period
of the contract based on the 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
minimums as the products are sold. The inherent subjectivity of
determining the 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 and Unbilled
    Services

Accounts receivable represents amounts billed to
customers. Revenues recognized in excess of billings are
classified as unbilled services. 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 differ 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

41



---



##### 



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

Certain items of income and expense are not
recognized on our income tax returns and financial statements in
the same year, which creates timing differences. The income tax
effect of these timing differences results in (1) deferred
income tax assets that create a reduction in future income taxes
and (2) deferred income tax liabilities that create an
increase in future income taxes. Recognition of deferred income
tax assets is based on managements belief that it is more
likely than not that the income tax benefit associated with
certain temporary differences, income tax operating loss and
capital loss carry forwards and income tax credits, would be
realized. We recorded a valuation allowance to reduce our
deferred income tax assets for those deferred income tax items
for which it was more likely than not that realization would not
occur. We determined the amount of the valuation allowance
based, in part, on our assessment of future taxable income and
in light of our ongoing prudent and feasible income tax
strategies. Due to the significant debt service requirements and
other costs relating to the Pharma Services transaction, we
changed our estimate of the valuation allowance for deferred
income tax assets. Accordingly, in connection with recording the
Pharma Services transaction, we increased the valuation
allowance substantially. If our estimate of future taxable
income or tax strategies change at any time in the future, we
would record an adjustment to our valuation allowance; recording
such an adjustment could have a material effect on our financial
condition. Prior to the Pharma Services transaction, we
considered undistributed earnings of our foreign subsidiaries to
be indefinitely reinvested and, accordingly, no deferred income
tax liabilities were recorded. Due to the significant debt
service requirements and other costs relating to the Pharma
Services transaction, we no longer consider the undistributed
earnings of our foreign subsidiaries to be indefinitely
reinvested. Accordingly, in connection with recording the Pharma
Services transaction, we provided a deferred income tax
liability related to those undistributed earnings.



| |                   
| | ------------------
| | 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.



| |                                                          
| | ---------------------------------------------------------
| | Goodwill, Tangible and Identifiable
    Intangible Assets

In connection with recording the Pharma Services
transaction, we conducted a study of the fair value of tangible
and identifiable intangible assets as of September 25,
2003. Accordingly, the excess of the cost

42



---



##### 



over the fair value of the net assets acquired,
known as goodwill, was recorded and allocated to our reportable
business segments. The recoverability of the goodwill is
evaluated annually for impairment or if and when events or
circumstances indicate a possible impairment. 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.


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.



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

Prior to the Pharma Services transaction, we had
stock options and 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. Because the exercise price equals the
market price of the underlying stock on the date of the grant,
no compensation expense is recognized. Although we do not have
any stock options outstanding subsequent to the Pharma Services
transaction, Pharma Services has issued options to purchase its
stock to certain of our employees. We account for these stock
options in accordance with APB 25. Because the exercise
price equaled or exceeded the estimated market value of the
underlying stock on the date of the grant, no compensation
expense was recognized. If we accounted for Pharma
Services or our stock options under SFAS 123, we
would have recorded additional compensation expense for the
stock option grants to employees.



| |                  
| | -----------------
| | 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.

43



---



##### 



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 61.6%, 56.4% and 49.7% of our total
net revenues for the years ended December 31, 2003, 2002,
and 2001, respectively, was derived from our operations outside
the 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 $19.8 million at
December 31, 2003 as compared to ($18.4) million at
December 31, 2002.

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, 2003, 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, 2003 or 2002.



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

We are subject to market risk associated with
changes in interest rates. Our principal interest rate exposure
relates to the term loans outstanding under our senior secured
credit facility. At December 31, 2003, we have
$309.2 million outstanding under the senior secured credit
facility subject to variable rates. Each quarter point increase
or decrease in the applicable interest rate would change our
interest expense by approximately $775,000 per year.

At December 31, 2003, 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, 2003, the fair value
of the investment portfolio was $11.0 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 $1.1 million.



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

At December 31, 2003, 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, 2003, the fair value of
these investments was $58.3 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 $5.8 million.

44



---



##### 



Recently Issued Accounting Standards

In January 2003, the Financial Accounting
Standards Board issued Interpretation No. 46
(FIN 46), Consolidation of Variable
Interest Entities, which requires the assets, liabilities
and results of operations of variable interest entities
(VIE) be consolidated into the financial statements
of the company that has controlling financial interest.
FIN 46 also provides the framework for determining whether
a VIE should be consolidated based on voting interest or
significant financial support provided to the VIE. We adopted
these provisions, as required, with respect to VIEs created
after January 31, 2003. The effective date for applying the
provisions of FIN 46 for interests held by public entities
in VIEs or potential VIEs created before February 1, 2003
has been deferred and will be effective as of March 31,
2004 except for interests in special purpose entities. We do not
have interests in special purpose entities. We are currently
evaluating the impact of FIN 46 on any such VIEs held prior
to February 1, 2003.

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.



| |                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our substantial debt could adversely affect
    our financial condition and prevent us from fulfilling our
    obligations under our senior subordinated notes.

As of December 31, 2003, we had outstanding
debt of approximately $794.3 million. Of the total debt,
approximately $344.3 million is secured, and an additional
$75.0 million in loans available under our senior credit
facility also is secured, if drawn upon.

Our substantial indebtedness and the significant
reduction in our available cash resulting from the financing of
the Pharma Services transaction could adversely affect our
financial condition and thus make it more difficult for us to
satisfy our obligations with respect to our senior subordinated
notes, or the notes, as well as our obligations under our senior
secured credit facility. Our substantial indebtedness and
significant reduction in available cash could also:



| |   |                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increase our vulnerability to adverse general
    economic and industry conditions;                                                                                                                                                                                                                                   
|
| |  | require us to dedicate a substantial portion of
    our cash flows from operations to payments on our indebtedness,
    thereby reducing the availability of our cash flows to fund
    working capital, investments, capital expenditures, research and
    development efforts and other general corporate purposes;
|
| |  | limit our ability to make required payments under
    our existing contractual commitments (See Results of
    Operations  Liquidity and Capital Resources);                                                                                                                                                       
|
| |  | limit our flexibility in planning for, or
    reacting to, changes in our business and the industry in which
    we operate;                                                                                                                                                                                          
|
| |  | place us at a competitive disadvantage compared
    to our competitors that have less debt;                                                                                                                                                                                                                           
|
| |  | increase our exposure to rising interest rates
    because a portion of our borrowings is at variable interest
    rates; and                                                                                                                                                                                         
|
| |  | limit our ability to borrow additional funds on
    terms that are satisfactory to us or at all.                                                                                                                                                                                                                      

45



---



##### 





| |                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The senior subordinated notes and the
    senior secured credit facility contain covenants that limit our
    flexibility and prevent us from taking certain
    actions.

The indenture governing the notes and the credit
agreement governing the senior secured credit facility include a
number of significant restrictive covenants. These covenants
could adversely affect us by limiting our ability to plan for or
react to market conditions, meet our capital needs and execute
our business strategy. These covenants will, among other things,
limit our ability and the ability of our restricted subsidiaries
to:



| |   |                                                               
| | - | --------------------------------------------------------------
| |  | incur additional debt;                                        
|
| |  | pay dividends on, redeem or repurchase capital
    stock;     
|
| |  | issue capital stock of restricted subsidiaries;               
|
| |  | make certain investments;                                     
|
| |  | enter into certain types of transactions with
    affiliates; 
|
| |  | engage in unrelated businesses;                               
|
| |  | create liens; and                                             
|
| |  | sell certain assets or merge with or into other
    companies.

These covenants may significantly limit our
operating and financial flexibility and limit our ability to
respond to changes in our business or competitive activities. In
addition, the senior secured credit facility includes other and
more restrictive covenants and prohibits us from prepaying our
other debt, including the notes, while borrowings under our
senior secured credit facility are outstanding. The senior
secured credit facility also requires us to maintain certain
financial ratios and meet other financial tests. Our failure to
comply with these covenants could result in an event of default,
which, if not cured or waived, could result in our being
required to repay these borrowings before their scheduled due
date. If we were unable to make this repayment or otherwise
refinance these borrowings, the lenders under the senior secured
credit facility could elect to declare all amounts borrowed
under the senior secured credit facility, together with accrued
interest, to be due and payable, which, in some instances, would
be an event of default under the indenture governing the notes.
In addition, these lenders could foreclose on our assets. If we
were unable to refinance these borrowings on favorable terms,
our results of operations and financial condition could be
adversely impacted by increased costs and less favorable terms,
including interest rates and covenants. Any future refinancing
of the senior secured credit facility is likely to contain
similar restrictive covenants and financial tests.



| |                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Despite our level of indebtedness, we and
    our parent companies are able to incur substantially more debt.
    Incurring such debt could further exacerbate the risks to our
    financial condition.

Although the indenture governing the notes and
the credit agreement governing our senior secured credit
facility each contain restrictions on the incurrence of
additional indebtedness, these restrictions are subject to a
number of qualifications and exceptions and the indebtedness
incurred in compliance with these restrictions could be
substantial. To the extent new debt is added to our current debt
levels, our substantial leverage risks would increase. In
addition, to the extent new debt is incurred by Pharma Services
or Intermediate Holding, we may be required to generate
sufficient cash flow to satisfy such obligations.

While the indenture and the credit agreement also
contain restrictions on our ability to make investments, these
restrictions are subject to a number of qualifications and
exceptions and the investments incurred in compliance with these
restrictions could be substantial. The restrictions do not
prevent us from incurring certain expenses in connection with
our PharmaBio Development Group transactions, including expenses
incurred to provide sales forces for the products of our
PharmaBio Development customers.

46



---



##### 





| |                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Changes in aggregate spending, research and
    development budgets and 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 outsourcing of clinical research and sales and marketing
projects, our operations and financial condition could be
materially and adversely affected. We also believe we have been
negatively impacted recently by mergers and other factors in the
pharmaceutical industry, which appear to have slowed decision
making by our customers and delayed certain trials. We believe
our commercialization services have been particularly affected
by recent reductions in new product launches and increases in
the number of drugs losing patent protection. A continuation of
these trends would have an ongoing adverse effect on our
business. In addition, U.S. federal and state legislatures
and numerous foreign governments have considered various types
of healthcare reforms and 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 profitability of 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.

A 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 strengthen and web-enable the
    technology platform for 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 systems development and integration 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 technology enabled 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 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

47



---



##### 



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.

In contributing our former informatics business
to Verispan, we assigned certain contracts to Verispan. Verispan
has agreed to indemnify us against any liabilities we may incur
in connection with these contracts after contributing them to
Verispan, but we still may be held liable under the contracts to
the extent Verispan is unable to satisfy its obligations, either
under the contracts or to us.



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

Many of our customers can terminate their
contracts with us 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. In addition, we may not
realize the full benefits of our backlog of contractually
committed services if our customers cancel, delay or reduce
their commitments under their contracts with us. 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 of loss or delay of
multiple contracts potentially has 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.



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

As part of our PharmaBio Development groups
business strategy, we enter into transactions 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

48



---



##### 



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 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 transaction. In addition, the timing of regulatory
approval and product launch, such as with respect to the pending
review of CymbaltaTM, 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 these transactions 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 with respect to
these transactions.




| |                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | 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
SolarazeTM and the rights to other dermatology
products acquired from Bioglan Pharma, Inc. at the end of 2001,
as well as any other product rights we may hold in the future,
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 such products cause injury, are found to be unsuitable for
their intended purpose or are 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
SolarazeTM, we are unable to directly monitor quality
control in the manufacturing and distribution processes.

Our plans to market and sell
SolarazeTM and other pharmaceutical products also
subject us to risks associated with entering into a new line of
business in which we have limited experience. 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 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
    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
Executive Chairman and Chief Executive Officer. In connection
with and following the Pharma Services transaction, we have
experienced some turnover in our senior management. For
instance, our Executive Vice President and Chief Financial
Officer recently announced his intention to retire from this
position. Our performance also depends on our ability to
identify, 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

49



---



##### 



Dr. Gillings or any key executive, or our
inability to continue to attract and retain qualified personnel,
or to replace any departed personnel in a timely fashion could
have a material adverse effect on our business, results of
operations or financial condition.




| |                                                                                
| | -------------------------------------------------------------------------------
| | 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, electronic data capture, patient
recruitment and other related 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 or electronic data capture and related services do not
conform to contractual or regulatory standards, trial
participants or trial results 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. However, such claims may still be brought against us,
and it is possible we could be found liable for these types of
losses. 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.

In addition to supervising tests or performing
laboratory analysis, we also own a number of facilities 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 some 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 controlled substances is subject to regulation by the DEA
and some of our facilities have been audited by the DEA. In one
case, the DEA indicated that it found that we miscounted certain
drugs, which was resolved to DEAs satisfaction by our
providing a corrected accounting of these drugs to the DEA.

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 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,
which could adversely affect our results of operations and
financial condition.



| |                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------
| | 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,
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

50



---



##### 



impact on our profitability if we suffer
uninsured losses or are required to indemnify third parties for
uninsured losses.


As part of the formation of Verispan, Verispan
assumed our obligation under our settlement agreement with WebMD
to indemnify WebMD for losses arising out of or in connection
with the (1) canceled Data Rights Agreement with WebMD,
(2) our data business, which was contributed to the joint
venture, (3) the collection, accumulation, storage or use
of data by ENVOY for the purpose of transmitting or delivering
data to us, (4) any actual transmission or delivery by
ENVOY of data to us or (5) violations of law or contract
attributable to any of the events described in (1) through
(4) above. These indemnity obligations are limited to 50.0%
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 former data
business, Verispan may have insufficient resources to satisfy
these obligations or may otherwise default with respect thereto.
In addition, 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.
ENVOY and its insurance carrier, Federal, filed a lawsuit in
June 2003 against us alleging that we should be responsible for
payment of the settlement amount of $11 million and related
fees and costs in connection with the recent settlement of the
class action lawsuit. Our indemnity 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 aggregate losses
described above.



| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Changes in 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.

We are subject to a wide range of government
regulations and review by a number of regulatory agencies
including, in the United States, the FDA, DEA, Department of
Transportation and similar regulatory agencies throughout the
world. Any failure on our part to comply with applicable
regulations could materially impact our ability to perform our
services. For example, non-compliance 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. 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. Moreover, from time to
time, including the present, one or more of our customers are
investigated by regulatory authorities or enforcement agencies
with respect to regulatory compliance of their clinical trials
and programs. In these situations, we often have provided
services to our customers with respect to the trials and
programs being investigated and we are called upon to respond to
requests for information by the authorities and agencies. There
is a risk that either our customers or regulatory authorities
could claim that we performed our services improperly or that we
are responsible for trial or program compliance. For example,
our customer, Biovail Corporation, is the subject of government
inquiries relating to the

51



---



##### 



Cardizem LA P.L.A.C.E. late phase clinical
program, and has asserted publicly that we have warranted that
this program complies with all laws and regulations, to which we
have taken exception. If our customers or regulatory authorities
make such claims against us and prove them, we could be subject
to substantial damages, fines or penalties.




| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | 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, 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, 2003. 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 face other risks in connection with our
    international operations.

We have significant operations in foreign
countries. As a result, we are subject to certain risks inherent
in conducting business internationally, including the following:



| |   |                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------
| |  | foreign countries could change regulations or
    impose currency restrictions and other restraints;                                   
|
| |  | political changes and economic crises may lead to
    changes in the business environment in which we operate; and                     
|
| |  | international conflict, including terrorist acts,
    could significantly impact our financial condition and results
    of operations.



| |                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | New and proposed laws and regulations
    regarding confidentiality of patients information could
    result in increased risks of liability or increased cost to us,
    or could limit our service offerings.

The confidentiality and release of
patient-specific information are subject to governmental
regulation. Under HIPAA, the U.S. Department of Health and
Human Services has issued regulations mandating heightened
privacy and confidentiality protections. Similarly, the EU and
its member states, as well as

52



---



##### 



other countries, continue to issue new
regulations. National and U.S. state governments are
contemplating or have proposed or adopted additional legislation
governing the possession, use and dissemination of medical
record information and other personal health information. In
particular, proposals being considered by state governments may
contain privacy and security protections that are more
burdensome than the federal regulations. In order to comply with
these regulations, we may need to implement new security
measures, which may require us to make substantial expenditures
or cause us to limit the products and services we offer. In
addition, if we violate applicable laws, regulations or duties
relating to the use, privacy or security of health information,
we could be subject to civil or criminal penalty and could be
forced to alter our business practices.




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

Although we did not have one customer that
accounted for 10% or greater of net service revenues for any
period presented for 2003, one customer 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 expired as of the end of 2003. If any large
customer decreases or terminates their 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 produce electronic records,
which meet the requirements of FDA regulations, our customers
may be adversely affected when they submit the data concerned to
the FDA in support of an application for approval of a product,
which could harm our business. 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. Further, in August 2003, the FDA issued a
Guidance for Industry: Part 11, Electronic Records;
Electronic Signatures  Scope and Application
that addressed the FDAs current thinking on this topic.
Part 11 requires that those utilizing such electronic
records and/or signatures employ procedures and controls
designed to ensure the authenticity, integrity and, as
appropriate, confidentiality of electronic records and,
Part 11 requires those utilizing electronic signatures to
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. We are making steady and documented progress in
bringing our critical computer applications into compliance
according to written enhancement plans that have been reviewed
and approved by third party authorities. Lower-priority systems
are, likewise, being reviewed and revalidated. If we are unable
to complete these compliance objectives, our ability to provide
services to our customers which meet FDA requirements may be
adversely affected.



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

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

53



---



##### 





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

QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                                                                       |                                                            |                                                |         |              |         |              |           |              |         |   |           |         |           |   |           |         |           |  
|-------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ---------------------------------------------- | ------- | ------------ | ------- | ------------ | --------- | ------------ | ------- | - | --------- | ------- | --------- | - | --------- | ------- | --------- | -
|                                                                                                                                       |                                                            | September                                      |         |              |         |              |           |             
|                                                                                                                                       |                                                            | 26, 2003                                       |         | January 1,   |         |              |           |             
|                                                                                                                                       |                                                            | through                                        |         | 2003 through |         | Year ended   |           | Year ended  
|                                                                                                                                       |                                                            | December 31,                                   |         | September    |         | December 31, |           | December 31,
|                                                                                                                                       |                                                            | 2003                                           |         | 25, 2003     |         | 2002         |           | 2001        
|                                                                                                                                       |                                                            | Successor                                      |         | Predecessor  |         | Predecessor  |           | Predecessor 
|                                                                                                                                       |                                                            |                                                |         |              |         |              |           |             
|                                                                                                                                       |                                                            |                                               
|                                                                                                                                       |                                                            | (In thousands, except per share data)         
|Gross revenues                                                                                                                         |                                                            | $                                              | 547,165 |              |         | $            | 1,498,822 |              |         | $ | 1,992,409 |         |           | $ | 1,883,912 |        
|Costs, expenses and other:                                                                                                             |                                                            |                                                |         |              |         |              |           |              |         |   |           |         |           |   |           |        
|                                                                                                                                       |                                                            | Costs of revenues                              |         |              | 375,598 |              |           |              | 997,822 |   |           |         | 1,367,711 |   |           |         | 1,318,267 |  
|                                                                                                                                       |                                                            | General and administrative                     |         |              | 154,688 |              |           |              | 397,318 |   |           |         | 508,103   |   |           |         | 520,680   |  
|                                                                                                                                       |                                                            | Interest income                                |         |              | (4,761  | )            |           |              | (12,112 | ) |           |         | (16,739   | ) |           |         | (19,844   | )
|                                                                                                                                       |                                                            | Interest expense                               |         |              | 20,651  |              |           |              | 1,738   |   |           |         | 2,551     |   |           |         | 3,172     |  
|                                                                                                                                       |                                                            | Other expense (income), net                    |         |              | (2,406  | )            |           |              | (5,433  | ) |           |         | 3,764     |   |           |         | 489       |  
|                                                                                                                                       |                                                            | Transaction and restructuring                  |         |              |        |              |           |              | 54,148  |   |           |         | 3,359     |   |           |         | 54,169    |  
|                                                                                                                                       |                                                            | Impairment on investment in WebMD common stock |         |              |        |              |           |              |        |   |           |         |          |   |           |         | 325,553   |  
|                                                                                                                                       |                                                            | Settlement of litigation                       |         |              |        |              |           |              |        |   |           |         |          |   |           |         | (83,200   | )
|                                                                                                                                       |                                                            | Write-off of goodwill and other assets         |         |              |        |              |           |              |        |   |           |         |          |   |           |         | 27,122    |  
|                                                                                                                                       |                                                            |                                                |         |              |         |              |           |              |         |   |           |         |           |   |           |        
|                                                                                                                                       |                                                            |                                                | 543,770 |              |         |              | 1,433,481 |              |         |   | 1,868,749 |         |           |   | 2,146,408 |        
|                                                                                                                                       |                                                            |                                                |         |              |         |              |           |              |         |   |           |         |           |   |           |        
|Income (loss) from continuing operations before
    income taxes                                                                       |                                                            |                                                | 3,395   |              |         |              | 65,341    |              |         |   | 123,660   |         |           |   | (262,496  | )      
|Income tax expense (benefit)                                                                                                           |                                                            |                                                | 10,712  |              |         |              | 28,184    |              |         |   | 41,427    |         |           |   | (86,623   | )      
|                                                                                                                                       |                                                            |                                                |         |              |         |              |           |              |         |   |           |         |           |   |           |        
|(Loss) income before equity in (losses) earnings
    of unconsolidated affiliates and other                                            |                                                            |                                                | (7,317  | )            |         |              | 37,157    |              |         |   | 82,233    |         |           |   | (175,873  | )      
|Equity in (losses) earnings of unconsolidated
    affiliates and other                                                                 |                                                            |                                                | (110    | )            |         |              | 4         |              |         |   | (569      | )       |           |   |          |        
|                                                                                                                                       |                                                            |                                                |         |              |         |              |           |              |         |   |           |         |           |   |           |        
|(Loss) income from continuing operations                                                                                               |                                                            |                                                | (7,427  | )            |         |              | 37,161    |              |         |   | 81,664    |         |           |   | (175,873  | )      
|Extraordinary gain from sale of discontinued
    operation, net of income taxes                                                        |                                                            |                                                |        |              |         |              |          |              |         |   |          |         |           |   | 142,030   |        
|Cumulative effect on prior years (to
    December 31, 2001) of changing to a different method of
    recognizing deferred income taxes |                                                            |                                                |        |              |         |              |          |              |         |   | 45,659    |         |           |   |          |        
|                                                                                                                                       |                                                            |                                                |         |              |         |              |           |              |         |   |           |         |           |   |           |        
|Net (loss) income                                                                                                                      |                                                            | $                                              | (7,427  | )            |         | $            | 37,161    |              |         | $ | 127,323   |         |           | $ | (33,843   | )      
|                                                                                                                                       |                                                            |                                                |         |              |         |              |           |              |         |   |           |         |           |   |           |        
|Basic net (loss) income per share:                                                                                                     |                                                            |                                                |         |              |         |              |           |              |         |   |           |         |           |   |           |        
|                                                                                                                                       | (Loss) income from continuing operations                   |                                                | $       | (0.06        | )       |              | $         | 0.31         |         |   | $         | 0.69    |           |   | $         | (1.49   | )        
|                                                                                                                                       | Extraordinary gain from sale of discontinued
    operation |                                                |         |             |         |              |           |             |         |   |           |        |           |   |           | 1.20    |          
|                                                                                                                                       | Cumulative effect of change in accounting
    principle    |                                                |         |             |         |              |           |             |         |   |           | 0.39    |           |   |           |        |          
|                                                                                                                                       |                                                            |                                                |         |              |         |              |           |              |         |   |           |         |           |   |           |        
|                                                                                                                                       | Basic net (loss) income per share                          |                                                | $       | (0.06        | )       |              | $         | 0.31         |         |   | $         | 1.08    |           |   | $         | (0.29   | )        
|                                                                                                                                       |                                                            |                                                |         |              |         |              |           |              |         |   |           |         |           |   |           |        
|Diluted net (loss) income per share:                                                                                                   |                                                            |                                                |         |              |         |              |           |              |         |   |           |         |           |   |           |        
|                                                                                                                                       | (Loss) income from continuing operations                   |                                                | $       | (0.06        | )       |              | $         | 0.31         |         |   | $         | 0.69    |           |   | $         | (1.49   | )        
|                                                                                                                                       | Extraordinary gain from sale of discontinued
    operation |                                                |         |             |         |              |           |             |         |   |           |        |           |   |           | 1.20    |          
|                                                                                                                                       | Cumulative effect of change in accounting
    principle    |                                                |         |             |         |              |           |             |         |   |           | 0.39    |           |   |           |        |          
|                                                                                                                                       |                                                            |                                                |         |              |         |              |           |              |         |   |           |         |           |   |           |        
|                                                                                                                                       | Diluted net (loss) income per share                        |                                                | $       | (0.06        | )       |              | $         | 0.31         |         |   | $         | 1.07    |           |   | $         | (0.29   | )        
|                                                                                                                                       |                                                            |                                                |         |              |         |              |           |              |         |   |           |         |           |   |           |        
|Shares used in computing net (loss) income per
    share:                                                                              |                                                            |                                                |         |              |         |              |           |              |         |   |           |         |           |   |           |        
|                                                                                                                                       | Basic                                                      |                                                |         | 125,000      |         |              |           | 118,358      |         |   |           | 118,135 |           |   |           | 118,223 |          
|                                                                                                                                       | Diluted                                                    |                                                |         | 125,000      |         |              |           | 119,050      |         |   |           | 118,458 |           |   |           | 118,223 |          

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

54



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                              |                                                               |                      |           |             |           |  |         |          |           | 
|----------------------------- | ------------------------------------------------------------- | -------------------- | --------- | ----------- | --------- |  | ------- | -------- | --------- | 
|                              |                                                               |                     
|                              |                                                               | December 31,        
|                              |                                                               |                     
|                              |                                                               | 2003                 |           | 2002       
|                              |                                                               |                      |           |            
|                              |                                                               | Successor            |           | Predecessor
|                              |                                                               |                     
|                              |                                                               | (In thousands,      
|                              |                                                               | except share data)  
|Assets                       
|Current assets:               |                                                               |                      |           |             |           |  |         |         
|                              | Cash and cash equivalents                                     |                      | $         | 375,163     |           |  | $       | 644,284  |          
|                              | Trade accounts receivable and unbilled services,
    net      |                      |           | 239,994     |           |  |         | 255,647  |          
|                              | Investments in debt securities                                |                      |           | 611         |           |  |         | 27,218   |          
|                              | Prepaid expenses                                              |                      |           | 20,663      |           |  |         | 22,516   |          
|                              | Other current assets                                          |                      |           | 56,775      |           |  |         | 42,654   |          
|                              |                                                               |                      |           |             |           |  |         |         
|                              |                                                               | Total current assets |           |             | 693,206   |  |         |          | 992,319   | 
|                             
|Property and equipment:       |                                                               |                      |           |             |           |  |         |         
|                              | Land, buildings and leasehold improvements                    |                      |           | 167,426     |           |  |         | 202,465  |          
|                              | Equipment                                                     |                      |           | 88,315      |           |  |         | 190,312  |          
|                              | Furniture and fixtures                                        |                      |           | 20,435      |           |  |         | 44,094   |          
|                              | Motor vehicles                                                |                      |           | 25,325      |           |  |         | 38,672   |          
|                              |                                                               |                      |           |             |           |  |         |         
|                              |                                                               |                      | 301,501   |             |           |  | 475,543 |         
|                              | Less accumulated depreciation                                 |                      |           | (15,134     | )         |  |         | (213,385 | )        
|                              |                                                               |                      |           |             |           |  |         |         
|                              |                                                               |                      | 286,367   |             |           |  | 262,158 |         
|Intangibles and other assets: |                                                               |                      |           |             |           |  |         |         
|                              | Investments in debt securities                                |                      |           | 10,426      |           |  |         | 9,453    |          
|                              | Investments in marketable equity securities                   |                      |           | 58,294      |           |  |         | 64,926   |          
|                              | Investments in non-marketable equity securities
    and loans |                      |           | 48,556      |           |  |         | 46,449   |          
|                              | Investments in unconsolidated affiliates                      |                      |           | 121,176     |           |  |         | 121,101  |          
|                              | Commercial rights and royalties                               |                      |           | 12,528      |           |  |         | 1,786    |          
|                              | Accounts receivable  unbilled                                |                      |           | 40,107      |           |  |         | 59,750   |          
|                              | Advances to customer                                          |                      |           | 70,000      |           |  |         | 70,000   |          
|                              | Goodwill                                                      |                      |           | 181,327     |           |  |         | 70,133   |          
|                              | Other identifiable intangibles, net                           |                      |           | 414,246     |           |  |         | 142,715  |          
|                              | Deferred income taxes                                         |                      |           | 4,093       |           |  |         | 174,534  |          
|                              | Deposits and other assets                                     |                      |           | 52,385      |           |  |         | 38,871   |          
|                              |                                                               |                      |           |             |           |  |         |         
|                              |                                                               |                      | 1,013,138 |             |           |  | 799,718 |         
|                              |                                                               |                      |           |             |           |  |         |         
|                              |                                                               | Total assets         |           | $           | 1,992,711 |  |         | $        | 2,054,195 | 
|                              |                                                               |                      |           |             |           |  |         |         

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

55



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS 
(Continued)

|                                         |                                                                                                                                                            |                            |                                            |             |         |           |        |         |           |           | 
|---------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ----------- | ------- | --------- | ------ | ------- | --------- | --------- | 
|                                         |                                                                                                                                                            |                           
|                                         |                                                                                                                                                            | December 31,              
|                                         |                                                                                                                                                            |                           
|                                         |                                                                                                                                                            | 2003                       |                                            | 2002       
|                                         |                                                                                                                                                            |                            |                                            |            
|                                         |                                                                                                                                                            | Successor                  |                                            | Predecessor
|Liabilities and Shareholders
    Equity
|Current liabilities:                     |                                                                                                                                                            |                            |                                            |             |         |           |        |        
|                                         | Accounts payable                                                                                                                                           |                            | $                                          | 62,411      |         |           | $      | 57,535  |          
|                                         | Accrued expenses                                                                                                                                           |                            |                                            | 255,348     |         |           |        | 180,734 |          
|                                         | Unearned income                                                                                                                                            |                            |                                            | 191,255     |         |           |        | 141,718 |          
|                                         | Income taxes payable                                                                                                                                       |                            |                                            | 26,875      |         |           |        | 20,067  |          
|                                         | Current portion of obligations held under capital
    leases                                                                                               |                            |                                            | 15,103      |         |           |        | 18,372  |          
|                                         | Current portion of long-term debt                                                                                                                          |                            |                                            | 5,583       |         |           |        | 3,347   |          
|                                         | Other current liabilities                                                                                                                                  |                            |                                            | 3,169       |         |           |        | 2,073   |          
|                                         |                                                                                                                                                            |                            |                                            |             |         |           |        |        
|                                         |                                                                                                                                                            |                            | Total current liabilities                  |             |         | 559,744   |        |         |           | 423,846   | 
|                                        
|Long-term liabilities:                   |                                                                                                                                                            |                            |                                            |             |         |           |        |        
|                                         | Obligations held under capital leases, less
    current portion                                                                                            |                            |                                            | 10,271      |         |           |        | 10,645  |          
|                                         | Long-term debt, less current portion                                                                                                                       |                            |                                            | 763,357     |         |           |        | 8,210   |          
|                                         | Deferred income taxes                                                                                                                                      |                            |                                            | 99,622      |         |           |        | 405     |          
|                                         | Other liabilities                                                                                                                                          |                            |                                            | 24,619      |         |           |        | 12,703  |          
|                                         |                                                                                                                                                            |                            |                                            |             |         |           |        |        
|                                         |                                                                                                                                                            |                            | 897,869                                    |             |         |           | 31,963 |        
|                                         |                                                                                                                                                            |                            |                                            |             |         |           |        |        
|                                         |                                                                                                                                                            |                            | Total liabilities                          |             |         | 1,457,613 |        |         |           | 455,809   | 
|                                        
|Commitments and contingencies            |                                                                                                                                                            |                            |                                            |             |         |           |        |        
|                                        
|Shareholders equity:                    |                                                                                                                                                            |                            |                                            |             |         |           |        |        
|                                         | Preferred stock, none issued and outstanding at
    December 31, 2003 and 2002                                                                             |                            |                                            |            |         |           |        |        |          
|                                         | Common stock and additional paid-in capital,
    125,000,000 and 117,850,597 shares issued and outstanding
    at December 31, 2003 and 2002, respectively |                            |                                            | 521,725     |         |           |        | 881,927 |          
|                                         | (Accumulated deficit) retained earnings                                                                                                                    |                            |                                            | (7,427      | )       |           |        | 716,465 |          
|                                         | Accumulated other comprehensive income (loss)                                                                                                              |                            |                                            | 20,800      |         |           |        | (6      | )        
|                                         |                                                                                                                                                            |                            |                                            |             |         |           |        |        
|                                         |                                                                                                                                                            | Total shareholders equity |                                            |             | 535,098 |           |        |         | 1,598,386 |          
|                                         |                                                                                                                                                            |                            |                                            |             |         |           |        |        
|                                         |                                                                                                                                                            |                            | Total liabilities and shareholders equity |             | $       | 1,992,711 |        |         | $         | 2,054,195 | 
|                                         |                                                                                                                                                            |                            |                                            |             |         |           |        |        

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

56



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                                                        |                                                                                                                                        |                                            |            |               |        |              |         |              |         |   |          |         |        |   |         |          |         |  
|----------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------- | ------------- | ------ | ------------ | ------- | ------------ | ------- | - | -------- | ------- | ------ | - | ------- | -------- | ------- | -
|                                                                                                                        |                                                                                                                                        | September 26,                              |            | January 1,    |        |              |         |             
|                                                                                                                        |                                                                                                                                        | 2003 through                               |            | 2003 through  |        | Year ended   |         | Year ended  
|                                                                                                                        |                                                                                                                                        | December 31,                               |            | September 25, |        | December 31, |         | December 31,
|                                                                                                                        |                                                                                                                                        | 2003                                       |            | 2003          |        | 2002         |         | 2001        
|                                                                                                                        |                                                                                                                                        |                                            |            |               |        |              |         |             
|                                                                                                                        |                                                                                                                                        | Successor                                  |            | Predecessor   |        | Predecessor  |         | Predecessor 
|                                                                                                                        |                                                                                                                                        |                                           
|                                                                                                                        |                                                                                                                                        | (In thousands)                            
|Operating activities:                                                                                                   |                                                                                                                                        |                                            |            |               |        |              |         |              |         |   |          |         |        |   |         |         
|                                                                                                                        | Net (loss) income                                                                                                                      |                                            | $          | (7,427        | )      |              | $       | 37,161       |         |   | $        | 127,323 |        |   | $       | (33,843  | )      
|                                                                                                                        | Extraordinary gain from sale of discontinued
    operation, net of tax                                                                 |                                            |            |               |        |              |         |             |         |   |          |        |        |   |         | (142,030 | )      
|                                                                                                                        | Cumulative effect on prior years (to
    December 31, 2001) of changing to a different method of
    recognizing deferred income taxes |                                            |            |              |        |              |         |             |         |   |          | (45,659 | )      |   |         |         |        
|                                                                                                                        |                                                                                                                                        |                                            |            |               |        |              |         |              |         |   |          |         |        |   |         |         
|                                                                                                                        | (Loss) income from continuing operations                                                                                               |                                            |            | (7,427        | )      |              |         | 37,161       |         |   |          | 81,664  |        |   |         | (175,873 | )      
|Adjustments to reconcile (loss) income from
    continuing operations to net cash provided by
    operating activities: |                                                                                                                                        |                                            |            |               |        |              |         |              |         |   |          |         |        |   |         |         
|                                                                                                                        | Depreciation and amortization                                                                                                          |                                            |            | 38,117        |        |              |         | 65,871       |         |   |          | 89,824  |        |   |         | 96,103   |        
|                                                                                                                        | Amortization expense of debt issuance costs                                                                                            |                                            |            | 878           |        |              |         |             |         |   |          |        |        |   |         |         |        
|                                                                                                                        | Restructuring (payments) accrual and write-off of
    other assets, net                                                                |                                            |            | (1,942        | )      |              |         | 283          |         |   |          | (21,158 | )      |   |         | 42,975   |        
|                                                                                                                        | Transaction costs                                                                                                                      |                                            |            |              |        |              |         | 44,057       |         |   |          |        |        |   |         |         |        
|                                                                                                                        | (Gain) loss on sale of property and equipment, net                                                                                     |                                            |            |              |        |              |         | (383         | )       |   |          | 2,399   |        |   |         | 287      |        
|                                                                                                                        | Loss (gain) on investments, net                                                                                                        |                                            |            | (2,952        | )      |              |         | (27,363      | )       |   |          | (13,710 | )      |   |         | 304,942  |        
|                                                                                                                        | Provision for (benefit from) deferred income taxes                                                                                     |                                            |            | 705           |        |              |         | 12,592       |         |   |          | 2,464   |        |   |         | (64,360  | )      
|                                                                                                                        | Change in operating assets and liabilities:                                                                                            |                                            |            |               |        |              |         |              |         |   |          |         |        |   |         |          |        
|                                                                                                                        |                                                                                                                                        | Accounts receivable and unbilled services  |            |               | 14,696 |              |         |              | 116,322 |   |          |         | 63,827 |   |         |          | (24,705 | )
|                                                                                                                        |                                                                                                                                        | Prepaid expenses and other assets          |            |               | 16,511 |              |         |              | 42,132  |   |          |         | (5,639 | ) |         |          | 6,935   |  
|                                                                                                                        |                                                                                                                                        | Accounts payable and accrued expenses      |            |               | 19,793 |              |         |              | (16,144 | ) |          |         | 12,966 |   |         |          | 19,263  |  
|                                                                                                                        |                                                                                                                                        | Unearned income                            |            |               | 21,771 |              |         |              | (85,360 | ) |          |         | 26,048 |   |         |          | 16,203  |  
|                                                                                                                        |                                                                                                                                        | Income taxes payable and other liabilities |            |               | 5,795  |              |         |              | (18,778 | ) |          |         | 7,807  |   |         |          | 25,139  |  
|                                                                                                                        | Other                                                                                                                                  |                                            |            | (330          | )      |              |         | (521         | )       |   |          |        |        |   |         | 447      |        
|                                                                                                                        |                                                                                                                                        |                                            |            |               |        |              |         |              |         |   |          |         |        |   |         |         
|Net cash provided by operating activities                                                                               |                                                                                                                                        |                                            | 105,615    |               |        |              | 169,869 |              |         |   | 246,492  |         |        |   | 247,356 |         
|Investing activities:                                                                                                   |                                                                                                                                        |                                            |            |               |        |              |         |              |         |   |          |         |        |   |         |         
|                                                                                                                        | Acquisition of property, equipment and software                                                                                        |                                            |            | (14,894       | )      |              |         | (39,682      | )       |   |          | (40,157 | )      |   |         | (133,983 | )      
|                                                                                                                        | Repurchase of common stock in Transaction                                                                                              |                                            |            | (1,617,567    | )      |              |         |             |         |   |          |        |        |   |         |         |        
|                                                                                                                        | Payment of transaction costs in Transaction                                                                                            |                                            |            | (64,734       | )      |              |         | (2,896       | )       |   |          |        |        |   |         |         |        
|                                                                                                                        | Acquisition of businesses, net of cash acquired                                                                                        |                                            |            | (3,363        | )      |              |         | (1,379       | )       |   |          | (27,968 | )      |   |         | (6,620   | )      
|                                                                                                                        | Acquisition of intangible assets                                                                                                       |                                            |            |              |        |              |         | (4,519       | )       |   |          | (2,541  | )      |   |         | (26,735  | )      
|                                                                                                                        | Advances to customer                                                                                                                   |                                            |            |              |        |              |         |             |         |   |          | (70,000 | )      |   |         |         |        
|                                                                                                                        | Acquisition of commercial rights and royalties                                                                                         |                                            |            | (3,000        | )      |              |         | (17,710      | )       |   |          | (15,790 | )      |   |         | (10,000  | )      
|                                                                                                                        | Proceeds from disposition of property and
    equipment                                                                                |                                            |            | 1,960         |        |              |         | 6,219        |         |   |          | 6,290   |        |   |         | 7,548    |        
|                                                                                                                        | Maturities of held-to-maturity investments                                                                                             |                                            |            | 326           |        |              |         | 245          |         |   |          | 397     |        |   |         | 437      |        
|                                                                                                                        | Purchase of available-for-sale investments                                                                                             |                                            |            | (1,212        | )      |              |         | (1,353       | )       |   |          | (1,611  | )      |   |         |         |        
|                                                                                                                        | Proceeds from sale of available-for-sale
    investments                                                                               |                                            |            |              |        |              |         | 26,375       |         |   |          |        |        |   |         | 71,422   |        
|                                                                                                                        | Purchase of equity securities                                                                                                          |                                            |            | (5,900        | )      |              |         | (10,645      | )       |   |          | (6,616  | )      |   |         | (22,660  | )      
|                                                                                                                        | Proceeds from sale of equity securities                                                                                                |                                            |            | 7,633         |        |              |         | 61,926       |         |   |          | 26,853  |        |   |         | 134,379  |        
|                                                                                                                        | Purchase of other investments                                                                                                          |                                            |            | (120          | )      |              |         | (185         | )       |   |          | (11,483 | )      |   |         | (30,247  | )      
|                                                                                                                        | Proceeds from other investments                                                                                                        |                                            |            |              |        |              |         |             |         |   |          | 608     |        |   |         | 103      |        
|                                                                                                                        | Advances to unconsolidated affiliates                                                                                                  |                                            |            |              |        |              |         |             |         |   |          | (10,328 | )      |   |         |         |        
|                                                                                                                        |                                                                                                                                        |                                            |            |               |        |              |         |              |         |   |          |         |        |   |         |         
|Net cash (used in) provided by investing
    activities                                                                 |                                                                                                                                        |                                            | (1,700,871 | )             |        |              | 16,396  |              |         |   | (152,346 | )       |        |   | (16,356 | )       

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

57



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS  (Continued)

|                                                             |                                                                        |                |           |               |   |              |         |              |   |   |         |         |   |   |         |          |  
|------------------------------------------------------------ | ---------------------------------------------------------------------- | -------------- | --------- | ------------- | - | ------------ | ------- | ------------ | - | - | ------- | ------- | - | - | ------- | -------- | -
|                                                             |                                                                        | September 26,  |           | January 1,    |   |              |         |             
|                                                             |                                                                        | 2003 through   |           | 2003 through  |   | Year ended   |         | Year ended  
|                                                             |                                                                        | December 31,   |           | September 25, |   | December 31, |         | December 31,
|                                                             |                                                                        | 2003           |           | 2003          |   | 2002         |         | 2001        
|                                                             |                                                                        |                |           |               |   |              |         |             
|                                                             |                                                                        | Successor      |           | Predecessor   |   | Predecessor  |         | Predecessor 
|                                                             |                                                                        |               
|                                                             |                                                                        | (In thousands)
|Financing activities:                                        |                                                                        |                |           |               |   |              |         |              |   |   |         |         |   |   |         |         
|                                                             | Proceeds from issuance of debt, net of costs, in
    Transaction       |                | $         | 733,433       |   |              | $       |             |   |   | $       |        |   |   | $       |         |  
|                                                             | Capital contribution in Transaction                                    |                |           | 390,549       |   |              |         |             |   |   |         |        |   |   |         |         |  
|                                                             | (Decrease) increase in lines of credit, net                            |                |           |              |   |              |         |             |   |   |         |        |   |   |         | (44      | )
|                                                             | Repayment of debt                                                      |                |           | (2,568        | ) |              |         | (1,832       | ) |   |         | (2,487  | ) |   |         | (3,263   | )
|                                                             | Principal payments on capital lease obligations                        |                |           | (3,079        | ) |              |         | (11,387      | ) |   |         | (12,987 | ) |   |         | (10,618  | )
|                                                             | Issuance of common stock                                               |                |           |              |   |              |         | 7,042        |   |   |         | 9,641   |   |   |         | 48,439   |  
|                                                             | Repurchase of common stock                                             |                |           |              |   |              |         |             |   |   |         | (27,024 | ) |   |         | (22,694  | )
|                                                             |                                                                        |                |           |               |   |              |         |              |   |   |         |         |   |   |         |         
|Net cash provided by (used in) financing
    activities      |                                                                        |                | 1,118,335 |               |   |              | (6,177  | )            |   |   | (32,857 | )       |   |   | 11,820  |         
|Effect of foreign currency exchange rate changes
    on cash |                                                                        |                | 9,788     |               |   |              | 17,924  |              |   |   | 17,932  |         |   |   | (7,971  | )       
|                                                             |                                                                        |                |           |               |   |              |         |              |   |   |         |         |   |   |         |         
|(Decrease) increase in cash and cash equivalents             |                                                                        |                | (467,133  | )             |   |              | 198,012 |              |   |   | 79,221  |         |   |   | 234,849 |         
|Cash and cash equivalents at beginning of period             |                                                                        |                | 842,296   |               |   |              | 644,284 |              |   |   | 565,063 |         |   |   | 330,214 |         
|                                                             |                                                                        |                |           |               |   |              |         |              |   |   |         |         |   |   |         |         
|Cash and cash equivalents at end of period                   |                                                                        | $              | 375,163   |               |   | $            | 842,296 |              |   | $ | 644,284 |         |   | $ | 565,063 |         
|                                                             |                                                                        |                |           |               |   |              |         |              |   |   |         |         |   |   |         |         
|Supplemental Cash Flow Information:                          |                                                                        |                |           |               |   |              |         |              |   |   |         |         |   |   |         |         
|                                                             | Interest paid                                                          |                | $         | 7,689         |   |              | $       | 1,785        |   |   | $       | 2,633   |   |   | $       | 2,724    |  
|                                                             | Income taxes paid (refunded), net                                      |                |           | 2,263         |   |              |         | 37,571       |   |   |         | 19,466  |   |   |         | (56,243  | )
|Non-cash Investing and Financing Activities:                 |                                                                        |                |           |               |   |              |         |              |   |   |         |         |   |   |         |         
|                                                             | Acquisition of property and equipment utilizing
    capital leases     |                |           | 2,568         |   |              |         | 3,144        |   |   |         | 9,903   |   |   |         | 14,578   |  
|                                                             | Equity impact of mergers, acquisitions and
    dispositions            |                |           |              |   |              |         |             |   |   |         |        |   |   |         | (20,952  | )
|                                                             | Equity impact of rollovers in Transaction                              |                |           | 107,062       |   |              |         |             |   |   |         |        |   |   |         |         |  
|                                                             | Transfer of assets to joint venture                                    |                |           |              |   |              |         |             |   |   |         | 112,136 |   |   |         |         |  
|                                                             | Unrealized gain (loss) on marketable securities,
    net of income tax |                | $         | 976           |   |              | $       | 19,637       |   |   | $       | 6,026   |   |   | $       | (124,182 | )

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

58



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

|                                                                                          |                                                           |                                                          |             |               |  |              |         |               |          |           |         |        |         |            |         |         |          |   |   |   |   |   |       |   |   |   |         |   |   |   |           |         |          |  
|----------------------------------------------------------------------------------------- | --------------------------------------------------------- | -------------------------------------------------------- | ----------- | ------------- |  | ------------ | ------- | ------------- | -------- | --------- | ------- | ------ | ------- | ---------- | ------- | ------- | -------- | - | - | - | - | - | ----- | - | - | - | ------- | - | - | - | --------- | ------- | -------- | -
|                                                                                          |                                                           |                                                          |             |               |  |              |         | Accumulated   |          |           |         |        |         |            |         |        
|                                                                                          |                                                           |                                                          |             |               |  | (Accumulated |         | Other         |          |           |         |        |         |            |         |        
|                                                                                          |                                                           | Number of                                                |             |               |  | Deficit)     |         | Comprehensive |          |           |         |        |         | Additional |         |        
|                                                                                          |                                                           | Common                                                   |             | Comprehensive |  | Retained     |         | Income        |          | Preferred |         | Common |         | Paid-In    |         |        
|                                                                                          |                                                           | Shares                                                   |             | Income        |  | Earnings     |         | (Loss)        |          | Stock     |         | Stock  |         | Capital    |         | Total  
|                                                                                          |                                                           |                                                          |             |               |  |              |         |               |          |           |         |        |         |            |         |        
|                                                                                          |                                                           |                                                         
|                                                                                          |                                                           | (In thousands, except share data)                       
|Predecessor:                                                                              |                                                           |                                                          |             |               |  |              |         |               |          |           |         |        |         |            |         |         |          |   |   |   |   |   |       |   |   |   |         |   |   |   |           |        
|Balance, December 31, 2000                                                                |                                                           |                                                          | 115,933,182 |               |  |              |         |               |          | $         | 622,985 |        |         | $          | (94,686 | )       |          | $ |  |   |   | $ | 1,158 |   |   | $ | 875,249 |   |   | $ | 1,404,706 |        
|Issuance of common stock                                                                  |                                                           |                                                          | 4,392,987   |               |  |              |         |               |          |           |        |        |         |            |        |         |          |   |  |   |   |   | 46    |   |   |   | 48,393  |   |   |   | 48,439    |        
|Repurchase of common stock                                                                |                                                           |                                                          | 1,702,500   |               |  |              |         |               |          |           |        |        |         |            |        |         |          |   |  |   |   |   | (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 |               |  |              |         |               |          |           | 589,142 |        |         |            | (31,129 | )       |          |   |  |   |   |   | 1,190 |   |   |   | 895,885 |   |   |   | 1,455,088 |        
|Issuance of common stock                                                                  |                                                           |                                                          | 796,928     |               |  |              |         |               |          |           |        |        |         |            |        |         |          |   |  |   |   |   | 9     |   |   |   | 9,610   |   |   |   | 9,619     |        
|Repurchase of common stock                                                                |                                                           |                                                          | 1,570,000   |               |  |              |         |               |          |           |        |        |         |            |        |         |          |   |  |   |   |   | (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 |               |  |              |         |               |          |           | 716,465 |        |         |            | (6      | )       |          |   |  |   |   |   | 1,180 |   |   |   | 880,747 |   |   |   | 1,598,386 |        
|Issuance of common stock                                                                  |                                                           |                                                          | 849,181     |               |  |              |         |               |          |           |        |        |         |            |        |         |          |   |  |   |   |   | 8     |   |   |   | 7,803   |   |   |   | 7,811     |        
|Tax benefit from the exercise of non-qualified
    stock options                          |                                                           |                                                          |             |               |  |              |         |               |          |           |        |        |         |            |        |         |          |   |  |   |   |   |      |   |   |   | 1,092   |   |   |   | 1,092     |        
|Other                                                                                     |                                                           |                                                          | (73,266     | )             |  |              |         |               |          |           |        |        |         |            |        |         |          |   |  |   |   |   | (1    | ) |   |   | (346    | ) |   |   | (347      | )      
|Comprehensive income:                                                                     |                                                           |                                                          |             |               |  |              |         |               |          |           |         |        |         |            |         |         |          |   |   |   |   |   |       |   |   |   |         |   |   |   |           |        
|                                                                                          | Net income                                                |                                                          |             |               |  |              | $       | 37,161        |          |           |         | 37,161 |         |            |         |        |          |   |   |  |   |   |       |  |   |   |         |  |   |   |           | 37,161  |         
|                                                                                          | Unrealized gain on marketable securities, net of
    tax  |                                                          |             |               |  |              |         | 19,637        |          |           |         |       |         |            |         | 19,637  |          |   |   |  |   |   |       |  |   |   |         |  |   |   |           | 19,637  |         
|                                                                                          | Reclassification adjustment, net of tax                   |                                                          |             |               |  |              |         | (11,103       | )        |           |         |       |         |            |         | (11,103 | )        |   |   |  |   |   |       |  |   |   |         |  |   |   |           | (11,103 | )       
|                                                                                          | Minimum pension liability, net of tax                     |                                                          |             |               |  |              |         | (3,098        | )        |           |         |       |         |            |         | (3,098  | )        |   |   |  |   |   |       |  |   |   |         |  |   |   |           | (3,098  | )       
|                                                                                          | Foreign currency adjustments                              |                                                          |             |               |  |              |         | 25,178        |          |           |         |       |         |            |         | 25,178  |          |   |   |  |   |   |       |  |   |   |         |  |   |   |           | 25,178  |         
|                                                                                          |                                                           |                                                          |             |               |  |              |         |               |          |           |         |        |         |            |         |         |          |   |   |   |   |   |       |   |   |   |         |   |   |   |           |        
|Comprehensive income for the period from
    January 1, 2003 through September 25, 2003   |                                                           |                                                          |             |               |  | $            | 67,775  |               |          |           |         |        |         |            |         |         |          |   |   |   |   |   |       |   |   |   |         |   |   |   |           |        
|                                                                                          |                                                           |                                                          |             |               |  |              |         |               |          |           |         |        |         |            |         |         |          |   |   |   |   |   |       |   |   |   |         |   |   |   |           |        
|Balance, September 25, 2003                                                               |                                                           |                                                          | 118,626,512 |               |  |              |         |               |          | $         | 753,626 |        |         | $          | 30,608  |         |          | $ |  |   |   | $ | 1,187 |   |   | $ | 889,296 |   |   | $ | 1,674,717 |        
|                                                                                          |                                                           |                                                          |             |               |  |              |         |               |          |           |         |        |         |            |         |         |          |   |   |   |   |   |       |   |   |   |         |   |   |   |           |        
|                                                                                         
|Successor:                                                                                |                                                           |                                                          |             |               |  |              |         |               |          |           |         |        |         |            |         |         |          |   |   |   |   |   |       |   |   |   |         |   |   |   |           |        
|Balance, September 25, 2003                                                               |                                                           |                                                          |             |               |  |              |         |               |          | $         |        |        |         | $          |        |         |          | $ |  |   |   | $ |      |   |   | $ |        |   |   | $ |          |        
|Issuance of common stock                                                                  |                                                           |                                                          | 125,000,000 |               |  |              |         |               |          |           |        |        |         |            |        |         |          |   |  |   |   |   | 1,250 |   |   |   | 520,475 |   |   |   | 521,725   |        
|Comprehensive income:                                                                     |                                                           |                                                          |             |               |  |              |         |               |          |           |         |        |         |            |         |         |          |   |   |   |   |   |       |   |   |   |         |   |   |   |           |        
|                                                                                          | Net loss                                                  |                                                          |             |               |  |              | $       | (7,427        | )        |           |         | (7,427 | )       |            |         |        |          |   |   |  |   |   |       |  |   |   |         |  |   |   |           | (7,427  | )       
|                                                                                          | Unrealized gain on marketable securities, net of
    tax  |                                                          |             |               |  |              |         | 1,968         |          |           |         |       |         |            |         | 1,968   |          |   |   |  |   |   |       |  |   |   |         |  |   |   |           | 1,968   |         
|                                                                                          | Unrealized loss on derivative instruments, net of
    tax |                                                          |             |               |  |              |         | (992          | )        |           |         |       |         |            |         | (992    | )        |   |   |  |   |   |       |  |   |   |         |  |   |   |           | (992    | )       
|                                                                                          | Foreign currency adjustments                              |                                                          |             |               |  |              |         | 19,824        |          |           |         |       |         |            |         | 19,824  |          |   |   |  |   |   |       |  |   |   |         |  |   |   |           | 19,824  |         
|                                                                                          |                                                           |                                                          |             |               |  |              |         |               |          |           |         |        |         |            |         |         |          |   |   |   |   |   |       |   |   |   |         |   |   |   |           |        
|Comprehensive income for the period from
    September 26, 2003 through December 31, 2003 |                                                           |                                                          |             |               |  | $            | 13,373  |               |          |           |         |        |         |            |         |         |          |   |   |   |   |   |       |   |   |   |         |   |   |   |           |        
|                                                                                          |                                                           |                                                          |             |               |  |              |         |               |          |           |         |        |         |            |         |         |          |   |   |   |   |   |       |   |   |   |         |   |   |   |           |        
|Balance, December 31, 2003                                                                |                                                           |                                                          | 125,000,000 |               |  |              |         |               |          | $         | (7,427  | )      |         | $          | 20,800  |         |          | $ |  |   |   | $ | 1,250 |   |   | $ | 520,475 |   |   | $ | 535,098   |        
|                                                                                          |                                                           |                                                          |             |               |  |              |         |               |          |           |         |        |         |            |         |         |          |   |   |   |   |   |       |   |   |   |         |   |   |   |           |        

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

59



---



##### 



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.



| |                      
| | ---------------------
| | Basis of Presentation

On September 25, 2003, the Company completed
its merger transaction with Pharma Services Holding, Inc.
(Pharma Services) pursuant to which Pharma Services
Acquisition Corp. (Acquisition Corp.) was merged
with and into the Company, with the Company continuing as the
surviving corporation and an indirect wholly owned subsidiary of
Pharma Services (the Transaction) as further
described in Note 3. As a result of the Transaction, the
Companys results of operations, financial position and
cash flows prior to the date of the Transaction are presented as
the Predecessor. The financial effects of the
Transaction and the Companys results of operations,
financial position and cash flows as the surviving corporation
following the Transaction are presented as the
Successor. To clarify and emphasize that the
Successor Company has been presented on an entirely new basis of
accounting, the Company has separated Predecessor and Successor
operations with a vertical black line, where appropriate.

The Transaction has been accounted for as a
purchase of the Company by Pharma Services with the related
purchase accounting pushed-down to the Companys separate
financial statements.



| |                 
| | ----------------
| | 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 (losses) on foreign
currency transactions of approximately $2.2 million,
$4.2 million, $5.2 million and ($362,000) are included
in other (income) expense for the periods from
September 26, 2003 through December 31, 2003,
January 1, 2003 through September 25, 2003 and the
years ended December 31, 2002 and 2001, respectively.



| |                         
| | ------------------------
| | 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, 2003 or 2002.

60



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)



| |                                     
| | ------------------------------------
| | 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 $658,000
and $712,000 at December 31, 2003 and 2002, 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 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 utilizing pricing models
for non-exchange traded contracts. 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 income (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 may not qualify for hedge accounting, the Company
utilizes these transactions to mitigate its economic exposure to
market price fluctuations.



| |                             
| | ----------------------------
| | Billed and Unbilled Services

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.



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

Property and equipment owned as of
September 25, 2003 are carried at its estimated fair value
determined as part of the Transaction and property and equipment
acquired subsequent to the Transaction

61



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

are carried at historical cost. Property and
equipment 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 goodwill
or other indefinite-lived intangible assets but reviews these
assets at least annually for impairment.

Identifiable intangible assets with finite lives
are amortized over their estimated remaining useful lives as
follows:

|                                            |  |  |              | 
|------------------------------------------- |  |  | ------------ | 
|Trademarks and trade names                  |  |  | 30 years     | 
|Product licensing and distribution rights   |  |  | 4 - 11 years | 
|Contract backlog and customer relationships |  |  | 3 - 9 years  | 
|Software and related                        |  |  | 3 - 5 years  | 
|Covenants not-to-compete                    |  |  | 1 - 2 years  | 

Indefinite lived identifiable intangible assets
consist of certain trademarks and trade names that are not
amortized but tested for impairment annually, or more frequently
if events or changes in circumstances indicate an impairment.

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 revenue primarily based upon (1) the
ratio of outputs or performance obligations completed to the
total contractual outputs or performance obligations to be
provided for fixed-fee 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 does not recognize
revenue with respect to start-up activities associated with
contracts, which include contract and scope negotiation,
feasibility analysis and conflict of interest review. The costs
for these activities are expensed as incurred.

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 may be
terminated 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.

In certain of the Companys
commercialization contracts, the Company provides services
(i.e., a certain number of sales representatives to detail the
customers product(s) for a given period) in exchange

62



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

for a combination of fixed and variable payments.
Each of these agreements is a service agreement that represents
a single unit of accounting under EITF Issue No. 00-21,
Revenue Arrangements with Multiple Deliverables.
Fixed payments include guaranteed minimum payments and
fee-for-service arrangements. The Company recognizes revenue on
the fixed payments when the services are provided and the
amounts become fixed and determinable. Variable payments are
based on a percentage of product sales. The Company refers to
the variable payments as royalty payments. The Company
recognizes revenue on the royalty payments when the variable
components become fixed and determinable, which only occurs upon
the sale of the underlying product(s). All of the consideration
the Company receives for providing services, whether via a
guaranteed minimum payment, fee-for-service payment, or a
variable royalty, is earned and recognized as revenue only after
the services are provided to the customer.

Certain of the Companys agreements provide
for guaranteed minimum payments to the Company. The Company
determines the amount of service revenues to be recognized under
these agreements by calculating the present value of the fixed
and determinable cash flows over the term of the agreement.
Accretion of the resulting discount is imputed on the related
asset and recorded as interest income over the contract term.
The present value of the fixed and determinable cash flows is
recognized as revenue in proportion to the services performed
based on a measurement of outputs. The Company recognizes
revenues in excess of the guaranteed minimum when the amounts
become fixed and determinable but only after the related
services have been provided. The amounts related to the variable
components become fixed and determinable only when the actual
sales of the related product(s) have occurred and exceed the
guaranteed minimum.

As the Company records the revenues it earns
under such arrangements, it also records a commercial rights and
royalties related asset in the accompanying balance sheet. Cash
received by the Company from its customers reduces this asset
balance.

The Company treats cash payments to customers
under the agreements as incentives to induce the customers to
enter into such a service agreement with the Company pursuant to
EITF Issue No. 01-09, Accounting for Consideration
Given by a Vendor to a Customer. These payments are
recorded as a commercial rights and royalties related asset in
the accompanying balance sheet as long as the Companys
estimated future economic benefits from those customer contracts
are expected to exceed the amount of the payments. The related
asset is amortized, in proportion to the services performed
based on a measurement of outputs, as a reduction of revenue
over the service period.

The Company reviews the carrying value of the
commercial rights and royalties related asset at each balance
sheet date to determine whether or not there has been an
impairment. If this review indicates that the carrying value is
not recoverable, based on undiscounted cash flows over the
remaining contract period, the Company will reduce the carrying
value to the resulting estimated fair value. In the event of
contract termination by the customer, in each of the
Companys contracts, all amounts paid and/or recorded as a
commercial rights and royalties related asset would be legally
recoverable by the Company in accordance with the terms of the
contract. In the event of termination initiated by the Company,
the amounts generally would not be contractually recoverable.

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.

63



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

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.



| |                             
| | ----------------------------
| | 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. While no customer accounted for more than 10% of
consolidated net service revenue for any 2003 period presented
herein, one customer accounted for approximately 11.3% and 10.8%
of consolidated net service revenue in 2002 and 2001,
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
$201,000 and $1.2 million for the periods from
September 26, 2003 through December 31, 2003 and
January 1, 2003 through September 25, 2003,
respectively, and $2.1 million and $18.1 million in
2002 and 2001, respectively.

Although the Company has not entered into
agreements to fund the development of a customers research
and development activity, if the Company were to enter into such
an arrangement, the Company would expense the amounts funded by
the Company as research and development costs as incurred.



| |             
| | ------------
| | 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 (Loss) Income Per Share

The Company determines basic net (loss) income
per share by dividing net (loss) income by the weighted average
number of common shares outstanding during each year. Diluted
net (loss) 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 (loss) 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

64



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

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
employee stock options equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense
is recognized.

Pharma Services issued options to purchase
3,350,000 shares of its common stock to certain of the
Companys employees during the fourth quarter of 2003. As
of December 31, 2003, there are options to acquire
3,350,000 shares of Pharma Services outstanding. There were
no outstanding stock options to acquire the Companys
common stock as of December 31, 2003. In addition, the
Company suspended its employee stock purchase plan effective
April 2003, due to the Transaction.

Pro forma information regarding net (loss) income
and net (loss) 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 the
stock options granted by its parent company, Pharma Services, to
the Companys employees under the fair value method of
SFAS No. 123. The per share weighted-average fair
value of stock options granted during the period from
September 26, 2003 through December 31, 2003 was
$0.0025 per share on the date of grant using the
Black-Scholes option pricing model with the following
weighted-average assumptions:

|                                                  |  |               |      |  
|------------------------------------------------- |  | ------------- | ---- | -
|                                                  |  | September 26,
|                                                  |  | 2003 through 
|                                                  |  | December 31, 
|                                                  |  | 2003         
|                                                  |  |              
|Expected dividend yield                           |  |               | 0    | %
|Risk-free interest rate                           |  |               | 3.1  | %
|Expected volatility                               |  |               | 65.0 | %
|Expected life (in years from end of vesting term) |  |               | 1.70 |  

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 stock options of Pharma Services granted
to the Companys employees 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 the stock options.

65



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

The Companys pro forma information follows
(in thousands, except for net (loss) income per share
information):

|                                                                                                       |                                |              |        |              |   |            |         |            |   |   |         |       |   |   |         |       |  
|------------------------------------------------------------------------------------------------------ | ------------------------------ | ------------ | ------ | ------------ | - | ---------- | ------- | ---------- | - | - | ------- | ----- | - | - | ------- | ----- | -
|                                                                                                       |                                | September    |        |              |   |            |         |           
|                                                                                                       |                                | 26, 2003     |        | January 1,   |   |            |         |           
|                                                                                                       |                                | through      |        | 2003 through |   | Year ended |         | Year ended
|                                                                                                       |                                | December 31, |        | September    |   | December   |         | December  
|                                                                                                       |                                | 2003         |        | 25, 2003     |   | 31, 2002   |         | 31, 2001  
|                                                                                                       |                                |              |        |              |   |            |         |           
|Net (loss) income, as reported                                                                         |                                | $            | (7,427 | )            |   | $          | 37,161  |            |   | $ | 127,323 |       |   | $ | (33,843 | )    
|Add: stock based compensation expense included in
    net (loss) income as reported, net of income tax |                                |              |       |              |   |            | 7,262   |            |   |   |        |       |   |   |        |      
|Less: pro forma adjustment for stock-based
    compensation, net of income tax                         |                                |              |       |              |   |            | (18,435 | )          |   |   | (15,957 | )     |   |   | (25,556 | )    
|                                                                                                       |                                |              |        |              |   |            |         |            |   |   |         |       |   |   |         |      
|Pro forma net (loss) income                                                                            |                                | $            | (7,427 | )            |   | $          | 25,988  |            |   | $ | 111,366 |       |   | $ | (59,399 | )    
|                                                                                                       |                                |              |        |              |   |            |         |            |   |   |         |       |   |   |         |      
|Basic net (loss) income per share:                                                                     |                                |              |        |              |   |            |         |            |   |   |         |       |   |   |         |      
|                                                                                                       | As reported                    |              | $      | (0.06        | ) |            | $       | 0.31       |   |   | $       | 1.08  |   |   | $       | (0.29 | )
|                                                                                                       | Pro forma                      |              |        | (0.06        | ) |            |         | 0.22       |   |   |         | 0.94  |   |   |         | (0.50 | )
|                                                                                                       |                                |              |        |              |   |            |         |            |   |   |         |       |   |   |         |      
|                                                                                                       | Effect of pro forma adjustment |              | $      | 0.00         |   |            | $       | (0.09      | ) |   | $       | (0.14 | ) |   | $       | (0.22 | )
|                                                                                                       |                                |              |        |              |   |            |         |            |   |   |         |       |   |   |         |      
|Diluted net (loss) income per share:                                                                   |                                |              |        |              |   |            |         |            |   |   |         |       |   |   |         |      
|                                                                                                       | As reported                    |              | $      | (0.06        | ) |            | $       | 0.31       |   |   | $       | 1.07  |   |   | $       | (0.29 | )
|                                                                                                       | Pro forma                      |              |        | (0.06        | ) |            |         | 0.22       |   |   |         | 0.94  |   |   |         | (0.50 | )
|                                                                                                       |                                |              |        |              |   |            |         |            |   |   |         |       |   |   |         |      
|                                                                                                       | Effect of pro forma adjustment |              | $      | 0.00         |   |            | $       | (0.09      | ) |   | $       | (0.13 | ) |   | $       | (0.22 | )
|                                                                                                       |                                |              |        |              |   |            |         |            |   |   |         |       |   |   |         |      



| |                     
| | --------------------
| | 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 income at December 31, 2003
was $20.8 million which consisted of $19.8 million in
foreign currency translation adjustments and $976,000 in
unrealized gains on available-for-sale securities. During the
period from January 1, 2003 through September 25, 2003
and the year ended December 31, 2002, the Company
reclassified ($11.1) million and ($17.1) million,
respectively, of net holding (gains) losses to revenues as
the related securities were sold or deemed to be impaired. No
such reclassifications were made in the period from
September 26, 2003 through December 31, 2003.



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

In January 2003, the Financial Accounting
Standards Board issued Interpretation No. 46
(FIN 46), Consolidation of Variable
Interest Entities, which requires the assets, liabilities
and results of operations of variable interest entities
(VIE) be consolidated into the financial statements
of the company that has controlling financial interest.
FIN 46 also provides the framework for determining whether
a VIE should be consolidated based on voting interest or
significant financial support provided to the VIE. The Company
adopted these provisions, as required, with respect to VIEs
created after January 31, 2003. The effective date for
applying the provisions of FIN 46 for interests held by
public entities in VIEs or potential VIEs created before
February 1, 2003 has been deferred and will be effective as
of March 31, 2004 except for special purpose entities in
which FIN 46 must be applied as of December 31, 2003.
The Company does not have an interest in any special purpose
entities. The Company is currently evaluating the impact of
FIN 46 on any such VIEs held prior to February 1, 2003.

66



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)



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

Certain amounts in the 2001 financial statements
have been reclassified to conform with the 2002 and 2003
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. These reimbursed service costs
totaled $399.7 million and $263.4 million in 2002 and
2001, 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.



|   |                                               
|-- | ----------------------------------------------
|3. | Pharma Services and Financing
    Transactions

Pursuant to a merger agreement dated as of
April 10, 2003, as amended on August 18, 2003, by and
among the Company, Acquisition Corp. and one of its parent
companies, Pharma Services, Acquisition Corp. was merged with
and into the Company on September 25, 2003, with the
Company continuing as the surviving corporation and an indirect
wholly owned subsidiary of Pharma Services. Pharma Services was
formed for purposes of the Transaction by Dr. Gillings, the
Companys Executive Chairman, Chief Executive Officer and
founder, and One Equity Partners LLC (One Equity),
the private equity unit of Bank One Corporation.
Dr. Gillings and certain of his affiliates as well as other
selected shareholders, including one Predecessor Company
director (in addition to Dr. Gillings) and certain members
of senior management (including certain executive officers),
exchanged all or a portion of their equity interests in the
Company for equity securities of Pharma Services. Pharma
Services paid $14.50 in cash for each outstanding share of the
Companys Common Stock, except for shares held by Pharma
Services and Acquisition Corp. In addition, Pharma Services paid
the excess, if any, of $14.50 over the per share exercise price
of each option outstanding at the effective time of the
Transaction to purchase the Companys Common Stock granted
under any of the Companys option plans, other than options
held by Dr. Gillings and any other person who exchanged
Company options for equity securities of Pharma Services. No
merger consideration was paid for shares and/or options to
purchase shares that were exchanged for equity securities of
Pharma Services.

67



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

The purchase price including transaction costs
was approximately $1.88 billion. The sources and uses of
funds in connection with the acquisition are summarized below
(in thousands):

|                                                         |               |   |           |           | 
|-------------------------------------------------------- | ------------- | - | --------- | --------- | 
|Sources:                                                 |               |   |           |          
|Proceeds Senior Term Loan                                |               | $ | 310,000   |          
|Proceeds from 10% Senior Subordinated Notes due
    2013 |               |   | 450,000   |          
|Proceeds from equity investors                           |               |   | 424,406   |          
|Exchange of equity                                       |               |   | 107,062   |          
|Available cash                                           |               |   | 592,009   |          
|                                                         |               |   |           |          
|                                                         | Total sources |   | $         | 1,883,477 | 
|                                                         |               |   |           |          
|Uses:                                                    |               |   |           |          
|Purchase price                                           |               | $ | 1,736,211 |          
|Repayment of certain debt                                |               |   | 912       |          
|Fees and expenses                                        |               |   | 146,354   |          
|                                                         |               |   |           |          
|                                                         | Total uses    |   | $         | 1,883,477 | 
|                                                         |               |   |           |          

The Company has prepared an allocation of the
purchase price to the assets acquired and liabilities assumed
based upon their respective fair values as determined by an
independent third-party valuation firm as of the date of the
acquisition. The allocation of the purchase price to the fair
value of net assets acquired is summarized below (in thousands):

|                                                                                                      |                                    |   |           |           | 
|----------------------------------------------------------------------------------------------------- | ---------------------------------- | - | --------- | --------- | 
|Acquired tangible net assets                                                                          |                                    | $ | 1,121,945 |          
|Acquired intangible assets  commercial
    rights and royalties, licenses and customer relationships |                                    |   | 207,829   |          
|Acquired intangible assets 
    trademarks, trade names and other                                    |                                    |   | 164,720   |          
|Acquired intangible assets  software
    and related                                                 |                                    |   | 65,859    |          
|Goodwill                                                                                              |                                    |   | 175,858   |          
|                                                                                                      |                                    |   |           |          
|                                                                                                      | Total allocation of purchase price |   | $         | 1,736,211 | 
|                                                                                                      |                                    |   |           |          

In accordance with Emerging Issues Task Force
(EITF) Issue No. 88-16, Basis in
Leveraged Buyout Transactions, Dr. Gillings
continuing residual interest has been reflected at its original
cost, adjusted for his share of the Companys earnings,
losses and equity adjustments since the date of original
acquisition (predecessor basis). In accordance with
EITF Issue No. 90-12, Allocating Basis to Individual
Assets and Liabilities within the Scope of Issue 88-16,
only a partial step-up of assets and liabilities to fair value
has been recorded in purchase accounting. The partial step-up
has resulted in the Companys assets and liabilities being
adjusted by approximately 93.74% of the difference between their
fair value at the date of acquisition and their historical
carrying cost.

68



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

The following table presents the unaudited pro
forma results as if the Transaction and related financing had
occurred at the beginning of each of the periods presented (in
thousands):

|                                    |  |               |         |               |  |              |           |   |  |   |           |  
|----------------------------------- |  | ------------- | ------- | ------------- |  | ------------ | --------- | - |  | - | --------- | -
|                                    |  | September 26, |         | January 1,    |  |             
|                                    |  | 2003 through  |         | 2003 through  |  | Year ended  
|                                    |  | December 31,  |         | September 25, |  | December 31,
|                                    |  | 2003          |         | 2003          |  | 2002        
|                                    |  |               |         |               |  |             
|Gross revenues                      |  | $             | 547,165 |               |  | $            | 1,498,822 |   |  | $ | 1,992,409 |  
|Loss from continuing operations     |  |               | (7,427  | )             |  |              | (19,840   | ) |  |   | (10,443   | )
|Net (loss) income                   |  | $             | (7,427  | )             |  | $            | (19,840   | ) |  | $ | (10,443   | )
|                                   
|Basic net (loss) income per share   |  | $             | (0.06   | )             |  | $            | (0.17     | ) |  | $ | (0.09     | )
|Diluted net (loss) income per share |  | $             | (0.06   | )             |  | $            | (0.17     | ) |  | $ | (0.09     | )

The unaudited pro forma results have been
prepared for comparative purposes only and do not purport to be
indicative of the results that would have actually been attained
if the Transaction and related financing had occurred at the
beginning of the periods presented.

Pharma Services entered into agreements with GF
Management Company, Inc., or GFM, and certain of the other
equity investors of Pharma Services, including One Equity,
pursuant to which Pharma Services paid GFM, a company controlled
by Dr. Gillings, the Companys Executive Chairman,
Chief Executive Officer and founder, and One Equity a one-time
transaction fee of $5.0 million and $15.0 million,
respectively, at the effective time of the Transaction. In
addition, Pharma Services agreed to have the Company pay an
annual management service fee of approximately
$3.75 million to the Pharma Services investor group, of
which GFM, TPG Advisors III, Inc. (TPG) and
Cassia Fund Management Pte Ltd., an affiliate of Temasek
Holdings (Temasek) each receive approximately
$750,000 and One Equity receives approximately $1.5 million
until 2008. For the period from September 26, 2003 through
December 31, 2003, the Company expensed $938,000 in
management fees.

Pharma Services was also responsible for the fees
and expenses of Dr. Gillings, One Equity, Temasek and TPG,
and each of their respective affiliates and advisors, related to
the Transaction. Pharma Services paid $17.1 million to
Dr. Gillings pursuant to this arrangement.



|   |                                              
|-- | ---------------------------------------------
|4. | Accounts Receivable and Unbilled
    Services

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

|                                |                   |              |         |             |  |   |         |         | 
|------------------------------- | ----------------- | ------------ | ------- | ----------- |  | - | ------- | ------- | 
|                                |                   |             
|                                |                   | December 31,
|                                |                   |             
|                                |                   | 2003         |         | 2002       
|                                |                   |              |         |            
|                                |                   | Successor    |         | Predecessor
|Trade:                          |                   |              |         |             |  |   |         |        
|                                | Billed            |              | $       | 142,890     |  |   | $       | 142,407 | 
|                                | Unbilled services |              |         | 103,216     |  |   |         | 118,501 | 
|                                |                   |              |         |             |  |   |         |        
|                                |                   |              | 246,106 |             |  |   | 260,908 |        
|Allowance for doubtful accounts |                   |              | (6,112  | )           |  |   | (5,261  | )      
|                                |                   |              |         |             |  |   |         |        
|                                |                   | $            | 239,994 |             |  | $ | 255,647 |        
|                                |                   |              |         |             |  |   |         |        

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

69



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

provided by the Company on a global basis. The
percentage of accounts receivable and unbilled services by
region is as follows:

|                   |               |                |       |                   |    |    |     |    |    |    |    | 
|------------------ | ------------- | -------------- | ----- | ----------------- | -- | -- | --- | -- | -- | -- | -- | 
|                   |               |               
|                   |               | December 31,  
|                   |               |               
|Region             |               | 2003           |       | 2002             
|                   |               |                |       |                  
|                   |               | Successor      |       | Predecessor      
|Americas:          |               |                |       |                   |    |    |     |   
|                   | United States |                |       | 35                | %  |    |     | 40 | % 
|                   | Other         |                |       | 4                 |    |    |     | 2  |   
|                   |               |                |       |                   |    |    |     |   
|                   |               |                |       | Americas          |    |    | 39  |    |    |    | 42 | 
|Europe and Africa: |               |                |       |                   |    |    |     |   
|                   |               | United Kingdom |       |                   | 28 |    |     |    | 35 |   
|                   |               |                | Other |                   |    | 24 |     |    |    | 15 |   
|                   |               |                |       |                   |    |    |     |   
|                   |               |                |       | Europe and Africa |    |    | 52  |    |    |    | 50 | 
|Asia  Pacific:    |               |                |       |                   |    |    |     |   
|                   |               | Japan          |       |                   | 8  |    |     |    | 6  |   
|                   |               | Other          |       |                   | 1  |    |     |    | 2  |   
|                   |               |                |       |                   |    |    |     |   
|                   |               |                |       | Asia-Pacific      |    |    | 9   |    |    |    | 8  | 
|                   |               |                |       |                   |    |    |     |   
|                   |               |                | 100   | %                 |    |    | 100 | % 
|                   |               |                |       |                   |    |    |     |   



|   |                                
|-- | -------------------------------
|5. | Commercial Rights and Royalties

Commercial rights and royalties related assets
are classified either as a commercial rights and royalties,
accounts receivable  unbilled or advances to
customers in the non-current asset section of the accompanying
balance sheets. Below is a summary of the commercial rights and
royalties related assets (in thousands):

|                                |  |              |         |              |  |   |         | 
|------------------------------- |  | ------------ | ------- | ------------ |  | - | ------- | 
|                                |  | December 31, |         | December 31,
|                                |  | 2003         |         | 2002        
|                                |  |              |         |             
|                                |  | Successor    |         | Predecessor 
|Commercial rights and royalties |  | $            | 12,528  |              |  | $ | 1,786   | 
|Accounts receivable-unbilled    |  |              | 40,107  |              |  |   | 59,750  | 
|Advances to customer            |  |              | 70,000  |              |  |   | 70,000  | 
|                                |  |              |         |              |  |   |         | 
|Total                           |  | $            | 122,635 |              |  | $ | 131,536 | 
|                                |  |              |         |              |  |   |         | 

Below is a brief description of these agreements:

In May 1999, the Company entered into an
agreement with CV Therapeutics, Inc. (CVTX) to
commercialize RanexaTM for angina in the United
States and Canada. Under the terms of the May 1999 agreement,
the Company purchased 1,043,705 shares of CVTXs
common stock for $5 million; the Company owned no shares of
CVTX as of December 31, 2003. The May 1999 agreement also
made available a $10 million credit line for pre-launch
sales and marketing activities. The May 1999 agreement further
provided that if RanexaTM, which has been submitted
to the United States Food and Drug Administration
(FDA) under a New Drug Application (NDA)
for review, were approved, the Company would provide a
$10 million milestone payment to CVTX which will be used to
pay off any outstanding balances on the credit line. The May
1999 agreement also required the Company to make available an
additional line of credit to help fund a portion of the first
year sales and marketing expenses. Under the May 1999 agreement,
the Company committed to provide a minimum of approximately

70



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

$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 the
Company was to receive payment for services rendered by the
Company in year one and royalties based on the net sales of
RanexaTM 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 was also to
receive royalties in years six and seven. As of
December 31, 2003, the Company had not made any payments to
CVTX under the May 1999 agreement in connection with the line of
credit or milestone arrangement and had not funded
commercialization and marketing activities nor had the Company
received any royalties from CVTX. In July 2003, CVTX and the
Company entered into a new agreement that superceded the prior
agreement. Under the terms of the July 2003 agreement, all
rights to RanexaTM reverted back to CVTX, and CVTX
will owe no royalty payments to the Company. Under the July 2003
agreement, the Company received a warrant to purchase
200,000 shares of CVTX common stock at $32.93 per
share during the five-year term commencing July 9, 2003.
The Company recorded a gain of approximately $700,000 in
connection with the receipt of the warrant. CVTX also is
obligated to purchase from the Company, within six months of the
approval of RanexaTM, services of at least
$10 million in aggregate value or to pay the Company a lump
sum amount equal to 10% of any shortfall from $10 million
in purchased services.

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, 2003, the
Company has capitalized 251.8 million Philippine 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. As of December 31, 2003, the
Company had paid $30.0 million. The payments are reported
in the accompanying statement of cash flows as an investing
activity  acquisition of commercial rights and
royalties. In addition to receiving payments on a fee for
service basis for providing commercialization services, the
Company was to receive royalties based on net sales of the
product from 2002 through 2008. The royalty payments were
subject to minimum and maximum amounts of $50 million and
$65 million, respectively, over the life of the agreement.
Through December 31, 2003, the Company received payments
totaling approximately $63.6 million, of which
approximately $62.7 million was received during 2003. The
proceeds are reported in the accompanying statement of cash
flows as an operating activity  change in operating
assets and liabilities. Initially, the Company also received a
warrant 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 warrant. 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. The early settlement of the
Companys service obligation did not affect the continuing
royalty obligation of SCIO. On April 29, 2003,
Johnson & Johnson consummated its acquisition of SCIO
and the Company received $17.5 million for the warrant that
the Company owned (see Derivatives). In August 2003,
SCIO made a final payment to the Company in the

71



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

amount of $46.1 million under an agreement
reached to terminate the SCIO agreement, including the payment
and royalty obligations. This final payment reduced the SCIO
commercial rights and royalties balance to zero as of
December 31, 2003. Total royalty payments received were
$63.6 million. The Company reported income of approximately
$15.9 million in 2003, related to the $46.1 million
received in settlement of the royalty obligation of SCIO.

In June 2001, the Company entered into an
agreement with Pilot Therapeutics, Inc. (PLTT) to
commercialize a natural therapy for asthma,
AIROZINTM, in the United States and Canada. Under the
terms of the agreement, the Company will provide
commercialization services for AIROZINTM 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, 2003. Further, based on achieving certain
milestones, the Company has committed to funding 50% of sales
and marketing activities for AIROZINTM over five
years with a $6 million limit per year. Following product
launch, the Company will receive royalties based on the net
sales of AIROZINTM. The royalty percentage will vary
to allow the Company to achieve a minimum rate of return. The
Form 10-QSB filed by PLTT on September 5, 2003
indicated that PLTT will need significant additional financing
to continue operations beyond September 15, 2003. As such,
the Company has recorded an impairment of $4 million on the
loan receivable from PLTT and has reduced its five-year
contingent commitment for the sales force and marketing
activities to zero at December 31, 2003.

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,
2003, the Company has made $5.7 million available under the
line of credit, of which $2.4 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 also agreed to pay 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. The subscription agreements under which the
Company acquired its shares of DSCO common stock included
participation rights to acquire additional shares of DSCO. The
Company exercised its participation rights in two such
transactions with DSCO. During November 2002, the Company
purchased an additional 266,246 shares of DSCO common stock
along with a detachable warrant to purchase 119,811 shares
of DSCO common stock for $517,000. Using the cashless exercise
feature, the Company exercised the November 2002 warrant and
received 83,357 shares of DSCO common stock. During July
2003, the Company purchased an additional 218,059 shares of
DSCO common stock along with a detachable warrant to purchase
43,612 shares of DSCO common stock for $1.2 million.

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 amortizes the rights in
proportion to the revenues earned over the 14 year life of
the license. 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.

72



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

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,
commercialized Advicor® and Niaspan® for the first two
years after launch (January 2002 to December 2003). In return,
the Company received a warrant 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, as amended June 30, 2003, of
$50 million and $65 million, respectively, over the
life of the agreement. Through December 31, 2003, the
Company has received payments totaling approximately
$9.2 million. The proceeds are reported in the accompanying
statement of cash flows as an operating activity 
change in operating assets and liabilities.

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 amortizes the intangible
assets in proportion to the estimated revenues 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. Either
party may cancel the contract at six-month intervals in the
event that sales are not above certain levels specified. In the
first quarter of 2003 and the third quarter of 2003, the
agreements in Germany and Belgium, respectively, were
terminated. For the remaining portion of the contract in Italy,
the Company will provide, at its own expense, sales and
marketing resources over the five-year life of the agreement. As
of December 31, 2003, the Company estimates the cost of its
minimum obligation over the remaining contract life for the
remaining territory of Italy to be approximately
$15 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.

In July 2002, the Company entered into an
agreement with Eli Lilly and Company (LLY) to
support LLY in its commercialization efforts for
CymbaltaTM in the United States. LLY has submitted a
NDA for CymbaltaTM, 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 CymbaltaTM for the
five years following product launch. The sales force will
promote CymbaltaTM 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 CymbaltaTM. 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

73



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

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
CymbaltaTM by LLY or sublicense of
CymbaltaTM to third parties, if any. The
$110 million in payments will be capitalized and amortized
in proportion to the estimated revenues 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  advances to customer. In return for the P1
position for CymbaltaTM and the marketing and
milestone payments, LLY will pay to the Company 8.25% of
U.S. CymbaltaTM 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 CymbaltaTM 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 CymbaltaTM 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: ProchieveTM 8%,
ProchieveTM 4%, Advantage-S® and
RepHreshTM. Under the terms of the agreement, the
Company purchased 1,121,610 shares of COB common stock for
$5.5 million. The Company also paid to COB four quarterly
payments of $1.125 million each commencing in the third
quarter of 2002. In return, the Company will receive 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 paid
$4.5 million as of December 31, 2003. The payments are
reported in the accompanying statement of cash flows as an
investing activity  acquisition of commercial rights
and royalties. The royalties are subject to minimum and maximum
amounts of $8.0 million and $12.0 million,
respectively, over the life of the agreement. 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. In January 2004, the Company and COB agreed to
restructure the fee-for-service agreement to allow for an
accelerated transfer of the sales force management
responsibility to COB. The purchase of the COB common stock
included participation rights to acquire additional shares of
COB. During July 2003, the Company exercised its participation
rights and purchased an additional 56,749 shares of COB for
$664,000.

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 $6.9 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
$8.7 million) of which 2.2 million euros
(approximately $2.8 million) are in the form of services to
be completed by December 31, 2008, based on the
Companys standard pricing. The Company has paid
6.5 million euros (approximately $8.2 million) as of
December 31, 2003. The payments are reported in the
accompanying statement of cash flows as an investing
activity  acquisition of intangible assets. The
Company has also provided 1.8 million euros in services to
the customer under the 2.2 million euros service component.
The Companys service obligation is recorded as a cost of
the distribution rights and is being amortized over the six-year
distribution agreement. The customer will continue to
manufacture the product for the six years of the distribution
agreement.

In March 2003, the Company entered into an
agreement with COB to commercialize COBs
StriantTM testosterone buccal bioadhesive product in
the United States. StriantTM was approved in
June 2003 by the FDA for the treatment of hypogonadism. Under
the terms of the agreement, the Company will pay to COB five
quarterly payments of $3.0 million each which commenced in
the second quarter of 2003. In return, the Company will receive
a 9% royalty on the net sales of StriantTM in the
United States up to

74



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

agreed levels of annual sales revenues, and a
4.5% royalty of net sales above those levels. The royalty term
is seven years. Royalty payments will commence with the launch
of StriantTM and are subject to minimum and maximum
amounts of $30.0 million and $55.0 million,
respectively, over the life of the agreement. The Company has
paid $12.0 million as of December 31, 2003. The
payments are reported in the accompanying statement of cash
flows as an investing activity  acquisition of
commercial rights and royalties. 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 for a
two-and-a-half year term. In January 2004, the Company and COB
agreed to restructure the fee-for-service agreement to allow for
an accelerated transfer of the sales force management
responsibility to COB.

The Company has firm commitments under the above
arrangements described above to provide funding of approximately
$250.3 million in exchange for various commercial rights.
As of December 31, 2003, the Company has funded
approximately $203.7 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, agreeing to 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
$90-110 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):

|                                  |  |      |        |      |  |      |        |      |  |      |       |       |  |   |       |  |  |   |     |  |  |   |        | 
|--------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ----- | ----- |  | - | ----- |  |  | - | --- |  |  | - | ------ | 
|                                  |  | 2004 |        | 2005 |  | 2006 |        | 2007 |  | 2008 |       | Total
|                                  |  |      |        |      |  |      |        |      |  |      |       |      
|Milestone payments                |  | $    | 3,000  |      |  | $    |       |      |  | $    |      |       |  | $ |      |  |  | $ |    |  |  | $ | 3,000  | 
|Sales force commitments           |  |      | 16,548 |      |  |      | 15,069 |      |  |      | 3,806 |       |  |   | 3,916 |  |  |   | 403 |  |  |   | 39,742 | 
|Licensing and distribution rights |  |      | 2,346  |      |  |      | 1,500  |      |  |      |      |       |  |   |      |  |  |   |    |  |  |   | 3,846  | 
|                                  |  |      |        |      |  |      |        |      |  |      |       |       |  |   |       |  |  |   |     |  |  |   |        | 
|                                  |  | $    | 21,894 |      |  | $    | 16,569 |      |  | $    | 3,806 |       |  | $ | 3,916 |  |  | $ | 403 |  |  | $ | 46,588 | 
|                                  |  |      |        |      |  |      |        |      |  |      |       |       |  |   |       |  |  |   |     |  |  |   |        | 



|   |                                  
|-- | ---------------------------------
|6. | Investments  Debt
    Securities

The following is a summary as of
December 31, 2003 (successor) of held-to-maturity
securities and available-for-sale securities by contractual
maturity where applicable (in thousands):

|                             |                              |           |       |            |  |            |   |        |  |   |   |   |  |   |       |       | 
|---------------------------- | ---------------------------- | --------- | ----- | ---------- |  | ---------- | - | ------ |  | - | - | - |  | - | ----- | ----- | 
|                             |                              |           |       | Gross      |  | Gross      |   |       
|                             |                              | Amortized |       | Unrealized |  | Unrealized |   | Market
|Held-to-Maturity Securities: |                              | Cost      |       | Gains      |  | Losses     |   | Value 
|                             |                              |           |       |            |  |            |   |       
|State Securities            |                              |           |       |            |  |            |   |        |  |   |   |   |  |   |       |      
|                             | Maturing in one year or less |           | $     | 611        |  |            | $ |       |  |   | $ |  |  |   | $     | 611   | 
|                             | Maturing in over five years  |           |       | 3,492      |  |            |   |       |  |   |   |  |  |   |       | 3,492 | 
|                             |                              |           |       |            |  |            |   |        |  |   |   |   |  |   |       |      
|                             |                              | $         | 4,103 |            |  | $          |  |        |  | $ |  |   |  | $ | 4,103 |      
|                             |                              |           |       |            |  |            |   |        |  |   |   |   |  |   |       |      

|                               |  |           |       |            |  |            |     |        |  |   |   |  |  |   |       | 
|------------------------------ |  | --------- | ----- | ---------- |  | ---------- | --- | ------ |  | - | - |  |  | - | ----- | 
|                               |  |           |       | Gross      |  | Gross      |     |       
|                               |  | Amortized |       | Unrealized |  | Unrealized |     | Market
|Available-for-Sale Securities: |  | Cost      |       | Gains      |  | Losses     |     | Value 
|                               |  |           |       |            |  |            |     |       
|Other                          |  | $         | 6,626 |            |  | $          | 308 |        |  | $ |  |  |  | $ | 6,934 | 
|                               |  |           |       |            |  |            |     |        |  |   |   |  |  |   |       | 
|                               |  | $         | 6,626 |            |  | $          | 308 |        |  | $ |  |  |  | $ | 6,934 | 
|                               |  |           |       |            |  |            |     |        |  |   |   |  |  |   |       | 

75



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

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

|                             |                              |           |       |            |  |            |   |        |  |   |   |   |  |   |       |       | 
|---------------------------- | ---------------------------- | --------- | ----- | ---------- |  | ---------- | - | ------ |  | - | - | - |  | - | ----- | ----- | 
|                             |                              |           |       | Gross      |  | Gross      |   |       
|                             |                              | Amortized |       | Unrealized |  | Unrealized |   | Market
|Held-to-Maturity Securities: |                              | Cost      |       | Gains      |  | Losses     |   | Value 
|                             |                              |           |       |            |  |            |   |       
|State Securities            |                              |           |       |            |  |            |   |        |  |   |   |   |  |   |       |      
|                             | Maturing in one year or less |           | $     | 576        |  |            | $ |       |  |   | $ |  |  |   | $     | 576   | 
|                             | Maturing in over five years  |           |       | 5,315      |  |            |   |       |  |   |   |  |  |   |       | 5,315 | 
|                             |                              |           |       |            |  |            |   |        |  |   |   |   |  |   |       |      
|                             |                              | $         | 5,891 |            |  | $          |  |        |  | $ |  |   |  | $ | 5,891 |      
|                             |                              |           |       |            |  |            |   |        |  |   |   |   |  |   |       |      

|                               |  |           |        |            |  |            |   |        |  |   |        |   |  |   |        | 
|------------------------------ |  | --------- | ------ | ---------- |  | ---------- | - | ------ |  | - | ------ | - |  | - | ------ | 
|                               |  |           |        | Gross      |  | Gross      |   |       
|                               |  | Amortized |        | Unrealized |  | Unrealized |   | Market
|Available-for-Sale Securities: |  | Cost      |        | Gains      |  | Losses     |   | Value 
|                               |  |           |        |            |  |            |   |       
|Money Funds                    |  | $         | 27,186 |            |  | $          |  |        |  | $ | (544   | ) |  | $ | 26,642 | 
|Other                          |  |           | 5,476  |            |  |            |  |        |  |   | (1,338 | ) |  |   | 4,138  | 
|                               |  |           |        |            |  |            |   |        |  |   |        |   |  |   |        | 
|                               |  | $         | 32,662 |            |  | $          |  |        |  | $ | (1,882 | ) |  | $ | 30,780 | 
|                               |  |           |        |            |  |            |   |        |  |   |        |   |  |   |        | 

The Company recognized $812,000 of losses from
the sale of debt securities during the period from
January 1, 2003 through September 25, 2003. 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 $190,000 and $468,000
during the periods from September 26, 2003 through
December 31, 2003 and January 1, 2003 through
September 25, 2003, respectively, and ($1.0) million
and $668,000 in 2002 and 2001, respectively.



|   |                                               
|-- | ----------------------------------------------
|7. | 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, 2003 (successor) 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:                       |  |         |      |           |  |                |           |            |  |             |      |  |  |   |        |  |  |   |        |  
|The Medicines Company               |  |         | MDCO |           |  |                | 1,185,320 |            |  |             | 2.5% |  |  | $ | 30,759 |  |  | $ | 34,920 |  
|Discovery Laboratories, Inc.        |  |         | DSCO |           |  |                | 1,359,567 |            |  |             | 4.6% |  |  |   | 9,789  |  |  |   | 14,262 |  
|Columbia Laboratories, Inc.         |  |         | COB  |           |  |                | 1,178,359 |            |  |             | 3.0% |  |  |   | 14,235 |  |  |   | 7,424  |  
|Derivative instruments (see Note 9) |  |         |      |           |  |                |           |            |  |             |      |  |  |   |       |  |  |   | (1,526 | )
|Other                               |  |         |      |           |  |                |           |            |  |             |      |  |  |   | 2,301  |  |  |   | 3,214  |  
|                                    |  |         |      |           |  |                |           |            |  |             |      |  |  |   |        |  |  |   |        |  
|Total Marketable Equity Securities  |  |         |      |           |  |                |           |            |  |             |      |  |  | $ | 57,084 |  |  | $ | 58,294 |  
|                                    |  |         |      |           |  |                |           |            |  |             |      |  |  |   |        |  |  |   |        |  

76



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

The Companys portfolio in such transactions
as of December 31, 2002 (predecessor) 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 | 
|                                   |  |         |      |           |  |                |           |            |  |             |      |  |  |   |        |  |  |   |        | 



---



|    |                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 recognized gains from the sale of
marketable equity securities of $209,000 and $24.0 million
for the periods from September 26, 2003 through
December 31, 2003 and January 1, 2003 through
September 25, 2003, respectively, and $14.1 million
and $22.9 million during and 2002 and 2001, respectively.
The Company recognized $2,000 and $66,000 in losses from the
sale of marketable equity securities during the period from
September 26, 2003 through December 31, 2003 and the
year ended December 31, 2002, respectively. Gross
unrealized gains totaled $1.2 million as of
December 31, 2003, $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 $787,000 and
$8.1 million for the periods from September 26, 2003
through December 31, 2003 and January 1, 2003 through
September 25, 2003, respectively, and ($10.1) million
and $81.3 million in 2002 and 2001, respectively. In
accordance with its policy to continually review declines in
fair value of the marketable equity securities for declines that
may be other than temporary, the Company also recognized losses
due to the impairment of marketable equity securities of
$282,000 for the period from January 1, 2003 through
September 25, 2003 and $335,000 and $338.8 million in
2002 and 2001, 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 (ENVOY), 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.



|   |                                                             
|-- | ------------------------------------------------------------
|8. | 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

77



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

Companys portfolio in such transactions as
of December 31, 2003 (successor) is as follows (in
thousands):

|                                                 |  |            |        |            |  |   |        | 
|------------------------------------------------ |  | ---------- | ------ | ---------- |  | - | ------ | 
|                                                 |  |            |        | Remaining 
|                                                 |  |            |        | Funding   
|Company                                          |  | Cost Basis |        | Commitment
|                                                 |  |            |        |           
|Venture capital funds                            |  | $          | 31,669 |            |  | $ | 16,746 | 
|Equity investments (six companies)               |  |            | 13,581 |            |  |   |       | 
|Convertible loans (three companies)              |  |            | 727    |            |  |   | 66     | 
|Loans (two companies)                            |  |            | 2,579  |            |  |   | 6,055  | 
|                                                 |  |            |        |            |  |   |        | 
|Total non-marketable equity securities and loans |  | $          | 48,556 |            |  | $ | 22,867 | 
|                                                 |  |            |        |            |  |   |        | 

The Companys portfolio in such transactions
as of December 31, 2002 (predecessor) is as follows
(in thousands):

|                                                 |  |            |        | 
|------------------------------------------------ |  | ---------- | ------ | 
|Company                                          |  | Cost Basis
|                                                 |  |           
|Venture capital funds                            |  | $          | 27,405 | 
|Equity investments (eight companies)             |  |            | 11,961 | 
|Convertible loans (five companies)               |  |            | 5,576  | 
|Loans (two companies)                            |  |            | 1,507  | 
|                                                 |  |            |        | 
|Total non-marketable equity securities and loans |  | $          | 46,449 | 
|                                                 |  |            |        | 

Included in the venture capital funds is
$9.8 million and $7.7 million at December 31,
2003 and 2002, respectively, which are managed by A.M.
Pappas & Associates, LLC whose chief executive officer
was a member of the Companys Board of Directors until
September 25, 2003. The Company also has remaining
commitments to these funds totaling $5.5 million as of
December 31, 2003.

Below is a table representing managements
best estimate as of December 31, 2003 of the amount and
timing of the above remaining funding commitments (in thousands):

|                      |  |      |        |      |  |       |       |  |  |   |        | 
|--------------------- |  | ---- | ------ | ---- |  | ----- | ----- |  |  | - | ------ | 
|                      |  | 2004 |        | 2005 |  | Total
|                      |  |      |        |      |  |      
|Venture capital funds |  | $    | 15,164 |      |  | $     | 1,582 |  |  | $ | 16,746 | 
|Convertible loans     |  |      | 66     |      |  |       |      |  |  |   | 66     | 
|Loans                 |  |      | 6,055  |      |  |       |      |  |  |   | 6,055  | 
|                      |  |      |        |      |  |       |       |  |  |   |        | 
|                      |  | $    | 21,285 |      |  | $     | 1,582 |  |  | $ | 22,867 | 
|                      |  |      |        |      |  |       |       |  |  |   |        | 

The amount and timing of such funding events are
subject to a number of different variables and may differ
materially from managements estimates.

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 reviews the carrying value of each
individual investment at each balance sheet date to determine
whether or not an other-than-temporary decline in fair value has
occurred. The Company employs alternative valuation techniques
including: (1) the review of financial statements including
assessments of liquidity, (2) the review of valuations
available to the Company prepared by independent third parties
used in raising capital, (3) the review of publicly
available information including press releases and
(4) direct communications with the investees
management, as appropriate. If the review

78



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

indicates that such a decline in fair value has
occurred, the Company adjusts the carrying value to the
estimated fair value of the investment and recognizes a loss for
the amount of the adjustment. The Company recognized
$1.2 million, $10.3 million, $4.0 million and
$9.2 million of losses due to such impairments in the
period from September 26, 2003 through December 31,
2003, the period from January 1, 2003 through
September 25, 2003, and in 2002 and 2001, respectively,
relating to non-marketable equity securities and loans mainly
due to declining financial condition of investees that was
deemed by management to be other-than-temporary.



|   |            
|-- | -----------
|9. | Derivatives

As of December 31, 2003, the Company had the
following derivative positions in securities of other issuers:
(1) conversion option positions that are embedded in
financing arrangements, (2) freestanding warrants to
purchase shares of common stock and (3) put and call
instruments to hedge the cash flow from the sale of certain
marketable securities.

As of December 31, 2003 and 2002, the
Company had funded five convertible loans with a carrying value
of approximately $727,000 and $5.6 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, 2003 and 2002, 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 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. The Company recognized
investment revenues of $2.6 million and $14.7 million
during the periods from September 26, 2003 through
December 31, 2003 and January 1, 2003 through
September 25, 2003, respectively, and $535,000 in 2002
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, 2003 and 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.

79



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

As of December 31, 2003, the Company had
entered into three zero-cost-collar transactions to hedge
certain future cash flows occurring in 2004. As these
transactions were entered into to hedge the risk of the
potential volatility in the cash flows resulting from the sales
of the underlying security during the first three quarters of
2004, these transactions are accounted for as a cash flow hedge.
As such, the effective portion of the gain or loss on the
derivative instrument is recorded as unrealized holding gains
(losses) on marketable equity securities included as a separate
component of shareholders equity. This hedge is deemed to
be perfectly effective under SFAS No. 133, as defined.
As of December 31, 2003, the Company recorded a gross
unrealized loss on these transactions of $1.5 million. Upon
expiration of the hedging instruments, all amounts recorded as
unrealized holding gains (losses) on marketable equity
securities included as a separate component of
shareholders equity will be reclassified into income. This
unrealized loss is shown as a reduction of the marketable equity
security balance on the accompanying balance sheet.



|    |                    
|--- | -------------------
|10. | Investment Revenues

The following table is a summary of investment
revenues (in thousands):

|                                             |                       |               |       |               |   |              |        |              |   |   |        |        |   |   |     |        |  
|-------------------------------------------- | --------------------- | ------------- | ----- | ------------- | - | ------------ | ------ | ------------ | - | - | ------ | ------ | - | - | --- | ------ | -
|                                             |                       | September 26, |       | January 1,    |   |              |        |             
|                                             |                       | 2003 through  |       | 2003 through  |   | Year ended   |        | Year ended  
|                                             |                       | December 31,  |       | September 25, |   | December 31, |        | December 31,
|                                             |                       | 2003          |       | 2003          |   | 2002         |        | 2001        
|                                             |                       |               |       |               |   |              |        |             
|                                             |                       | Successor     |       | Predecessor   |   | Predecessor  |        | Predecessor 
|Marketable equity and derivative securities: |                       |               |       |               |   |              |        |              |   |   |        |        |   |   |     |       
|                                             | Gross realized gains  |               | $     | 4,381         |   |              | $      | 38,724       |   |   | $      | 18,093 |   |   | $   | 14,394 |  
|                                             | Gross realized losses |               |       | (396          | ) |              |        |             |   |   |        | (92    | ) |   |     | (1,954 | )
|                                             | Impairment losses     |               |       |              |   |              |        | (282         | ) |   |        | (335   | ) |   |     | (6,066 | )
|Non-marketable equity securities and loans:  |                       |               |       |               |   |              |        |              |   |   |        |        |   |   |     |       
|                                             | Gross realized gains  |               |       |              |   |              |        |             |   |   |        |       |   |   |     | 2,197  |  
|                                             | Gross realized losses |               |       |              |   |              |        |             |   |   |        |       |   |   |     | (34    | )
|                                             | Impairment losses     |               |       | (1,225        | ) |              |        | (10,269      | ) |   |        | (3,962 | ) |   |     | (7,926 | )
|                                             |                       |               |       |               |   |              |        |              |   |   |        |        |   |   |     |       
|                                             |                       | $             | 2,760 |               |   | $            | 28,173 |              |   | $ | 13,704 |        |   | $ | 611 |       
|                                             |                       |               |       |               |   |              |        |              |   |   |        |        |   |   |     |       



|    |                                                       
|--- | ------------------------------------------------------
|11. | Investments in Unconsolidated Affiliates and
    Other

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. In September 2003, the Company acquired the remaining
interest in HRS for 71,724 shares of the Companys
Common Stock. The Company recorded the minority interests
pro rata share (approximately 33.33%) of HRS earnings from
October 2002 until the Company acquired the minority interest in
September 2003 in the accompanying statement of operations as
equity in losses of unconsolidated affiliates and other.

In September 2003, the Company acquired a
controlling interest in Pharmaplan Limited
(Pharmaplan) and, accordingly, the results of
operations for Pharmaplan and the assets and liabilities of
Pharmaplan are included in the results of operations and assets
and liabilities of the Company. The Company recorded the
minority interests pro rata share (approximately 50% at
December 31, 2003) of Pharmaplans earnings in the
accompanying statement of operations as equity in losses of
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

80



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

accompanying statement of operations as losses of
unconsolidated affiliates and other. The Company owns
approximately 41.0% at December 31, 2003.

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
having a historical cost basis of approximately
$112.1 million (including approximately $101.7 million
of basis in excess of the book value of the identifiable net
assets) and funded $10 million to Verispan. The net assets
contributed to Verispan primarily consisted of accounts
receivable, prepaid expense, property and equipment, trade
accounts payable, accrued expenses, unearned income, including
the basis in excess of the book value of the identifiable net
assets. 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 accounts for its investment in
Verispan under the equity method of accounting; therefore, 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. As of December 31,
2003 and 2002, the Company owns approximately 43.5% and 45%,
respectively, of Verispan. The Companys ownership
percentage may change from period to period to the extent new
equity partners are admitted to the joint venture. The Company
has recorded its investment in Verispan, approximately
$120.7 million at December 31, 2003 and 2002, as an
investment in unconsolidated affiliates.



|    |                                                
|--- | -----------------------------------------------
|12. | Goodwill and Identifiable Intangible
    Assets

The Company has allocated approximately
$451.5 million to intangible assets, of which approximately
$109.7 million is deemed to be indefinite-lived and,
accordingly, is not being amortized, based upon an allocation of
the purchase price of the assets acquired and the liabilities
assumed in the Transaction.

The following is a summary of identifiable
intangible assets (in thousands):

|                                |                                                                          |                         |         |                         |  |        |        |        |  |              |         |         |  |   |         |         |  |   |        |        |  |   |         |        | 
|------------------------------- | ------------------------------------------------------------------------ | ----------------------- | ------- | ----------------------- |  | ------ | ------ | ------ |  | ------------ | ------- | ------- |  | - | ------- | ------- |  | - | ------ | ------ |  | - | ------- | ------ | 
|                                |                                                                          |                         |         |                        
|                                |                                                                          | As of December 31, 2003 |         | As of December 31, 2002
|                                |                                                                          |                         |         |                        
|                                |                                                                          | Gross                   |         | Accumulated             |  | Net    |        | Gross  |  | Accumulated  |         | Net    
|                                |                                                                          | Amount                  |         | Amortization            |  | Amount |        | Amount |  | Amortization |         | Amount 
|                                |                                                                          |                         |         |                         |  |        |        |        |  |              |         |        
|                                |                                                                          |                         |         |                        
|                                |                                                                          | Successor               |         | Predecessor            
|Identifiable intangible assets: |                                                                          |                         |         |                         |  |        |        |        |  |              |         |         |  |   |         |         |  |   |        |        |  |   |         |       
|                                | Commercial rights and royalties, licenses and
    customer relationships |                         | $       | 207,829                 |  |        | $      | 14,079 |  |              | $       | 193,750 |  |   | $       | 81,889  |  |   | $      | 5,913  |  |   | $       | 75,976 | 
|                                | Trademarks, trade names and other                                        |                         |         | 164,720                 |  |        |        | 4,492  |  |              |         | 160,228 |  |   |         |        |  |   |        |       |  |   |         |       | 
|                                | Software and related assets                                              |                         |         | 65,859                  |  |        |        | 5,591  |  |              |         | 60,268  |  |   |         | 150,713 |  |   |        | 83,974 |  |   |         | 66,739 | 
|                                |                                                                          |                         |         |                         |  |        |        |        |  |              |         |         |  |   |         |         |  |   |        |        |  |   |         |       
|                                |                                                                          | $                       | 438,408 |                         |  | $      | 24,162 |        |  | $            | 414,246 |         |  | $ | 232,602 |         |  | $ | 89,887 |        |  | $ | 142,715 |       
|                                |                                                                          |                         |         |                         |  |        |        |        |  |              |         |         |  |   |         |         |  |   |        |        |  |   |         |       

Amortization expense associated with identifiable
intangible assets were as follows:

|                     |  |                    |              |                    |  |                   |              |                   |  |   |              |  |  |   |              | 
|-------------------- |  | ------------------ | ------------ | ------------------ |  | ----------------- | ------------ | ----------------- |  | - | ------------ |  |  | - | ------------ | 
|                     |  | September 26, 2003 |              | January 1, 2003    |  |                   |              |                  
|                     |  | through            |              | through            |  | Year ended        |              | Year ended       
|                     |  | December 31, 2003  |              | September 25, 2003 |  | December 31, 2002 |              | December 31, 2001
|                     |  |                    |              |                    |  |                   |              |                  
|                     |  | Successor          |              | Predecessor        |  | Predecessor       |              | Predecessor      
|Amortization expense |  | $                  | 25.0 million |                    |  | $                 | 27.8 million |                   |  | $ | 29.3 million |  |  | $ | 14.1 million | 

81



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

Estimated amortization expense for existing
identifiable intangible assets is targeted to be approximately
$80.7 million, $65.6 million, $34.0 million,
$24.6 million and $21.3 million for each of the years
in the five-year period ending December 31, 2008,
respectively. Estimated amortization expense can be affected by
various factors including future acquisitions or divestitures of
product and/or licensing and distribution rights.

The following is a summary of goodwill by segment
for the successor period from September 26, 2003 through
December 31, 2003 (in thousands):

|                                        |  |             |         |            |  |             |        |              |  |   |       |  |  |   |         |  
|--------------------------------------- |  | ----------- | ------- | ---------- |  | ----------- | ------ | ------------ |  | - | ----- |  |  | - | ------- | -
|                                        |  | Product     |         | Commercial |  | PharmaBio   |        |             
|                                        |  | Development |         | Services   |  | Development |        | Consolidated
|                                        |  |             |         |            |  |             |        |             
|Balance as of September 26, 2003        |  | $           |        |            |  | $           |       |              |  | $ |      |  |  | $ |        |  
|Add: Transaction                        |  |             | 111,500 |            |  |             | 61,712 |              |  |   | 2,646 |  |  |   | 175,858 |  
|Add: acquisitions                       |  |             | 5,431   |            |  |             | 39     |              |  |   |      |  |  |   | 5,470   |  
|Impact of foreign currency fluctuations |  |             |        |            |  |             | (1     | )            |  |   |      |  |  |   | (1      | )
|                                        |  |             |         |            |  |             |        |              |  |   |       |  |  |   |         |  
|Balance as of December 31, 2003         |  | $           | 116,931 |            |  | $           | 61,750 |              |  | $ | 2,646 |  |  | $ | 181,327 |  
|                                        |  |             |         |            |  |             |        |              |  |   |       |  |  |   |         |  

The following is a summary of goodwill by segment
for the predecessor period from January 1, 2003 through
September 25, 2003 (in thousands):

|                                        |  |             |        |            |  |             |        |              |  |   |       |  |  |   |        | 
|--------------------------------------- |  | ----------- | ------ | ---------- |  | ----------- | ------ | ------------ |  | - | ----- |  |  | - | ------ | 
|                                        |  | Product     |        | Commercial |  | PharmaBio   |        |             
|                                        |  | Development |        | Services   |  | Development |        | Consolidated
|                                        |  |             |        |            |  |             |        |             
|Balance as of December 31, 2002         |  | $           | 38,918 |            |  | $           | 31,215 |              |  | $ |      |  |  | $ | 70,133 | 
|Add: acquisition                        |  |             | 71     |            |  |             | 208    |              |  |   | 1,875 |  |  |   | 2,154  | 
|Impact of foreign currency fluctuations |  |             | 3,729  |            |  |             | 965    |              |  |   |      |  |  |   | 4,694  | 
|                                        |  |             |        |            |  |             |        |              |  |   |       |  |  |   |        | 
|Balance as of September 25, 2003        |  | $           | 42,718 |            |  | $           | 32,388 |              |  | $ | 1,875 |  |  | $ | 76,981 | 
|                                        |  |             |        |            |  |             |        |              |  |   |       |  |  |   |        | 

The following is a summary of goodwill by segment
for the predecessor period of the year ended December 31,
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: reclass to investments in unconsolidated
    affiliates |  |             |       |            |  |             |       |              |  |   | (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   |  
|                                                              |  |             |        |            |  |             |        |              |  |   |          |   |  |   |          |  

The decrease in goodwill during 2002 is primarily
a result of the formation of the Verispan joint venture.

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

82



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

goodwill. The following is a summary of reported
loss from continuing operations and loss from continuing
operations per share, adjusted to exclude goodwill amortization
expense (in thousands, except per share amounts):

|                                                        |         |                   |          |       |  
|------------------------------------------------------- | ------- | ----------------- | -------- | ----- | -
|                                                        |         | Year ended       
|                                                        |         | December 31, 2001
|                                                        |         |                  
|Loss from continuing operations                         |         | $                 | (175,873 | )    
|Add: goodwill amortization                              |         |                   | 7,765    |      
|Less: income tax benefit                                |         |                   | (2,562   | )    
|                                                        |         |                   |          |      
|Adjusted loss from continuing operations                |         | $                 | (170,670 | )    
|                                                        |         |                   |          |      
|Adjusted loss from continuing operations per
    share: |         |                   |          |      
|                                                        | Basic   |                   | $        | (1.44 | )
|                                                        | Diluted |                   |          | (1.44 | )



|    |                 
|--- | ----------------
|13. | Accrued Expenses

Accrued expenses consist of the following (in
thousands):

|                               |  |              |         |              |  |   |         | 
|------------------------------ |  | ------------ | ------- | ------------ |  | - | ------- | 
|                               |  | December 31, |         | December 31,
|                               |  | 2003         |         | 2002        
|                               |  |              |         |             
|Compensation and payroll taxes |  | $            | 104,541 |              |  | $ | 77,354  | 
|Restructuring                  |  |              | 15,743  |              |  |   | 8,467   | 
|Transaction                    |  |              | 32,900  |              |  |   |        | 
|Other                          |  |              | 102,164 |              |  |   | 94,913  | 
|                               |  |              |         |              |  |   |         | 
|                               |  | $            | 255,348 |              |  | $ | 180,734 | 
|                               |  |              |         |              |  |   |         | 



|    |                    
|--- | -------------------
|14. | Credit Arrangements

The following is a summary of the credit
facilities available to the Company at December 31, 2003:

|                                                                                                                                |  |                                                                                                          
|------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------
|Facility                                                                                                                        |  | Interest Rates                                                                                           
|                                                                                                                                |  |                                                                                                          
|$75.0 million                                                                                                                   |  | Either at LIBOR (1.17% at December 31, 2003)
    plus 3.25% or ABR (4.0% at December 31, 2003) plus 2.25%
|£1.5 million (approximately
    $2.7 million) general banking facility with a 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, 2003 and 2002.

83



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

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

|                                                                                                                              |  |              |         |              |  |   |        |  
|----------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | ------------ |  | - | ------ | -
|                                                                                                                              |  | December 31, |         | December 31,
|                                                                                                                              |  | 2003         |         | 2002        
|                                                                                                                              |  |              |         |             
|                                                                                                                              |  | Successor    |         | Predecessor 
|10% Senior Subordinated Notes due 2013                                                                                        |  | $            | 450,000 |              |  | $ |       |  
|Senior Term Loan (Either LIBOR (1.17% at
    December 31, 2003) plus 4.25% or ABR (4.0% at
    December 31, 2003) plus 3.25%) |  |              | 309,225 |              |  |   |       |  
|Missouri tax incentive bonds due October 2009
    (6.7% annual interest rate)                                                 |  |              | 3,789   |              |  |   | 4,288  |  
|Other notes payable                                                                                                           |  |              | 5,926   |              |  |   | 7,269  |  
|                                                                                                                              |  |              |         |              |  |   |        |  
|                                                                                                                              |  |              | 768,940 |              |  |   | 11,557 |  
|Less: current portion                                                                                                         |  |              | (5,583  | )            |  |   | (3,347 | )
|                                                                                                                              |  |              |         |              |  |   |        |  
|                                                                                                                              |  | $            | 763,357 |              |  | $ | 8,210  |  
|                                                                                                                              |  |              |         |              |  |   |        |  

Maturities of long-term debt and obligations at
December 31, 2003 are as follows (in thousands):

|           |  |   |         | 
|---------- |  | - | ------- | 
|2004       |  | $ | 5,583   | 
|2005       |  |   | 5,370   | 
|2006       |  |   | 5,038   | 
|2007       |  |   | 4,185   | 
|2008       |  |   | 3,907   | 
|Thereafter |  |   | 744,857 | 
|           |  |   |         | 
|           |  | $ | 768,940 | 
|           |  |   |         | 

The estimated fair value of the long-term debt
was $814.9 million and $11.6 million at
December 31, 2003 and 2002, respectively.

In connection with the long-term debt agreements,
the Company has net debt issuance costs of approximately
$25.7 million and $1.3 million as of December 31,
2003 and 2002, respectively, included as an other asset in the
accompanying balance sheets. The debt issuance costs are being
amortized into interest expense on an effective interest method
over the term of the debt arrangements, which range from five
years to 20 years.

The Companys various long-term debt
agreements contain usual and customary negative covenants that,
among other things, place limitations on its ability to
(i) incur additional indebtedness, including capital leases
and liens; (ii) pay dividends and repurchase its capital
stock; (iii) enter into mergers, consolidations,
acquisitions, asset dispositions and sale-leaseback
transactions; (iv) make capital expenditures and
(v) issue capital stock of its subsidiaries. The agreements
also contain financial covenants requiring the Company to
maintain minimum interest coverage ratios and maximum
consolidated leverage and senior leverage ratios, as defined
therein.

84



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)



|    |       
|--- | ------
|15. | 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. Rental expenses under these agreements
were approximately:

|                                 |  |                    |              |                    |  |                   |              |                   |  |   |              |  |  |   |              | 
|-------------------------------- |  | ------------------ | ------------ | ------------------ |  | ----------------- | ------------ | ----------------- |  | - | ------------ |  |  | - | ------------ | 
|                                 |  | September 26, 2003 |              | January 1, 2003    |  |                   |              |                  
|                                 |  | through            |              | through            |  | Year ended        |              | Year ended       
|                                 |  | December 31, 2003  |              | September 25, 2003 |  | December 31, 2002 |              | December 31, 2001
|                                 |  |                    |              |                    |  |                   |              |                  
|                                 |  | Successor          |              | Predecessor        |  | Predecessor       |              | Predecessor      
|Rental expenses under agreements |  | $                  | 18.9 million |                    |  | $                 | 57.0 million |                   |  | $ | 75.9 million |  |  | $ | 76.3 million | 

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.

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, 2003 (in thousands):

|                                      |  |         |         |           |  |   |         | 
|------------------------------------- |  | ------- | ------- | --------- |  | - | ------- | 
|                                      |  | Capital |         | Operating
|                                      |  | Leases  |         | Leases   
|                                      |  |         |         |          
|2004                                  |  | $       | 15,939  |           |  | $ | 61,866  | 
|2005                                  |  |         | 7,759   |           |  |   | 42,688  | 
|2006                                  |  |         | 1,825   |           |  |   | 31,510  | 
|2007                                  |  |         | 679     |           |  |   | 25,258  | 
|2008                                  |  |         | 266     |           |  |   | 17,579  | 
|Thereafter                            |  |         | 132     |           |  |   | 74,235  | 
|                                      |  |         |         |           |  |   |         | 
|Total minimum lease payments          |  |         | 26,600  |           |  | $ | 253,136 | 
|                                      |  |         |         |           |  |   |         | 
|Amounts representing interest         |  |         | 1,226   |           |  |   |         | 
|                                      |  |         |         |           |  |   |         | 
|Present value of net minimum payments |  |         | 25,374  |           |  |   |         | 
|Current portion                       |  |         | (15,103 | )         |  |   |         | 
|                                      |  |         |         |           |  |   |         | 
|Long-term capital lease obligations   |  | $       | 10,271  |           |  |   |         | 
|                                      |  |         |         |           |  |   |         | 

During each of the last five years, the Company
entered into sale-leaseback transactions of personal property
with the city of Kansas City. Funding for these transactions was
provided by the Companys purchase of Kansas City
industrial development bonds. As such, the Company has a
corresponding asset and liability, which are netted in the
accompanying balance sheets as right of setoff exists. These
transactions approximated the carrying value of the assets;
accordingly, no gains or losses were recognized as a result of
these transactions.

The Company uses the facilities of several
buildings in South Africa owned and operated by two South
African entities. Dr. Greeff, an executive officer of the
Company, serves on the board of directors of each of these
entities and his trust owns 40% of the outstanding shares of
stock of each of these entities. The Company leases these
buildings from these entities pursuant to separate lease
agreements on market standard terms. The initial term of each of
the three leases is six years and four months, expiring in March
2006, three years and one month, expiring in March 2005, and
five years, expiring in March 2006, respectively, and each lease
is renewable for one five-year term. Under the terms of the
lease arrangements covering those facilities, the Company paid
these entities approximately $790,000 in rent during 2003.

85



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)



|    |                              
|--- | -----------------------------
|16. | 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. On
September 27, 2003, the parties entered into a settlement
memorandum following a mediated settlement conference. The
parties are in the process of preparing final settlement
documents, which would memorialize payments by several
defendants to individual study participants or their
representatives. The Company believes that its contribution will
be covered by insurance or, in the alternative, will not
represent a material amount to the Company.

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 for
coverage years 2000-2001 and 2001-2002, and Federal, the
Companys excess liability carrier for coverage years
2000-2001 and 2001-2002, seek to rescind the policies issued to
the Company 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 class action lawsuit filed
on January 26, 2001 and described above 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 (AON)
as a counterclaim defendant, as an alternative to the
Companys position that Federal and Chubb are liable under
the policies. In order to preserve its rights, on March 27,
2003, the Company also filed a separate action against AON in
the United States District Court for the Middle District of
North Carolina. The Company believes the allegations made by
Federal and Chubb are without merit and is defending this case
vigorously.

In October 2002, seven purported class action
lawsuits were filed in Superior Court, Durham County, North
Carolina by certain of the Companys shareholders seeking
to enjoin the consummation of the initial transaction proposed
by Pharma Services Company (a company controlled 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 named as defendants
Dr. Gillings, other members of the Companys Board of
Directors, the Company and, in some cases Pharma Services
Company. The complaints alleged, among other things, a breach of
fiduciary duties by the directors with respect to the proposal.
The complaints sought to enjoin the transaction proposed by
Pharma Services Company, and the plaintiffs sought 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 provided notice of a change-of-control
transaction.

86



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

On March 28, 2003, the Court entered an
Order Maintaining the Status Quo, which continued its prior Case
Management Order in all respects until the earlier of a date
selected by the Court or until the Company provided the notice
contemplated by the Case Management Order. On April 10,
2003, the Companys Board of Directors approved the merger
agreement with Pharma Services which provided for payment to the
Companys shareholders of $14.50 per share in cash. On
June 25, 2003, counsel for the parties signed a Memorandum
of Understanding, in which they agreed upon the terms of a
settlement of the litigation, which would include the dismissal
with prejudice of all claims against all defendants including
the Company and the Companys Board of Directors. On
August 28, 2003, lead counsel for the plaintiffs and
counsel for the defendants executed a formal Stipulation and
Agreement of Compromise, Settlement and Release (the
Stipulation of Settlement). On August 29, 2003,
the Court entered an Order for Notice and Hearing on Settlement
of Class Action (Order for Notice) and a Notice
of Pendency of Class Action, Preliminary and Proposed
Class Action Certification, Proposed Settlement of
Class Action, Settlement Hearing and Right to Appear (the
Class Notice). The Class Notice set a
hearing date of October 10, 2003 (the Settlement
Hearing) to determine whether the Court should approve the
settlement as fair, adequate and in the best interest of the
settlement class, end the action, and to consider other matters
including a request by plaintiffs counsel for
attorneys fees and reimbursement of costs, in an amount
not to exceed a total of $450,000. In accordance with the terms
of the Order of Notice, the Company mailed the Class Notice to
the record holders of the Companys Common Stock and
options, as of the record date of August 19, 2003. A
special meeting of the shareholders was held on
September 25, 2003, at which time the shareholders approved
the proposed transaction and the merger was consummated. On
October 10, 2003, the Court certified a class for purposes
of the settlement, approved the settlement as fair and
reasonable and entered an Order and Final Judgment dismissing
the lawsuit with prejudice. The Court also awarded
plaintiffs counsel $450,000 in attorneys fees and
costs, which have been paid pursuant to the terms of the
settlement. No other payments are required from the Company or
any other party under the terms of the settlement and the
Courts Order.

On June 13, 2003, ENVOY and Federal filed
suit against the Company, in the United States District Court
for the Middle District of Tennessee. One or both plaintiffs in
this case have alleged claims for breach of contract,
contractual subrogation, equitable subrogation, and equitable
contribution. Plaintiffs reached settlement in principle, in the
amount of $11 million, of the case pending in the same
court captioned In Re Envoy Corporation Securities Litigation,
Case No. 3-98-0760 (the Envoy Securities
Litigation). Plaintiffs claim that the Company is
responsible for payment of the settlement amount and associated
fees and costs in the Envoy Securities Litigation based on
merger and settlement agreements between WebMD, ENVOY and the
Company. The Company has filed a motion to dismiss the suit, and
the plaintiffs have filed motions for summary judgment. These
motions are pending before the court. All parties have agreed to
a stay of discovery. The Company believes that the allegations
made by ENVOY and Federal are without merit and intends to
defend the case vigorously.

The Company also is 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 for 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.

87



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)



|    |                     
|--- | --------------------
|17. | Shareholders Equity

The Company is authorized to issue
125 million shares of common stock, $.01 per share par
value. At December 31, 2003, all 125 million common
shares of $.01 par value were outstanding.

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. The Company did not enter into any
agreements to repurchase its common stock during the period of
January 1, 2003 through September 25, 2003.

In November 1999, the Board of Directors declared
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. In connection with the Transaction, the
Companys Board of Directors approved an amendment to the
Amended and Restated Rights Agreement, dated as of
April 10, 2003, by and between the Company and the Rights
Agent (the Amendment). The Amendment provides that
(i) neither Pharma Services, Acquisition Corp., nor any of
their affiliates, will be deemed to be an Acquiring Person (as
such term is defined in the Amended and Restated Rights
Agreement), (ii) certain defined triggering
events will not occur, (iii) the Rights will not
separate from the common stock, and (iv) the Rights will
not become exercisable, in each case as a result of the
execution, delivery or performance of the Transaction, the
public announcement thereof, or the consummation of the
Transaction. As described above, in connection with the
Transaction, Pharma Services paid $14.50 in cash for each
outstanding share of the Companys Common Stock, including
the Rights attached thereto, except for shares held by Pharma
Services and Acquisition Corp.



|    |                       
|--- | ----------------------
|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.

Because the original acquisition of ENVOY
qualified as a tax-free reorganization, the Companys tax
basis in the acquisition is allowed to be determined by
substituting the tax basis of the previous

88



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

shareholders of ENVOY. However, when the Company
sold ENVOY to WebMD during 2000, the tax basis of the previous
shareholders was not available to the Company since ENVOY had
been a publicly traded corporation at the time of the original
acquisition. Therefore, the Company had to estimate its tax
basis in ENVOY by reviewing financial statements, tax returns
and other public documents which were available to the Company
at that time. The Company used the estimated tax basis to
calculate the extraordinary gain on the sale of ENVOY, net of
income taxes. In September 2001, the Company received the
results of a tax basis study completed by its external tax
advisors, which was prepared so that the Company could prepare
and file its 2000 U.S. Corporate income tax return. Based
on this study, the Company adjusted its estimate of its tax
basis in ENVOY, resulting in an approximate $142.0 million
reduction in income taxes. This change in estimate resulted in
an increase for the same amount in the extraordinary gain on the
sale of ENVOY.

In January 2004, the Company received a
communication from the Internal Revenue Service proposing an
increase in its income taxes owed for 2000 by approximately
$153.1 million. The increase relates to the Internal
Revenue Service challenging the Companys method for
determining the basis it applied to the sale of ENVOY. The
Company is contesting the proposed increase.

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 canceled. The Company recorded an $83.2 million
gain from the settlement of litigation during 2001.



|    |                                                   
|--- | --------------------------------------------------
|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 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

89



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

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 November 2003, the Company acquired Biomedical
Systems Group (BSG), a clinical development services
resource management company in Spain, for a purchase price of
approximately $6.9 million including $3.4 million in
cash. Under the purchase method of accounting, results of BSG
are included in the Companys results of operations as of
the acquisition date and the assets and liabilities of BSG were
recorded at their respective fair values. In connection with the
BSG acquisition, the Company recorded approximately
$5.4 million of goodwill. The former shareholders of BSG
may receive additional cash consideration of up to
3.0 million euros (approximately $3.8 million) during
2004 and 2005 if certain revenue and backlog targets are met.
The acquisition did not have a material impact on the financial
position or results of operations for the Company.

Prior to the Transaction, in September 2003, the
Company acquired, for a purchase price of approximately
$3.5 million including $1.2 million in cash, a
controlling interest in Pharmaplan, a company headquartered in
South Africa. Under the purchase method of accounting, the
results of Pharmaplan are included in the Companys results
of operations as of the acquisition date and the assets and
liabilities were recorded at their respective fair values. In
connection with the Pharmaplan acquisition, the Company recorded
approximately $1.9 million of goodwill. The acquisition did
not have a material impact on the financial position or results
of operations of the Company.

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. In
September 2003, the Company acquired the remaining interest in
HRS for 71,724 shares of the Companys Common Stock.
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 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 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.

90



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

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

In connection with the Transaction, the Company
adopted a restructuring plan (2003 Plan). As part of
this plan, approximately 211 positions are to be eliminated
mostly in Europe and the United States. As of December 31,
2003, 25 individuals had been terminated.

As of December 31, 2003, the following
amounts were recorded (in thousands):

Activity September 26, 2003 through
December 31, 2003

|                            |  |               |   |           |  |             |       |              |  |   |        |   |  |   |       | 
|--------------------------- |  | ------------- | - | --------- |  | ----------- | ----- | ------------ |  | - | ------ | - |  | - | ----- | 
|                            |  | Balance at    |   |           |  | 2003 Plan   |       | Balance at  
|                            |  | September 25, |   | 2003 Plan |  | Write-Offs/ |       | December 31,
|                            |  | 2003          |   | Accrual   |  | Payments    |       | 2003        
|                            |  |               |   |           |  |             |       |             
|Severance and related costs |  | $             |  |           |  | $           | 8,669 |              |  | $ | (1,118 | ) |  | $ | 7,551 | 
|Asset write-offs            |  |               |  |           |  |             | 332   |              |  |   | (332   | ) |  |   |      | 
|Exit costs                  |  |               |  |           |  |             | 219   |              |  |   | (54    | ) |  |   | 165   | 
|                            |  |               |   |           |  |             |       |              |  |   |        |   |  |   |       | 
|                            |  | $             |  |           |  | $           | 9,220 |              |  | $ | (1,504 | ) |  | $ | 7,716 | 
|                            |  |               |   |           |  |             |       |              |  |   |        |   |  |   |       | 

During the period from July 1, 2003 through
September 25, 2003 in connection with the Transaction, the
Company reviewed its estimates of restructuring plans adopted
during 2002, 2001 and 2000. This review resulted in a decrease
of $1.0 million and $310,000 in severance payments for a
plan adopted in 2002 and 2001, respectively. The decrease in
severance payments was a result of the number of actual
voluntary employee terminations exceeding the Companys
estimates. In addition, there was an increase of
$6.4 million and $421,000 in exit costs for abandoned
leased facilities for a plan adopted in 2001 and 2000,
respectively. The increase was due to several factors including:
(1) an increase in managements previously estimated
time required to sublet, (2) a decrease in the expected
price per square foot to sublet or (3) an increase in the
estimated cost to otherwise terminate the Companys
obligation under those leases brought about by prolonged
stagnant conditions in local real estate markets.

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
$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,
2003, 78 individuals have been terminated.

91



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

As of December 31, 2003, the following
amounts were recorded (in thousands):

Activity September 26, 2003 through
December 31, 2003

|           |  |               |     |             |  |              |    |   |  |   |     | 
|---------- |  | ------------- | --- | ----------- |  | ------------ | -- | - |  | - | --- | 
|           |  | Balance at    |     | 2002 Plan   |  | Balance at  
|           |  | September 25, |     | Write-Offs/ |  | December 31,
|           |  | 2003          |     | Payments    |  | 2003        
|           |  |               |     |             |  |             
|Exit costs |  | $             | 134 |             |  | $            | (3 | ) |  | $ | 131 | 
|           |  |               |     |             |  |              |    |   |  |   |     | 
|           |  | $             | 134 |             |  | $            | (3 | ) |  | $ | 131 | 
|           |  |               |     |             |  |              |    |   |  |   |     | 

Activity January 1, 2003 through
September 25, 2003

|                            |  |              |       |           |  |         |        |             |  |               |       |  |  |   |        |   |  |   |     | 
|--------------------------- |  | ------------ | ----- | --------- |  | ------- | ------ | ----------- |  | ------------- | ----- |  |  | - | ------ | - |  | - | --- | 
|                            |  | Balance at   |       |           |  |         |        | 2002 Plan   |  | Balance at   
|                            |  | December 31, |       |           |  | Revised |        | Write-Offs/ |  | September 25,
|                            |  | 2002         |       | Revisions |  | Accrual |        | Payments    |  | 2003         
|                            |  |              |       |           |  |         |        |             |  |              
|Severance and related costs |  | $            | 2,066 |           |  | $       | (1,042 | )           |  | $             | 1,024 |  |  | $ | (1,024 | ) |  | $ |    | 
|Exit costs                  |  |              | 154   |           |  |         |       |             |  |               | 154   |  |  |   | (20    | ) |  |   | 134 | 
|                            |  |              |       |           |  |         |        |             |  |               |       |  |  |   |        |   |  |   |     | 
|                            |  | $            | 2,220 |           |  | $       | (1,042 | )           |  | $             | 1,178 |  |  | $ | (1,044 | ) |  | $ | 134 | 
|                            |  |              |       |           |  |         |        |             |  |               |       |  |  |   |        |   |  |   |     | 

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

Activity Year Ended December 31,
2002

|                            |  |              |   |           |  |             |       |              |  |   |        |   |  |   |       | 
|--------------------------- |  | ------------ | - | --------- |  | ----------- | ----- | ------------ |  | - | ------ | - |  | - | ----- | 
|                            |  | Balance at   |   |           |  | 2002 Plan   |       | Balance at  
|                            |  | December 31, |   | 2002 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, 2003,
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.

92



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

As of December 31, 2003, the following
amounts were recorded (in thousands):

Activity September 26, 2003 through
December 31, 2003

|           |  |               |       |             |  |              |      |   |  |   |       | 
|---------- |  | ------------- | ----- | ----------- |  | ------------ | ---- | - |  | - | ----- | 
|           |  | 2001 B Plan   |       |             |  |             
|           |  | Balance at    |       |             |  | Balance at  
|           |  | September 25, |       | 2001 B Plan |  | December 31,
|           |  | 2003          |       | Payment     |  | 2003        
|           |  |               |       |             |  |             
|Exit costs |  | $             | 8,201 |             |  | $            | (569 | ) |  | $ | 7,632 | 
|           |  |               |       |             |  |              |      |   |  |   |       | 
|           |  | $             | 8,201 |             |  | $            | (569 | ) |  | $ | 7,632 | 
|           |  |               |       |             |  |              |      |   |  |   |       | 

Activity January 1, 2003 through
September 25, 2003

|                            |  |              |       |              |  |         |       |             |  |               |        |  |  |   |        |   |  |   |       | 
|--------------------------- |  | ------------ | ----- | ------------ |  | ------- | ----- | ----------- |  | ------------- | ------ |  |  | - | ------ | - |  | - | ----- | 
|                            |  | 2001 B Plan  |       |              |  |         |       |             |  |              
|                            |  | Balance at   |       |              |  |         |       |             |  | Balance at   
|                            |  | December 31, |       | Revisions to |  | Revised |       | 2001 B Plan |  | September 25,
|                            |  | 2002         |       | 2001 B Plan  |  | Accrual |       | Payment     |  | 2003         
|                            |  |              |       |              |  |         |       |             |  |              
|Severance and related costs |  | $            | 1,306 |              |  | $       | (310  | )           |  | $             | 996    |  |  | $ | (996   | ) |  | $ |      | 
|Exit costs                  |  |              | 3,381 |              |  |         | 6,403 |             |  |               | 9,784  |  |  |   | (1,583 | ) |  |   | 8,201 | 
|                            |  |              |       |              |  |         |       |             |  |               |        |  |  |   |        |   |  |   |       | 
|                            |  | $            | 4,687 |              |  | $       | 6,093 |             |  | $             | 10,780 |  |  | $ | (2,579 | ) |  | $ | 8,201 | 
|                            |  |              |       |              |  |         |       |             |  |               |        |  |  |   |        |   |  |   |       | 

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

Activity Year Ended December 31,
2002

|                            |  |              |        |              |  |             |        |              |  |   |         |   |  |   |       | 
|--------------------------- |  | ------------ | ------ | ------------ |  | ----------- | ------ | ------------ |  | - | ------- | - |  | - | ----- | 
|                            |  | 2001 B Plan  |        |              |  |             |        |             
|                            |  | Balance at   |        |              |  |             |        | Balance at  
|                            |  | December 31, |        | Revisions to |  | 2001 B Plan |        | December 31,
|                            |  | 2001         |        | 2001 B 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 | 
|                            |  |              |        |              |  |             |        |              |  |   |         |   |  |   |       | 

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

Activity Year Ended December 31,
2001

|                            |  |             |       |             |  |         |        |             |  |          |        |              |  |   |        |   |  |   |         |   |  |   |        | 
|--------------------------- |  | ----------- | ----- | ----------- |  | ------- | ------ | ----------- |  | -------- | ------ | ------------ |  | - | ------ | - |  | - | ------- | - |  | - | ------ | 
|                            |  |             |       |             |  |         |        |             |  | 2001 B   |        |             
|                            |  |             |       |             |  |         |        |             |  | Plan     |        |             
|                            |  |             |       |             |  |         |        |             |  | Write-   |        | Balance at  
|                            |  | 2001 A Plan |       | 2001 B Plan |  | Total   |        | 2001 A Plan |  | offs/    |        | December 31,
|                            |  | Accrual     |       | Accrual     |  | Accrual |        | Payments    |  | 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.

93



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

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, 2003, 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, 2003, the following
amounts were recorded (in thousands):

Activity September 26, 2003 through
December 31, 2003

|                            |  |               |     |               |  |                |     |              |  |   |      |   |  |   |     | 
|--------------------------- |  | ------------- | --- | ------------- |  | -------------- | --- | ------------ |  | - | ---- | - |  | - | --- | 
|                            |  | Balance at    |     |               |  |                |     | Balance at  
|                            |  | September 25, |     | January 2000  |  | Follow-On Plan |     | December 31,
|                            |  | 2003          |     | Plan Payments |  | Payments       |     | 2003        
|                            |  |               |     |               |  |                |     |             
|Severance and related costs |  | $             | 40  |               |  | $              | (24 | )            |  | $ |     |   |  | $ | 16  | 
|Exit costs                  |  |               | 421 |               |  |                |    |              |  |   | (173 | ) |  |   | 248 | 
|                            |  |               |     |               |  |                |     |              |  |   |      |   |  |   |     | 
|                            |  | $             | 461 |               |  | $              | (24 | )            |  | $ | (173 | ) |  | $ | 264 | 
|                            |  |               |     |               |  |                |     |              |  |   |      |   |  |   |     | 

Activity January 1, 2003 through
September 25, 2003

|                            |  |              |       |              |  |         |     |               |  |               |       |  |  |   |        |   |  |   |     | 
|--------------------------- |  | ------------ | ----- | ------------ |  | ------- | --- | ------------- |  | ------------- | ----- |  |  | - | ------ | - |  | - | --- | 
|                            |  | Balance at   |       | Revisions to |  |         |     |               |  | Balance at   
|                            |  | December 31, |       | January      |  | Revised |     | January 2000  |  | September 25,
|                            |  | 2002         |       | 2000 Plan    |  | Accrual |     | Plan Payments |  | 2003         
|                            |  |              |       |              |  |         |     |               |  |              
|Severance and related costs |  | $            | 117   |              |  | $       |    |               |  | $             | 117   |  |  | $ | (77    | ) |  | $ | 40  | 
|Exit costs                  |  |              | 1,443 |              |  |         | 421 |               |  |               | 1,864 |  |  |   | (1,443 | ) |  |   | 421 | 
|                            |  |              |       |              |  |         |     |               |  |               |       |  |  |   |        |   |  |   |     | 
|                            |  | $            | 1,560 |              |  | $       | 421 |               |  | $             | 1,981 |  |  | $ | (1,520 | ) |  | $ | 461 | 
|                            |  |              |       |              |  |         |     |               |  |               |       |  |  |   |        |   |  |   |     | 

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

Activity Year Ended December 31,
2002

|                            |  |              |       |              |  |              |     |         |  |               |       |                |  |              |       |  |  |   |        |   |  |   |        |   |  |   |       | 
|--------------------------- |  | ------------ | ----- | ------------ |  | ------------ | --- | ------- |  | ------------- | ----- | -------------- |  | ------------ | ----- |  |  | - | ------ | - |  | - | ------ | - |  | - | ----- | 
|                            |  | Balance at   |       | Revisions to |  | Revisions to |     |         |  |               |       |                |  | Balance at  
|                            |  | December 31, |       | January      |  | Follow-On    |     | Revised |  | January 2000  |       | Follow-On 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 | 
|                            |  |              |       |              |  |              |     |         |  |               |       |                |  |              |       |  |  |   |        |   |  |   |        |   |  |   |       | 

94



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

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

Activity Year Ended December 31,
2001

|                            |  |              |        |              |  |         |       |               |  |                |        |              |  |   |        |   |  |   |        |   |  |   |       | 
|--------------------------- |  | ------------ | ------ | ------------ |  | ------- | ----- | ------------- |  | -------------- | ------ | ------------ |  | - | ------ | - |  | - | ------ | - |  | - | ----- | 
|                            |  | Balance at   |        | Revisions to |  |         |       |               |  |                |        | Balance at  
|                            |  | December 31, |        | January      |  | Revised |       | January 2000  |  | 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 | 
|                            |  |              |        |              |  |         |       |               |  |                |        |              |  |   |        |   |  |   |        |   |  |   |       | 



|    |             
|--- | ------------
|22. | Income Taxes

As a result of the September 25, 2003
Transaction, the net book values of the Companys assets
and liabilities have been reestablished. Accordingly, deferred
income taxes have been provided at December 31, 2003 based
upon these reestablished values.

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

|                            |                   |               |        |               |   |              |        |              |   |   |        |         |   |   |          |          |  
|--------------------------- | ----------------- | ------------- | ------ | ------------- | - | ------------ | ------ | ------------ | - | - | ------ | ------- | - | - | -------- | -------- | -
|                            |                   | September 26, |        | January 1,    |   |              |        |             
|                            |                   | 2003 through  |        | 2003 through  |   | Year ended   |        | Year ended  
|                            |                   | December 31,  |        | September 25, |   | December 31, |        | December 31,
|                            |                   | 2003          |        | 2003          |   | 2002         |        | 2001        
|                            |                   |               |        |               |   |              |        |             
|                            |                   | Successor     |        | Predecessor   |   | Predecessor  |        | Predecessor 
|Current:                    |                   |               |        |               |   |              |        |              |   |   |        |         |   |   |          |         
|                            | Federal           |               | $      | 4,482         |   |              | $      | (429         | ) |   | $      | 15,732  |   |   | $        | 13,130   |  
|                            | State             |               |        | 1,735         |   |              |        | 7,668        |   |   |        | 7,117   |   |   |          | 1,196    |  
|                            | Foreign           |               |        | 8,126         |   |              |        | 22,953       |   |   |        | 18,258  |   |   |          | 17,617   |  
|                            |                   |               |        |               |   |              |        |              |   |   |        |         |   |   |          |         
|                            |                   |               | 14,343 |               |   |              | 30,192 |              |   |   | 41,107 |         |   |   | 31,943   |         
|                            |                   |               |        |               |   |              |        |              |   |   |        |         |   |   |          |         
|Deferred expense (benefit): |                   |               |        |               |   |              |        |              |   |   |        |         |   |   |          |         
|                            | Federal and state |               |        | (398          | ) |              |        | 3,639        |   |   |        | 11,014  |   |   |          | (109,228 | )
|                            | Foreign           |               |        | (3,233        | ) |              |        | (5,647       | ) |   |        | (10,694 | ) |   |          | (9,338   | )
|                            |                   |               |        |               |   |              |        |              |   |   |        |         |   |   |          |         
|                            |                   |               | (3,631 | )             |   |              | (2,008 | )            |   |   | 320    |         |   |   | (118,566 | )       
|                            |                   |               |        |               |   |              |        |              |   |   |        |         |   |   |          |         
|                            |                   | $             | 10,712 |               |   | $            | 28,184 |              |   | $ | 41,427 |         |   | $ | (86,623  | )       
|                            |                   |               |        |               |   |              |        |              |   |   |        |         |   |   |          |         

The Company has allocated directly to additional
paid-in capital approximately $3.2 million in the period
from January 1, 2003 through September 25, 2003,
$857,000 in 2002, and $15.9 million in 2001 related to the
tax benefit from non-qualified stock options exercised.

95



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

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):

|                                                                     |  |               |        |               |  |              |        |              |  |   |        |   |  |   |         |  
|-------------------------------------------------------------------- |  | ------------- | ------ | ------------- |  | ------------ | ------ | ------------ |  | - | ------ | - |  | - | ------- | -
|                                                                     |  | September 26, |        | January 1,    |  |              |        |             
|                                                                     |  | 2003 through  |        | 2003 through  |  | Year ended   |        | Year ended  
|                                                                     |  | December 31,  |        | September 25, |  | December 31, |        | December 31,
|                                                                     |  | 2003          |        | 2003          |  | 2002         |        | 2001        
|                                                                     |  |               |        |               |  |              |        |             
|                                                                     |  | Successor     |        | Predecessor   |  | Predecessor  |        | Predecessor 
|Federal income tax provision (benefit) at
    statutory rate         |  | $             | 1,188  |               |  | $            | 22,869 |              |  | $ | 43,281 |   |  | $ | (91,874 | )
|State and local income taxes, net of federal
    benefit (detriment) |  |               | (137   | )             |  |              | 1,482  |              |  |   | 1,764  |   |  |   | (1,407  | )
|Non-deductible expenses and transaction costs                        |  |               | 572    |               |  |              | 4,943  |              |  |   |       |   |  |   | 6,337   |  
|Deferred taxes recorded on foreign earnings                          |  |               | 6,566  |               |  |              |       |              |  |   |       |   |  |   |        |  
|Foreign earnings taxed at different rates                            |  |               | (2,469 | )             |  |              | (749   | )            |  |   | (4,656 | ) |  |   | (3,208  | )
|Losses not utilized                                                  |  |               |       |               |  |              |       |              |  |   |       |   |  |   | 911     |  
|Acquisition costs                                                    |  |               | 4,694  |               |  |              |       |              |  |   |       |   |  |   |        |  
|Other                                                                |  |               | 298    |               |  |              | (361   | )            |  |   | 1,038  |   |  |   | 2,618   |  
|                                                                     |  |               |        |               |  |              |        |              |  |   |        |   |  |   |         |  
|                                                                     |  | $             | 10,712 |               |  | $            | 28,184 |              |  | $ | 41,427 |   |  | $ | (86,623 | )
|                                                                     |  |               |        |               |  |              |        |              |  |   |        |   |  |   |         |  

Income before income taxes from foreign
operations was approximately $18.3 million,
$42.9 million, $33.0 million, and $14.9 million
for the period September 26, 2003 through December 31,
2003, the period January 1, 2003 through September 25,
2003, the year ended December 31, 2002, and the year ended
December 31, 2001, respectively. Income from foreign
operations was approximately $21.2 million,
$67.6 million, $59.6 million, and $41.2 million
for these same periods. The difference between income from
operations and income 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
$246.6 million at December 31, 2003. As a result of
the significant debt service requirements and other costs
relating to the Transaction, those earnings are no longer
considered to be indefinitely reinvested and, accordingly, the
Company has recorded a deferred income tax liability of
$94.8 million based upon the U.S. federal income tax
rate. 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.

96



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

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, |          | December 31,
|                                                   |                                              | 2003         |          | 2002        
|                                                   |                                              |              |          |             
|                                                   |                                              | Successor    |          | Predecessor 
|Deferred income tax liabilities:                   |                                              |              |          |              |   |   |         |        
|                                                   | Prepaid expenses                             |              | $        | (7,589       | ) |   | $       | (5,804  | )
|                                                   | Unrealized gain on equity investments        |              |          | (13,315      | ) |   |         | (6,670  | )
|                                                   | Undistributed foreign earnings               |              |          | (94,787      | ) |   |         |        |  
|                                                   | Fixed assets                                 |              |          | (13,511      | ) |   |         |        |  
|                                                   | Identifiable intangibles                     |              |          | (55,277      | ) |   |         |        |  
|                                                   | Deferred revenue and other                   |              |          | (10,753      | ) |   |         | (12,540 | )
|                                                   | Other                                        |              |          | (2,939       | ) |   |         | (7,699  | )
|                                                   |                                              |              |          |              |   |   |         |        
|Total deferred income tax liabilities              |                                              |              | (198,171 | )            |   |   | (32,713 | )      
|Deferred income tax assets:                        |                                              |              |          |              |   |   |         |        
|                                                   | Depreciation and amortization                |              |          | 15,904       |   |   |         | 16,323  |  
|                                                   | Net operating and capital loss carryforwards |              |          | 126,367      |   |   |         | 120,721 |  
|                                                   | Accrued expenses and unearned income         |              |          | 35,251       |   |   |         | 26,043  |  
|                                                   | Goodwill, net of amortization                |              |          | 58,083       |   |   |         | 65,397  |  
|                                                   | Other                                        |              |          | 12,588       |   |   |         | 11,882  |  
|                                                   |                                              |              |          |              |   |   |         |        
|                                                   |                                              |              | 248,193  |              |   |   | 240,366 |        
|Valuation allowance for deferred income tax assets |                                              |              | (122,091 | )            |   |   | (19,366 | )      
|                                                   |                                              |              |          |              |   |   |         |        
|Total deferred income tax assets                   |                                              |              | 126,102  |              |   |   | 221,000 |        
|                                                   |                                              |              |          |              |   |   |         |        
|Net deferred income tax (liabilities) assets       |                                              | $            | (72,069  | )            |   | $ | 188,287 |        
|                                                   |                                              |              |          |              |   |   |         |        

The Companys valuation allowance of
$122.1 million for deferred income tax assets increased by
$102.7 million during 2003 due to the uncertainty related
to realization of the deferred income tax asset for certain
federal, state, and foreign net operating and capital losses.
This uncertainty arose from the significant debt service
requirements and other costs relating to the Transaction and its
expected impact on the Companys future operating results.

97



---



##### 



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):

|                                                                |                                              |               |        |               |   |              |        |              |   |   |     |         |   |   |          |          |  
|--------------------------------------------------------------- | -------------------------------------------- | ------------- | ------ | ------------- | - | ------------ | ------ | ------------ | - | - | --- | ------- | - | - | -------- | -------- | -
|                                                                |                                              | September 26, |        | January 1,    |   |              |        |             
|                                                                |                                              | 2003 through  |        | 2003 through  |   | Year ended   |        | Year ended  
|                                                                |                                              | December 31,  |        | September 25, |   | December 31, |        | December 31,
|                                                                |                                              | 2003          |        | 2003          |   | 2002         |        | 2001        
|                                                                |                                              |               |        |               |   |              |        |             
|                                                                |                                              | Successor     |        | Predecessor   |   | Predecessor  |        | Predecessor 
|Excess (deficiency) of income tax over
    financial reporting: |                                              |               |        |               |   |              |        |              |   |   |     |         |   |   |          |         
|                                                                | Depreciation and amortization                |               | $      | (3,753        | ) |              | $      | 6,276        |   |   | $   | (40,145 | ) |   | $        | 3,731    |  
|                                                                | Net operating and capital loss carryforwards |               |        | (615          | ) |              |        | (5,031       | ) |   |     | 52,309  |   |   |          | (113,129 | )
|                                                                | Valuation allowance increase (decrease)      |               |        |              |   |              |        |             |   |   |     |        |   |   |          | 911      |  
|                                                                | Accrued expenses and unearned income         |               |        | 262           |   |              |        | (6,405       | ) |   |     | (4,377  | ) |   |          | (1,888   | )
|                                                                | Prepaid expenses                             |               |        | (1,136        | ) |              |        | 2,921        |   |   |     | (526    | ) |   |          | (628     | )
|                                                                | Deferred revenue                             |               |        | (911          | ) |              |        | (877         | ) |   |     | 5,153   |   |   |          | (4,037   | )
|                                                                | Undistributed foreign earnings               |               |        | 3,040         |   |              |        |             |   |   |     |        |   |   |          |         |  
|                                                                | Other items, net                             |               |        | (518          | ) |              |        | 1,108        |   |   |     | (12,094 | ) |   |          | (3,526   | )
|                                                                |                                              |               |        |               |   |              |        |              |   |   |     |         |   |   |          |         
|                                                                |                                              | $             | (3,631 | )             |   | $            | (2,008 | )            |   | $ | 320 |         |   | $ | (118,566 | )       
|                                                                |                                              |               |        |               |   |              |        |              |   |   |     |         |   |   |          |         

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
the period September 26, 2003 through December 31,
2003, the period January 1, 2003 through September 25,
2003, the year ended December 31, 2002, and the year ended
December 31, 2001, these allowances were $700,000,
$7.3 million, $1.4 million and $7.8 million,
respectively, which helped to generate net operating loss
carryforwards 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 $149.0 million in various
entities within the United Kingdom which have no expiration date
and has over $62.9 million of net operating loss
carryforwards from various foreign jurisdictions which have
different expiration periods. In addition, the Company has
approximately $262.7 million of U.S. state operating
loss carryforwards which expire through 2023 and has
approximately $36.5 million of U.S. federal operating
loss carryforwards which expires in 2022. The Company also has a
U.S. capital loss carryforward of approximately
$90.9 million which expires in 2006. 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.

98



---



##### 



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 (loss) income per share (in thousands):

|                         |                                 |               |  |               |   |              |  |              |     |  |  |         |     |  |  |         |   | 
|------------------------ | ------------------------------- | ------------- |  | ------------- | - | ------------ |  | ------------ | --- |  |  | ------- | --- |  |  | ------- | - | 
|                         |                                 | September 26, |  | January 1,    |   |              |  |             
|                         |                                 | 2003 through  |  | 2003 through  |   | Year ended   |  | Year ended  
|                         |                                 | December 31,  |  | September 25, |   | December 31, |  | December 31,
|                         |                                 | 2003          |  | 2003          |   | 2002         |  | 2001        
|                         |                                 |               |  |               |   |              |  |             
|                         |                                 | Successor     |  | Predecessor   |   | Predecessor  |  | Predecessor 
|Weighted average shares: |                                 |               |  |               |   |              |  |              |     |  |  |         |     |  |  |        
|                         | Basic weighted average shares   |               |  | 125,000       |   |              |  | 118,358      |     |  |  | 118,135 |     |  |  | 118,223 |  
|                         | Effect of dilutive securities:  |               |  |               |   |              |  |              |     |  |  |         |     |  |  |         |  
|                         |                                 | Stock options |  |               |  |              |  |              | 692 |  |  |         | 323 |  |  |         |  | 
|                         |                                 |               |  |               |   |              |  |              |     |  |  |         |     |  |  |        
|                         | Diluted weighted average shares |               |  | 125,000       |   |              |  | 119,050      |     |  |  | 118,458 |     |  |  | 118,223 |  
|                         |                                 |               |  |               |   |              |  |              |     |  |  |         |     |  |  |        

The effect of options to purchase
20.6 million and 29.2 million shares of the
Companys Common Stock were outstanding during the period
from January 1, 2003 through September 25, 2003, and
the year ended December 31, 2002, respectively, but were
not included in the computation of diluted net (loss) income per
share because the options exercise price was greater than
the average market price of the common shares and, therefore,
the effect could be antidilutive. The Company did not have any
outstanding stock options for the period of September 26,
2003 through December 31, 2003.

The effect of options outstanding during 2001
were not included in the computation of diluted net (loss)
income 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 (loss)
income 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 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, but the shares were
exchanged for cash per the Agreement and Plan of Merger dated
September 25, 2003. Final distributions are being made. In
addition, the Company sponsors a supplemental non-qualified
deferred compensation plan, covering certain management
employees.

In connection with the Transaction, the
Companys Employee Stock Ownership Plan for Non-U.S.
Employees in Australia, Belgium, Canada and Singapore was
terminated. These were contribution plans originally funded by
Company stock.

In connection with the Transaction, the
ESOP/401(k) Plan was converted to a Profit-Sharing and 401(k)
Plan. All shares under the ESOP were exchanged for cash and
moved to the Profit-Sharing Plan for U.S. participants. For
German participants, the German potion of the ESOP/401(k) Plan
was spun off and terminated. Final distributions are being made
for the German portion of the plan.

99



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

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. No shares were
allocated to the Plan in either 2003, 2002 or 2001; therefore,
there was no expense in those years. As of December 31,
2002 and 2001, 1,315,380 and 1,511,476 shares,
respectively, were allocated to participants. There are no
unallocated shares held in suspense as of September 25,
2003. All ESOP shares are considered outstanding for income per
share calculations.

Under the 401(k), the Company matches employee
deferrals at varying percentages, set at the discretion of the
Board of Directors. For the period September 26, 2003
through December 31, 2003, the period January 1, 2003
through September 25, 2003, the year ended
December 31, 2002, and the year ended December 31,
2001, the Company expensed $1.7 million, $5.8 million,
$7.2 million, and $9.5 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 the period from January 1, 2003 through
September 25, 2003, the year ended December 31, 2002
and the year ended December 31, 2001, 64,594, 351,695 and
382,968 shares, respectively, were purchased under the Purchase
Plan. The Purchase plan was suspended during 2003 and later
terminated due to the Transaction.

Pharma Services has a stock option plan to
provide incentives to eligible employees, officers and directors
in the form of incentive stock options, non-qualified stock
options 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 Pharma Services stock option plan typically
vest 20% per year over five 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 the period from
January 1, 2003 through September 25, 2003 and the
year ended December 31, 2002, these reimbursements totaled
approximately $3.9 million and $2.8 million,
respectively, which includes the granting of Company stock
options with a Black-Scholes value of approximately $350,000 and
$1.4 million, respectively. During the period from
September 26, 2003 through December 31, 2003, the
Company expensed approximately $1.7 million for such
business-related travel expenses.

100



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

The Companys stock option activity during
the periods indicated is as follows:

|                                  |           |           |            |             |   |   |       |       | 
|--------------------------------- | --------- | --------- | ---------- | ----------- | - | - | ----- | ----- | 
|                                  |           |           |            | Weighted-  
|                                  |           |           |            | Average    
|                                  |           | Number of |            | Exercise   
|                                  |           | Options   |            | Price      
|                                  |           |           |            |            
|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 |      
|                                  | Granted   |           |            | 4,996,689   |   |   |       | 13.40 | 
|                                  | Exercised |           |            | (698,028    | ) |   |       | 8.76  | 
|                                  | Canceled  |           |            | (37,956,293 | ) |   |       | 19.07 | 
|                                  |           |           |            |             |   |   |       |      
|Outstanding at September 25, 2003 |           |           |           |             |   | $ |      |      
|                                  |           |           |            |             |   |   |       |      

Pharma Services stock option activity
during the period from September 26, 2003 through
December 31, 2003 indicated is as follows:

|                                  |           |           |           |           |  |   |       |       | 
|--------------------------------- | --------- | --------- | --------- | --------- |  | - | ----- | ----- | 
|                                  |           |           |           | Weighted-
|                                  |           |           |           | Average  
|                                  |           | Number of |           | Exercise 
|                                  |           | Options   |           | Price    
|                                  |           |           |           |          
|Outstanding at September 26, 2003 |           |           |          |           |  | $ |      |      
|                                  | Granted   |           |           | 3,350,000 |  |   |       | 14.50 | 
|                                  | Exercised |           |           |          |  |   |       |      | 
|                                  | Canceled  |           |           |          |  |   |       |      | 
|                                  |           |           |           |           |  |   |       |      
|Outstanding at December 31, 2003  |           |           | 3,350,000 |           |  | $ | 14.50 |      
|                                  |           |           |           |           |  |   |       |      

Selected information regarding Pharma
Services stock options as of December 31, 2003
follows:

|                    |           |                     |  |           |                |           |  |           |       |          |  |  |      |  |  |  |   |  |  |   |      | 
|------------------- | --------- | ------------------- |  | --------- | -------------- | --------- |  | --------- | ----- | -------- |  |  | ---- |  |  |  | - |  |  | - | ---- | 
|                    |           |                    
|Options Outstanding |           | Options Exercisable
|                    |           |                    
|                    |           | Weighted-           |  | Weighted- |                |           |  | Weighted-
|                    |           | Average             |  | Average   |                |           |  | Average  
|Number of           |           | Exercise Price      |  | Exercise  |                | Remaining |  | Number of |       | Exercise
|Options             |           | Range               |  | Price     |                | Life      |  | Options   |       | Price   
|                    |           |                     |  |           |                |           |  |           |       |         
|                    | 3,350,000 |                     |  | $         | 14.50  $14.50 |           |  | $         | 14.50 |          |  |  | 9.84 |  |  |  |  |  |  | $ | 0.00 | 
|                    |           |                     |  |           |                |           |  |           |       |          |  |  |      |  |  |  |   |  |  |   |      | 
|                    | 3,350,000 |                     |  |           |                |           |  | $         | 14.50 |          |  |  | 9.84 |  |  |  |  |  |  | $ | 0.00 | 
|                    |           |                     |  |           |                |           |  |           |       |          |  |  |      |  |  |  |   |  |  |   |      | 

Pharma Services issued 7,356,000 shares of
its common stock to certain of the Companys employees at
$0.2438 per share. Approximately $905,000 of loans to some
of these employees from Pharma Services was outstanding as of
December 31, 2003 in connection with the issuance.

101



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

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):

|                         |                    |                   |                |                    |        |                   |           |                   |         |         |           |  |         |         |           |  |         |         |         | 
|------------------------ | ------------------ | ----------------- | -------------- | ------------------ | ------ | ----------------- | --------- | ----------------- | ------- | ------- | --------- |  | ------- | ------- | --------- |  | ------- | ------- | ------- | 
|                         |                    | September 26,     |                | January 1, 2003    |        |                   |           |                  
|                         |                    | 2003 through      |                | through            |        | Year ended        |           | Year ended       
|                         |                    | December 31, 2003 |                | September 25, 2003 |        | December 31, 2002 |           | December 31, 2001
|                         |                    |                   |                |                    |        |                   |           |                  
|                         |                    | Successor         |                | Predecessor        |        | Predecessor       |           | Predecessor      
|Revenues:                |                    |                   |                |                    |        |                   |           |                   |         |         |           |  |         |         |           | 
|                         | Americas:          |                   |                |                    |        |                   |           |                   |         |         |           |  |         |         |           |  |        
|                         |                    |                   | United States  |                    | $      | 155,509           |           |                   | $       | 490,338 |           |  | $       | 694,809 |           |  | $       | 815,204 |        
|                         |                    |                   | Other          |                    |        | 10,30l            |           |                   |         | 32,615  |           |  |         | 43,033  |           |  |         | 39,710  |        
|                         |                    |                   |                |                    |        |                   |           |                   |         |         |           |  |         |         |           | 
|                         |                    |                   |                | Americas           |        |                   | 165,810   |                   |         |         | 522,953   |  |         |         | 737,842   |  |         |         | 854,914 | 
|                         | Europe and Africa: |                   |                |                    |        |                   |           |                   |         |         |           |  |         |         |           |  |        
|                         |                    |                   | United Kingdom |                    |        | 94,876            |           |                   |         | 254,872 |           |  |         | 344,392 |           |  |         | 330,087 |        
|                         |                    |                   | Other          |                    |        | 119,256           |           |                   |         | 285,791 |           |  |         | 317,367 |           |  |         | 271,730 |        
|                         |                    |                   |                |                    |        |                   |           |                   |         |         |           |  |         |         |           | 
|                         |                    |                   |                | Europe and Africa  |        |                   | 214,132   |                   |         |         | 540,663   |  |         |         | 661,759   |  |         |         | 601,817 | 
|Asia-Pacific:            |                    |                   |                |                    |        |                   |           |                   |         |         |           |  |         |         |           | 
|                         |                    | Japan             |                |                    | 56,333 |                   |           |                   | 128,489 |         |           |  | 133,745 |         |           |  | 117,407 |        
|                         |                    | Other             |                |                    | 14,635 |                   |           |                   | 38,035  |         |           |  | 59,413  |         |           |  | 46,345  |        
|                         |                    |                   |                |                    |        |                   |           |                   |         |         |           |  |         |         |           | 
|                         |                    |                   |                | Asia-Pacific       |        |                   | 70,968    |                   |         |         | 166,523   |  |         |         | 193,158   |  |         |         | 163,752 | 
|                         |                    |                   |                |                    |        |                   |           |                   |         |         |           |  |         |         |           | 
|                         |                    |                   | 450,910        |                    |        |                   | 1,230,139 |                   |         |         | 1,592,759 |  |         |         | 1,620,483 | 
|Reimbursed service costs |                    |                   | 96,255         |                    |        |                   | 268,683   |                   |         |         | 399,650   |  |         |         | 263,429   | 
|                         |                    |                   |                |                    |        |                   |           |                   |         |         |           |  |         |         |           | 
|                         |                    | $                 | 547,165        |                    |        | $                 | 1,498,822 |                   |         | $       | 1,992,409 |  |         | $       | 1,883,912 | 
|                         |                    |                   |                |                    |        |                   |           |                   |         |         |           |  |         |         |           | 

|                                       |                    |                   |                   |                   |         |                   |         |        |         |         |         |        |         |         |  |  |  |  | 
|-------------------------------------- | ------------------ | ----------------- | ----------------- | ----------------- | ------- | ----------------- | ------- | ------ | ------- | ------- | ------- | ------ | ------- | ------- |  |  |  |  | 
|                                       |                    | As of             |                   | As of             |         | As of             |         |       
|                                       |                    | December 31, 2003 |                   | December 31, 2002 |         | December 31, 2001 |         |       
|                                       |                    |                   |                   |                   |         |                   |         |       
|                                       |                    | Successor         |                   | Predecessor       |         | Predecessor       |         |       
|Property, equipment and software, net: |                    |                   |                   |                   |         |                   |         |        |         |         |         |        |         |         |  | 
|                                       | Americas:          |                   |                   |                   |         |                   |         |        |         |         |         |        |         |         |  |  | 
|                                       |                    | United States     |                   | $                 | 167,574 |                   |         | $      | 165,628 |         |         | $      | 203,685 |         |  |  |  | 
|                                       |                    | Other             |                   |                   | 2,151   |                   |         |        | 1,729   |         |         |        | 1,856   |         |  |  |  | 
|                                       |                    |                   |                   |                   |         |                   |         |        |         |         |         |        |         |         |  | 
|                                       |                    |                   | Americas          |                   |         | 169,725           |         |        |         | 167,357 |         |        |         | 205,541 |  |  |  |  | 
|                                       | Europe and Africa: |                   |                   |                   |         |                   |         |        |         |         |         |        |         |         |  |  | 
|                                       |                    | United Kingdom    |                   |                   | 136,884 |                   |         |        | 127,390 |         |         |        | 125,702 |         |  |  |  | 
|                                       |                    | Other             |                   |                   | 20,890  |                   |         |        | 15,969  |         |         |        | 13,640  |         |  |  |  | 
|                                       |                    |                   |                   |                   |         |                   |         |        |         |         |         |        |         |         |  | 
|                                       |                    |                   | Europe and Africa |                   |         | 157,774           |         |        |         | 143,359 |         |        |         | 139,342 |  |  |  |  | 
|                                       | Asia-Pacific       |                   |                   | 19,096            |         |                   |         | 17,186 |         |         |         | 17,423 |         |         |  |  | 
|                                       |                    |                   |                   |                   |         |                   |         |        |         |         |         |        |         |         |  | 
|                                       |                    | $                 | 346,595           |                   |         | $                 | 327,902 |        |         | $       | 362,306 |        |         |         |  | 
|                                       |                    |                   |                   |                   |         |                   |         |        |         |         |         |        |         |         |  | 

102



---



##### 



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):

September 26, 2003 through
December 31, 2003  Successor

|                                                                                                                               |                          |                |         |            |         |             |         |              |         |              |        |   |        |   |         |         |         |   |         |         |         | 
|------------------------------------------------------------------------------------------------------------------------------ | ------------------------ | -------------- | ------- | ---------- | ------- | ----------- | ------- | ------------ | ------- | ------------ | ------ | - | ------ | - | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                                                                               |                          | Product        |         | Commercial |         | PharmaBio   |         |              |         |             
|                                                                                                                               |                          | development    |         | services   |         | Development |         | Eliminations |         | Consolidated
|                                                                                                                               |                          |                |         |            |         |             |         |              |         |             
|Service revenues:                                                                                                              |                          |                |         |            |         |             |         |              |         |              |        |   |        |   |         |         |         |   |         |        
|                                                                                                                               | External                 |                | $       | 270,247    |         |             | $       | 130,705      |         |              | $      |  |        |   | $       |        |         |   | $       | 400,952 |        
|                                                                                                                               | Intersegment             |                |         |           |         |             |         | 10,458       |         |              |        |  |        |   |         | (10,458 | )       |   |         |        |        
|                                                                                                                               |                          |                |         |            |         |             |         |              |         |              |        |   |        |   |         |         |         |   |         |        
|                                                                                                                               | Total net services       |                |         | 270,247    |         |             |         | 141,163      |         |              |        |  |        |   |         | (10,458 | )       |   |         | 400,952 |        
|                                                                                                                               | Reimbursed service costs |                |         | 77,889     |         |             |         | 18,366       |         |              |        |  |        |   |         |        |         |   |         | 96,255  |        
|                                                                                                                               |                          |                |         |            |         |             |         |              |         |              |        |   |        |   |         |         |         |   |         |        
|Gross service revenues                                                                                                         |                          |                | 348,136 |            |         |             | 159,529 |              |         |              |       |   |        |   | (10,458 | )       |         |   | 497,207 |        
|Commercial rights and royalties                                                                                                |                          |                |        |            |         |             |        |              |         |              | 47,198 |   |        |   |        |         |         |   | 47,198  |        
|Investment                                                                                                                     |                          |                |        |            |         |             |        |              |         |              | 2,760  |   |        |   |        |         |         |   | 2,760   |        
|                                                                                                                               |                          |                |         |            |         |             |         |              |         |              |        |   |        |   |         |         |         |   |         |        
|                                                                                                                               |                          | Total revenues |         | $          | 348,136 |             |         | $            | 159,529 |              |        | $ | 49,958 |   |         | $       | (10,458 | ) |         | $       | 547,165 | 
|                                                                                                                               |                          |                |         |            |         |             |         |              |         |              |        |   |        |   |         |         |         |   |         |        
|Contribution (revenues less costs of revenues,
    excluding depreciation and amortization expense except as noted
    below): |                          |                |         |            |         |             |         |              |         |              |        |  
|                                                                                                                               |                          | $              | 141,046 |            |         | $           | 55,353  |              |         | $            | 9,736  |   |        | $ |        |         |         | $ | 206,135 |        
|                                                                                                                               |                          |                |         |            |         |             |         |              |         |              |        |   |        |   |         |         |         |   |         |        

103



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

January 1, 2003 through September 25,
2003  Predecessor

|                                                                                                                               |                          |                |         |            |         |             |         |              |         |              |         |   |         |   |         |         |         |   |           |           |           | 
|------------------------------------------------------------------------------------------------------------------------------ | ------------------------ | -------------- | ------- | ---------- | ------- | ----------- | ------- | ------------ | ------- | ------------ | ------- | - | ------- | - | ------- | ------- | ------- | - | --------- | --------- | --------- | 
|                                                                                                                               |                          | Product        |         | Commercial |         | PharmaBio   |         |              |         |             
|                                                                                                                               |                          | development    |         | services   |         | Development |         | Eliminations |         | Consolidated
|                                                                                                                               |                          |                |         |            |         |             |         |              |         |             
|Service revenues:                                                                                                              |                          |                |         |            |         |             |         |              |         |              |         |   |         |   |         |         |         |   |           |          
|                                                                                                                               | External                 |                | $       | 734,729    |         |             | $       | 362,273      |         |              | $       |  |         |   | $       |        |         |   | $         | 1,097,002 |          
|                                                                                                                               | Intersegment             |                |         |           |         |             |         | 29,777       |         |              |         |  |         |   |         | (29,777 | )       |   |           |          |          
|                                                                                                                               |                          |                |         |            |         |             |         |              |         |              |         |   |         |   |         |         |         |   |           |          
|                                                                                                                               | Total net services       |                |         | 734,729    |         |             |         | 392,050      |         |              |         |  |         |   |         | (29,777 | )       |   |           | 1,097,002 |          
|                                                                                                                               | Reimbursed service costs |                |         | 225,695    |         |             |         | 42,988       |         |              |         |  |         |   |         |        |         |   |           | 268,683   |          
|                                                                                                                               |                          |                |         |            |         |             |         |              |         |              |         |   |         |   |         |         |         |   |           |          
|Gross service revenues                                                                                                         |                          |                | 960,424 |            |         |             | 435,038 |              |         |              |        |   |         |   | (29,777 | )       |         |   | 1,365,685 |          
|Commercial rights and royalties                                                                                                |                          |                |        |            |         |             |        |              |         |              | 104,964 |   |         |   |        |         |         |   | 104,964   |          
|Investment                                                                                                                     |                          |                |        |            |         |             |        |              |         |              | 28,173  |   |         |   |        |         |         |   | 28,173    |          
|                                                                                                                               |                          |                |         |            |         |             |         |              |         |              |         |   |         |   |         |         |         |   |           |          
|                                                                                                                               |                          | Total revenues |         | $          | 960,424 |             |         | $            | 435,038 |              |         | $ | 133,137 |   |         | $       | (29,777 | ) |           | $         | 1,498,822 | 
|                                                                                                                               |                          |                |         |            |         |             |         |              |         |              |         |   |         |   |         |         |         |   |           |          
|Contribution (revenues less costs of revenues,
    excluding depreciation and amortization expense except as noted
    below): |                          |                |         |            |         |             |         |              |         |              |         |  
|                                                                                                                               |                          | $              | 375,125 |            |         | $           | 142,144 |              |         | $            | 43,001  |   |         | $ |        |         |         | $ | 560,270   |          
|                                                                                                                               |                          |                |         |            |         |             |         |              |         |              |         |   |         |   |         |         |         |   |           |          

Year ended December 31,
2002  Predecessor

|                                                                                                                              |                          |                |           |            |           |             |         |             |         |              |        |              |        |   |         |   |         |   |         |         |         |   |           |           |           | 
|----------------------------------------------------------------------------------------------------------------------------- | ------------------------ | -------------- | --------- | ---------- | --------- | ----------- | ------- | ----------- | ------- | ------------ | ------ | ------------ | ------ | - | ------- | - | ------- | - | ------- | ------- | ------- | - | --------- | --------- | --------- | 
|                                                                                                                              |                          | 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 expense except as noted
    below): |                          |                |           |            |           |             |         |             |         |              |        |             
|                                                                                                                              |                          | $              | 477,492   |            |           | $           | 207,711 |             |         | $            | 8,024  |              |        | $ | 17,620  |   |         | $ |        |         |         | $ | 710,847   |          
|                                                                                                                              |                          |                |           |            |           |             |         |             |         |              |        |              |        |   |         |   |         |   |         |         |         |   |           |          

104



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

Year ended December 31,
2001  Predecessor

|                                                                                                                              |                          |                |           |            |           |             |         |             |         |              |        |              |        |   |        |   |        |   |         |         |         |   |           |           |           | 
|----------------------------------------------------------------------------------------------------------------------------- | ------------------------ | -------------- | --------- | ---------- | --------- | ----------- | ------- | ----------- | ------- | ------------ | ------ | ------------ | ------ | - | ------ | - | ------ | - | ------- | ------- | ------- | - | --------- | --------- | --------- | 
|                                                                                                                              |                          | 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 expense except as noted
    below): |                          |                |           |            |           |             |         |             |         |              |        |             
|                                                                                                                              |                          | $              | 438,426   |            |           | $           | 197,452 |             |         | $            | 27,173 |              |        | $ | (2,311 | ) |        | $ |        |         |         | $ | 660,740   |          
|                                                                                                                              |                          |                |           |            |           |             |         |             |         |              |        |              |        |   |        |   |        |   |         |         |         |   |           |          

|              |                       |              |           |              |  |              |           |         |  |   |           |         | 
|------------- | --------------------- | ------------ | --------- | ------------ |  | ------------ | --------- | ------- |  | - | --------- | ------- | 
|              |                       | As of        |           | As of        |  | As of       
|              |                       | December 31, |           | December 31, |  | December 31,
|              |                       | 2003         |           | 2002         |  | 2001        
|              |                       |              |           |              |  |             
|              |                       | Successor    |           | Predecessor  |  | Predecessor 
|Total Assets: |                       |              |           |              |  |              |           |         |  |   |           |        
|              | Product development   |              | $         | 1,008,099    |  |              | $         | 716,033 |  |   | $         | 680,221 | 
|              | Commercial services   |              |           | 266,021      |  |              |           | 384,814 |  |   |           | 229,190 | 
|              | PharmaBio Development |              |           | 356,121      |  |              |           | 315,633 |  |   |           | 164,111 | 
|              | Informatics           |              |           |             |  |              |           |        |  |   |           | 124,057 | 
|              | Corporate             |              |           | 362,470      |  |              |           | 637,715 |  |   |           | 656,215 | 
|              |                       |              |           |              |  |              |           |         |  |   |           |        
|              |                       | $            | 1,992,711 |              |  | $            | 2,054,195 |         |  | $ | 1,853,794 |        
|              |                       |              |           |              |  |              |           |         |  |   |           |        

105



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

|                                                             |                       |               |        |               |  |              |        |              |  |   |        |        |  |   |         |         | 
|------------------------------------------------------------ | --------------------- | ------------- | ------ | ------------- |  | ------------ | ------ | ------------ |  | - | ------ | ------ |  | - | ------- | ------- | 
|                                                             |                       | September 26, |        | January 1,    |  |              |        |             
|                                                             |                       | 2003 through  |        | 2003 through  |  | Year ended   |        | Year ended  
|                                                             |                       | December 31,  |        | September 25, |  | December 31, |        | December 31,
|                                                             |                       | 2003          |        | 2003          |  | 2002         |        | 2001        
|                                                             |                       |               |        |               |  |              |        |             
|                                                             |                       | Successor     |        | Predecessor   |  | Predecessor  |        | Predecessor 
|Expenditures to acquire long-lived assets:                   |                       |               |        |               |  |              |        |              |  |   |        |        |  |   |         |        
|                                                             | Product development   |               | $      | 12,205        |  |              | $      | 29,832       |  |   | $      | 34,402 |  |   | $       | 109,031 | 
|                                                             | Commercial services   |               |        | 1,858         |  |              |        | 8,759        |  |   |        | 4,656  |  |   |         | 12,520  | 
|                                                             | PharmaBio Development |               |        | 118           |  |              |        | 540          |  |   |        | 247    |  |   |         |        | 
|                                                             | Informatics           |               |        |              |  |              |        |             |  |   |        | 666    |  |   |         | 9,962   | 
|                                                             | Corporate             |               |        | 713           |  |              |        | 551          |  |   |        | 186    |  |   |         | 2,470   | 
|                                                             |                       |               |        |               |  |              |        |              |  |   |        |        |  |   |         |        
|                                                             |                       | $             | 14,894 |               |  | $            | 39,682 |              |  | $ | 40,157 |        |  | $ | 133,983 |        
|                                                             |                       |               |        |               |  |              |        |              |  |   |        |        |  |   |         |        
|Depreciation and amortization expense:                       |                       |               |        |               |  |              |        |              |  |   |        |        |  |   |         |        
|                                                             | Product development   |               | $      | 22,406        |  |              | $      | 43,143       |  |   | $      | 60,710 |  |   | $       | 60,255  | 
|                                                             | Commercial services   |               |        | 9,177         |  |              |        | 15,521       |  |   |        | 21,926 |  |   |         | 23,823  | 
|                                                             | Informatics           |               |        |              |  |              |        |             |  |   |        | 2,559  |  |   |         | 10,031  | 
|                                                             | Corporate             |               |        | 2,987         |  |              |        | 604          |  |   |        | 953    |  |   |         | 986     | 
|                                                             |                       |               |        |               |  |              |        |              |  |   |        |        |  |   |         |        
|Depreciation and amortization excluded from
    contribution |                       |               | 34,570 |               |  |              | 59,268 |              |  |   | 86,148 |        |  |   | 95,095  |        
|                                                             | PharmaBio Development |               |        | 3,547         |  |              |        | 6,603        |  |   |        | 3,676  |  |   |         | 1,008   | 
|                                                             |                       |               |        |               |  |              |        |              |  |   |        |        |  |   |         |        
|Total depreciation and amortization                          |                       | $             | 38,117 |               |  | $            | 65,871 |              |  | $ | 89,824 |        |  | $ | 96,103  |        
|                                                             |                       |               |        |               |  |              |        |              |  |   |        |        |  |   |         |        

27.     Guarantor
Financial Information

In connection with the issuance of the 10% Senior
Subordinated Notes due 2013 in September 2003, the Company and
all of its wholly owned domestic subsidiaries
(Guarantors) have fully and unconditionally
guaranteed, on a joint and several basis, the Companys
obligations under the related indentures (the
Guarantees). Each Guarantee is subordinated in right
of payment to the Guarantors existing and future senior
debt, including obligations under the senior secured credit
facility.

The accompanying Guarantor condensed financial
information is presented on the equity method of accounting for
all periods presented. Under this method, investments in
subsidiaries are recorded at cost and adjusted for the
Companys share in the subsidiaries cumulative
results of operations, capital contributions and distributions
and other changes in equity. Elimination entries relate
primarily to the elimination of investments in subsidiaries and
associated intercompany balances and transactions.

106



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

The following are condensed consolidating
statements of operations of the Company for the periods from
September 26, 2003 through December 31, 2003 and
January 1, 2003 through September 25, 2003 and the
year ended December 31, 2002 and the year ended
December 31, 2001 (unaudited) (in thousands):

September 26, 2003 through
December 31, 2003

|                                                                                   |                                |                     |         |            |   |                |         |              |   |       |         |         |   |   |         |        |   |   |         |         |  
|---------------------------------------------------------------------------------- | ------------------------------ | ------------------- | ------- | ---------- | - | -------------- | ------- | ------------ | - | ----- | ------- | ------- | - | - | ------- | ------ | - | - | ------- | ------- | -
|                                                                                   |                                | Quintiles           |         | Subsidiary |   | Subsidiary     |         |              |   |      
|                                                                                   |                                | Transnational Corp. |         | Guarantors |   | Non-Guarantors |         | Eliminations |   | Total
|                                                                                   |                                |                     |         |            |   |                |         |              |   |      
|Gross revenues                                                                     |                                | $                   | 963     |            |   | $              | 208,792 |              |   | $     | 344,260 |         |   | $ | (6,850  | )      |   | $ | 547,165 |        
|Costs, expenses and other:                                                         |                                |                     |         |            |   |                |         |              |   |       |         |         |   |   |         |        |   |   |         |        
|                                                                                   | Costs of revenues              |                     |         | 5,509      |   |                |         | 148,344      |   |       |         | 221,745 |   |   |         |       |   |   |         | 375,598 |  
|                                                                                   | General and administrative     |                     |         | 12,625     |   |                |         | 54,475       |   |       |         | 94,438  |   |   |         | (6,850 | ) |   |         | 154,688 |  
|                                                                                   | Interest (income) expense, net |                     |         | 16,919     |   |                |         | (6,687       | ) |       |         | 5,658   |   |   |         |       |   |   |         | 15,890  |  
|                                                                                   | Other (income) expense, net    |                     |         | (14,272    | ) |                |         | 14,586       |   |       |         | (2,720  | ) |   |         |       |   |   |         | (2,406  | )
|                                                                                   | Transaction and restructuring  |                     |         |           |   |                |         |             |   |       |         |        |   |   |         |       |   |   |         |        |  
|                                                                                   |                                |                     |         |            |   |                |         |              |   |       |         |         |   |   |         |        |   |   |         |        
|                                                                                   |                                |                     | 20,781  |            |   |                | 210,718 |              |   |       | 319,121 |         |   |   | (6,850  | )      |   |   | 543,770 |        
|                                                                                   |                                |                     |         |            |   |                |         |              |   |       |         |         |   |   |         |        |   |   |         |        
|Income (loss) before income taxes                                                  |                                |                     | (19,818 | )          |   |                | (1,926  | )            |   |       | 25,139  |         |   |   |        |        |   |   | 3,395   |        
|Income tax expense (benefit)                                                       |                                |                     | 8,795   |            |   |                | (1,176  | )            |   |       | 3,093   |         |   |   |        |        |   |   | 10,712  |        
|                                                                                   |                                |                     |         |            |   |                |         |              |   |       |         |         |   |   |         |        |   |   |         |        
|Income (loss) before equity in earnings of
    unconsolidated affiliates and other |                                |                     | (28,613 | )          |   |                | (750    | )            |   |       | 22,046  |         |   |   |        |        |   |   | (7,317  | )      
|Equity in earnings of unconsolidated affiliates
    and other                      |                                |                     |        |            |   |                | 13      |              |   |       | (123    | )       |   |   |        |        |   |   | (110    | )      
|Subsidiary income                                                                  |                                |                     | 21,186  |            |   |                | 1,018   |              |   |       | 57      |         |   |   | (22,261 | )      |   |   |        |        
|                                                                                   |                                |                     |         |            |   |                |         |              |   |       |         |         |   |   |         |        |   |   |         |        
|Net income (loss)                                                                  |                                | $                   | (7,427  | )          |   | $              | 281     |              |   | $     | 21,980  |         |   | $ | (22,261 | )      |   | $ | (7,427  | )      
|                                                                                   |                                |                     |         |            |   |                |         |              |   |       |         |         |   |   |         |        |   |   |         |        

107



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

January 1, 2003 through
September 25, 2003

|                                                                                   |                                |                     |         |            |   |                |         |              |   |       |         |         |  |   |         |         |   |   |           |         |  
|---------------------------------------------------------------------------------- | ------------------------------ | ------------------- | ------- | ---------- | - | -------------- | ------- | ------------ | - | ----- | ------- | ------- |  | - | ------- | ------- | - | - | --------- | ------- | -
|                                                                                   |                                | Quintiles           |         | Subsidiary |   | Subsidiary     |         |              |   |      
|                                                                                   |                                | Transnational Corp. |         | Guarantors |   | Non-Guarantors |         | Eliminations |   | Total
|                                                                                   |                                |                     |         |            |   |                |         |              |   |      
|Gross revenues                                                                     |                                | $                   | (3,233  | )          |   | $              | 649,428 |              |   | $     | 870,967 |         |  | $ | (18,340 | )       |   | $ | 1,498,822 |        
|Costs, expenses and other:                                                         |                                |                     |         |            |   |                |         |              |   |       |         |         |  |   |         |         |   |   |           |        
|                                                                                   | Costs of revenues              |                     |         | 6,519      |   |                |         | 419,667      |   |       |         | 571,636 |  |   |         |        |   |   |           | 997,822 |  
|                                                                                   | General and administrative     |                     |         | 32,747     |   |                |         | 147,648      |   |       |         | 235,263 |  |   |         | (18,340 | ) |   |           | 397,318 |  
|                                                                                   | Interest (income) expense, net |                     |         | (3,111     | ) |                |         | (22,021      | ) |       |         | 14,758  |  |   |         |        |   |   |           | (10,374 | )
|                                                                                   | Other (income) expense, net    |                     |         | (33,379    | ) |                |         | 16,628       |   |       |         | 11,318  |  |   |         |        |   |   |           | (5,433  | )
|                                                                                   | Transaction and restructuring  |                     |         | 48,537     |   |                |         | (563         | ) |       |         | 6,174   |  |   |         |        |   |   |           | 54,148  |  
|                                                                                   |                                |                     |         |            |   |                |         |              |   |       |         |         |  |   |         |         |   |   |           |        
|                                                                                   |                                |                     | 51,313  |            |   |                | 561,359 |              |   |       | 839,149 |         |  |   | (18,340 | )       |   |   | 1,433,481 |        
|                                                                                   |                                |                     |         |            |   |                |         |              |   |       |         |         |  |   |         |         |   |   |           |        
|Income (loss) before income taxes                                                  |                                |                     | (54,546 | )          |   |                | 88,069  |              |   |       | 31,818  |         |  |   |        |         |   |   | 65,341    |        
|Income tax expense (benefit)                                                       |                                |                     | (11,497 | )          |   |                | 25,740  |              |   |       | 13,941  |         |  |   |        |         |   |   | 28,184    |        
|                                                                                   |                                |                     |         |            |   |                |         |              |   |       |         |         |  |   |         |         |   |   |           |        
|Income (loss) before equity in earnings of
    unconsolidated affiliates and other |                                |                     | (43,049 | )          |   |                | 62,329  |              |   |       | 17,877  |         |  |   |        |         |   |   | 37,157    |        
|Equity in earnings of unconsolidated affiliates
    and other                      |                                |                     |        |            |   |                | (24     | )            |   |       | 28      |         |  |   |        |         |   |   | 4         |        
|Subsidiary income                                                                  |                                |                     | 80,210  |            |   |                | (16,554 | )            |   |       | (1,440  | )       |  |   | (62,216 | )       |   |   |          |        
|                                                                                   |                                |                     |         |            |   |                |         |              |   |       |         |         |  |   |         |         |   |   |           |        
|Net income (loss)                                                                  |                                | $                   | 37,161  |            |   | $              | 45,751  |              |   | $     | 16,465  |         |  | $ | (62,216 | )       |   | $ | 37,161    |        
|                                                                                   |                                |                     |         |            |   |                |         |              |   |       |         |         |  |   |         |         |   |   |           |        

108



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

Year ended December 31,
2002

|                                                                                                                                       |                                |                     |         |            |   |                |         |              |   |       |           |         |  |   |         |         |   |   |           |           |  
|-------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------ | ------------------- | ------- | ---------- | - | -------------- | ------- | ------------ | - | ----- | --------- | ------- |  | - | ------- | ------- | - | - | --------- | --------- | -
|                                                                                                                                       |                                | Quintiles           |         | Subsidiary |   | Subsidiary     |         |              |   |      
|                                                                                                                                       |                                | Transnational Corp. |         | Guarantors |   | Non-Guarantors |         | Eliminations |   | Total
|                                                                                                                                       |                                |                     |         |            |   |                |         |              |   |      
|Gross revenues                                                                                                                         |                                | $                   | (2,647  | )          |   | $              | 931,813 |              |   | $     | 1,076,751 |         |  | $ | (13,508 | )       |   | $ | 1,992,409 |          
|Costs, expenses and other:                                                                                                             |                                |                     |         |            |   |                |         |              |   |       |           |         |  |   |         |         |   |   |           |          
|                                                                                                                                       | Costs of revenues              |                     |         | 6,351      |   |                |         | 636,482      |   |       |           | 724,878 |  |   |         |        |   |   |           | 1,367,711 |  
|                                                                                                                                       | General and administrative     |                     |         | 48,563     |   |                |         | 190,692      |   |       |           | 282,356 |  |   |         | (13,508 | ) |   |           | 508,103   |  
|                                                                                                                                       | Interest (income) expense, net |                     |         | (5,069     | ) |                |         | (28,310      | ) |       |           | 19,191  |  |   |         |        |   |   |           | (14,188   | )
|                                                                                                                                       | Other (income) expense, net    |                     |         | (29,186    | ) |                |         | 17,702       |   |       |           | 15,248  |  |   |         |        |   |   |           | 3,764     |  
|                                                                                                                                       | Transaction and restructuring  |                     |         | 3,359      |   |                |         |             |   |       |           |        |  |   |         |        |   |   |           | 3,359     |  
|                                                                                                                                       |                                |                     |         |            |   |                |         |              |   |       |           |         |  |   |         |         |   |   |           |          
|                                                                                                                                       |                                |                     | 24,018  |            |   |                | 816,566 |              |   |       | 1,041,673 |         |  |   | (13,508 | )       |   |   | 1,868,749 |          
|                                                                                                                                       |                                |                     |         |            |   |                |         |              |   |       |           |         |  |   |         |         |   |   |           |          
|Income (loss) before income taxes                                                                                                      |                                |                     | (26,665 | )          |   |                | 115,247 |              |   |       | 35,078    |         |  |   |        |         |   |   | 123,660   |          
|Income tax expense (benefit)                                                                                                           |                                |                     | (1,870  | )          |   |                | 32,339  |              |   |       | 10,958    |         |  |   |        |         |   |   | 41,427    |          
|                                                                                                                                       |                                |                     |         |            |   |                |         |              |   |       |           |         |  |   |         |         |   |   |           |          
|Income (loss) before equity in earnings of
    unconsolidated affiliates and other                                                     |                                |                     | (24,795 | )          |   |                | 82,908  |              |   |       | 24,120    |         |  |   |        |         |   |   | 82,233    |          
|Equity in earnings (losses) of unconsolidated
    affiliates and other                                                                 |                                |                     |        |            |   |                | (543    | )            |   |       | (26       | )       |  |   |        |         |   |   | (569      | )        
|Equity in subsidiary income                                                                                                            |                                |                     | 106,459 |            |   |                | (23,872 | )            |   |       | (7,280    | )       |  |   | (75,307 | )       |   |   |          |          
|                                                                                                                                       |                                |                     |         |            |   |                |         |              |   |       |           |         |  |   |         |         |   |   |           |          
|Income (loss) from operations                                                                                                          |                                |                     | 81,664  |            |   |                | 58,493  |              |   |       | 16,814    |         |  |   | (75,307 | )       |   |   | 81,664    |          
|Cumulative effect on prior years (to
    December 31, 2001) of changing to a different method of
    recognizing deferred income taxes |                                |                     | 45,659  |            |   |                |        |              |   |       |          |         |  |   |        |         |   |   | 45,659    |          
|                                                                                                                                       |                                |                     |         |            |   |                |         |              |   |       |           |         |  |   |         |         |   |   |           |          
|Net income (loss)                                                                                                                      |                                | $                   | 127,323 |            |   | $              | 58,493  |              |   | $     | 16,814    |         |  | $ | (75,307 | )       |   | $ | 127,323   |          
|                                                                                                                                       |                                |                     |         |            |   |                |         |              |   |       |           |         |  |   |         |         |   |   |           |          

109



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

Year ended December 31, 2001
(Unaudited)

|                                                                                   |                                                |                     |          |            |   |                |         |              |   |       |         |         |  |   |          |   |  |   |           |           |  
|---------------------------------------------------------------------------------- | ---------------------------------------------- | ------------------- | -------- | ---------- | - | -------------- | ------- | ------------ | - | ----- | ------- | ------- |  | - | -------- | - |  | - | --------- | --------- | -
|                                                                                   |                                                | Quintiles           |          | Subsidiary |   | Subsidiary     |         |              |   |      
|                                                                                   |                                                | Transnational Corp. |          | Guarantors |   | Non-Guarantors |         | Eliminations |   | Total
|                                                                                   |                                                |                     |          |            |   |                |         |              |   |      
|Gross revenues                                                                     |                                                | $                   | (10,384  | )          |   | $              | 984,997 |              |   | $     | 909,299 |         |  | $ |         |   |  | $ | 1,883,912 |          
|Costs, expenses and other:                                                         |                                                |                     |          |            |   |                |         |              |   |       |         |         |  |   |          |   |  |   |           |          
|                                                                                   | Costs of revenues                              |                     |          | 5,974      |   |                |         | 709,705      |   |       |         | 602,588 |  |   |          |  |  |   |           | 1,318,267 |  
|                                                                                   | General and administrative                     |                     |          | 48,466     |   |                |         | 225,736      |   |       |         | 246,478 |  |   |          |  |  |   |           | 520,680   |  
|                                                                                   | Interest (income) expense, net                 |                     |          | (5,235     | ) |                |         | (31,690      | ) |       |         | 20,253  |  |   |          |  |  |   |           | (16,672   | )
|                                                                                   | Other (income) expense, net                    |                     |          | (29,523    | ) |                |         | 21,408       |   |       |         | 8,604   |  |   |          |  |  |   |           | 489       |  
|                                                                                   | Transaction and restructuring                  |                     |          | 1,141      |   |                |         | 24,153       |   |       |         | 28,875  |  |   |          |  |  |   |           | 54,169    |  
|                                                                                   | Impairment on investment in WebMD common stock |                     |          | 325,553    |   |                |         |             |   |       |         |        |  |   |          |  |  |   |           | 325,553   |  
|                                                                                   | Settlement of litigation                       |                     |          | (83,200    | ) |                |         |             |   |       |         |        |  |   |          |  |  |   |           | (83,200   | )
|                                                                                   | Write-off of goodwill and other assets         |                     |          | 1,207      |   |                |         | 22,146       |   |       |         | 3,769   |  |   |          |  |  |   |           | 27,122    |  
|                                                                                   |                                                |                     |          |            |   |                |         |              |   |       |         |         |  |   |          |   |  |   |           |          
|                                                                                   |                                                |                     | 264,383  |            |   |                | 971,458 |              |   |       | 910,567 |         |  |   |         |   |  |   | 2,146,408 |          
|                                                                                   |                                                |                     |          |            |   |                |         |              |   |       |         |         |  |   |          |   |  |   |           |          
|Income (loss) before income taxes                                                  |                                                |                     | (274,767 | )          |   |                | 13,539  |              |   |       | (1,268  | )       |  |   |         |   |  |   | (262,496  | )        
|Income tax expense (benefit)                                                       |                                                |                     | (90,302  | )          |   |                | 4,754   |              |   |       | (1,075  | )       |  |   |         |   |  |   | (86,623   | )        
|                                                                                   |                                                |                     |          |            |   |                |         |              |   |       |         |         |  |   |          |   |  |   |           |          
|Income (loss) before equity in earnings of
    unconsolidated affiliates and other |                                                |                     | (184,465 | )          |   |                | 8,785   |              |   |       | (193    | )       |  |   |         |   |  |   | (175,873  | )        
|Equity in earnings of unconsolidated affiliates
    and other                      |                                                |                     |         |            |   |                |        |              |   |       |        |         |  |   |         |   |  |   |          |          
|Equity in subsidiary income                                                        |                                                |                     | 150,622  |            |   |                | (33,944 | )            |   |       | (628    | )       |  |   | (116,050 | ) |  |   |          |          
|                                                                                   |                                                |                     |          |            |   |                |         |              |   |       |         |         |  |   |          |   |  |   |           |          
|Income (loss) from continuing operations                                           |                                                |                     | (33,843  | )          |   |                | (25,159 | )            |   |       | (821    | )       |  |   | (116,050 | ) |  |   | (175,873  | )        
|Extraordinary gain from sale of discontinued
    operation, net of income taxes    |                                                |                     |         |            |   |                | 142,030 |              |   |       |        |         |  |   |         |   |  |   | 142,030   |          
|                                                                                   |                                                |                     |          |            |   |                |         |              |   |       |         |         |  |   |          |   |  |   |           |          
|Net income (loss)                                                                  |                                                | $                   | (33,843  | )          |   | $              | 116,871 |              |   | $     | (821    | )       |  | $ | (116,050 | ) |  | $ | (33,843   | )        
|                                                                                   |                                                |                     |          |            |   |                |         |              |   |       |         |         |  |   |          |   |  |   |           |          

110



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

The following are condensed consolidating balance
sheets of the Company as of December 31, 2003 and December
2002 (in thousands):

As of December 31, 2003

|                                           |                                                          |                     |           |            |   |                |           |              |   |       |         |         |   |   |            |            |   |   |           |         | 
|------------------------------------------ | -------------------------------------------------------- | ------------------- | --------- | ---------- | - | -------------- | --------- | ------------ | - | ----- | ------- | ------- | - | - | ---------- | ---------- | - | - | --------- | ------- | 
|                                           |                                                          | Quintiles           |           | Subsidiary |   | Subsidiary     |           |              |   |      
|                                           |                                                          | Transnational Corp. |           | Guarantors |   | Non-Guarantors |           | Eliminations |   | Total
|                                           |                                                          |                     |           |            |   |                |           |              |   |      
|Assets                                    
|Current assets:                            |                                                          |                     |           |            |   |                |           |              |   |       |         |         |   |   |            |            |   |   |           |        
|                                           | Cash and cash equivalents                                |                     | $         | (7,138     | ) |                | $         | 188,475      |   |       | $       | 193,826 |   |   | $          |           |   |   | $         | 375,163 | 
|                                           | Trade accounts receivable and unbilled services,
    net |                     |           |           |   |                |           | 84,148       |   |       |         | 155,846 |   |   |            |           |   |   |           | 239,994 | 
|                                           | Other current assets                                     |                     |           | 5,885      |   |                |           | 23,669       |   |       |         | 48,495  |   |   |            |           |   |   |           | 78,049  | 
|                                           |                                                          |                     |           |            |   |                |           |              |   |       |         |         |   |   |            |            |   |   |           |        
|Total current assets                       |                                                          |                     | (1,253    | )          |   |                | 296,292   |              |   |       | 398,167 |         |   |   |           |            |   |   | 693,206   |        
|Property and equipment, net                |                                                          |                     | 1,863     |            |   |                | 125,838   |              |   |       | 158,666 |         |   |   |           |            |   |   | 286,367   |        
|Intangibles and other assets:              |                                                          |                     |           |            |   |                |           |              |   |       |         |         |   |   |            |            |   |   |           |        
|                                           | Investments                                              |                     |           | 20,147     |   |                |           | 339,797      |   |       |         | 1,143   |   |   |            |           |   |   |           | 361,087 | 
|                                           | Goodwill and other identifiable intangibles, net         |                     |           | 13,429     |   |                |           | 255,552      |   |       |         | 326,592 |   |   |            |           |   |   |           | 595,573 | 
|                                           | Deposits and other assets                                |                     |           | 27,156     |   |                |           | 12,158       |   |       |         | 17,164  |   |   |            |           |   |   |           | 56,478  | 
|                                           | Investments in subsidiaries                              |                     |           | 1,739,676  |   |                |           | (201,283     | ) |       |         | 77,107  |   |   |            | (1,615,500 | ) |   |           |        | 
|                                           |                                                          |                     |           |            |   |                |           |              |   |       |         |         |   |   |            |            |   |   |           |        
|Total intangibles and other assets         |                                                          |                     | 1,800,408 |            |   |                | 406,224   |              |   |       | 422,006 |         |   |   | (1,615,500 | )          |   |   | 1,013,138 |        
|                                           |                                                          |                     |           |            |   |                |           |              |   |       |         |         |   |   |            |            |   |   |           |        
|Total assets                               |                                                          | $                   | 1,801,018 |            |   | $              | 828,354   |              |   | $     | 978,839 |         |   | $ | (1,615,500 | )          |   | $ | 1,992,711 |        
|                                           |                                                          |                     |           |            |   |                |           |              |   |       |         |         |   |   |            |            |   |   |           |        
|                                          
|Liabilities and Shareholders Equity      
|Current liabilities:                       |                                                          |                     |           |            |   |                |           |              |   |       |         |         |   |   |            |            |   |   |           |        
|                                           | Accounts payable and accrued expenses                    |                     | $         | 58,482     |   |                | $         | 67,640       |   |       | $       | 191,637 |   |   |            |           |   |   | $         | 317,759 | 
|                                           | Credit arrangements                                      |                     |           | 3,100      |   |                |           | 752          |   |       |         | 16,834  |   |   |            |           |   |   |           | 20,686  | 
|                                           | Unearned income                                          |                     |           |           |   |                |           | 76,126       |   |       |         | 115,129 |   |   |            |           |   |   |           | 191,255 | 
|                                           | Other current liabilities                                |                     |           | 58,871     |   |                |           | 4,006        |   |       |         | (32,833 | ) |   |            |           |   |   |           | 30,044  | 
|                                           |                                                          |                     |           |            |   |                |           |              |   |       |         |         |   |   |            |            |   |   |           |        
|Total current liabilities                  |                                                          |                     | 120,453   |            |   |                | 148,524   |              |   |       | 290,767 |         |   |   |           |            |   |   | 559,744   |        
|Long-term liabilities:                     |                                                          |                     |           |            |   |                |           |              |   |       |         |         |   |   |            |            |   |   |           |        
|                                           | Credit arrangements, less current portion                |                     |           | 756,125    |   |                |           | 3,634        |   |       |         | 13,869  |   |   |            |           |   |   |           | 773,628 | 
|                                           | Other liabilities                                        |                     |           | 98,924     |   |                |           | (8,375       | ) |       |         | 33,692  |   |   |            |           |   |   |           | 124,241 | 
|                                           | Net intercompany payables                                |                     |           | 290,418    |   |                |           | (774,401     | ) |       |         | 483,983 |   |   |            |           |   |   |           |        | 
|                                           |                                                          |                     |           |            |   |                |           |              |   |       |         |         |   |   |            |            |   |   |           |        
|Total long-term liabilities                |                                                          |                     | 1,145,467 |            |   |                | (779,142  | )            |   |       | 531,544 |         |   |   |           |            |   |   | 897,869   |        
|                                           |                                                          |                     |           |            |   |                |           |              |   |       |         |         |   |   |            |            |   |   |           |        
|Total liabilities                          |                                                          |                     | 1,265,920 |            |   |                | (630,618  | )            |   |       | 822,311 |         |   |   |           |            |   |   | 1,457,613 |        
|Total shareholders equity                 |                                                          |                     | 535,098   |            |   |                | 1,458,972 |              |   |       | 156,528 |         |   |   | (1,615,500 | )          |   |   | 535,098   |        
|                                           |                                                          |                     |           |            |   |                |           |              |   |       |         |         |   |   |            |            |   |   |           |        
|Total liabilities and shareholders equity |                                                          | $                   | 1,801,018 |            |   | $              | 828,354   |              |   | $     | 978,839 |         |   | $ | (1,615,500 | )          |   | $ | 1,992,711 |        
|                                           |                                                          |                     |           |            |   |                |           |              |   |       |         |         |   |   |            |            |   |   |           |        

111



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

As of December 31, 2002

|                                           |                                                          |                     |           |            |   |                |           |              |   |       |         |         |  |   |            |            |   |   |           |         | 
|------------------------------------------ | -------------------------------------------------------- | ------------------- | --------- | ---------- | - | -------------- | --------- | ------------ | - | ----- | ------- | ------- |  | - | ---------- | ---------- | - | - | --------- | ------- | 
|                                           |                                                          | Quintiles           |           | Subsidiary |   | Subsidiary     |           |              |   |      
|                                           |                                                          | Transnational Corp. |           | Guarantors |   | Non-Guarantors |           | Eliminations |   | Total
|                                           |                                                          |                     |           |            |   |                |           |              |   |      
|Assets                                    
|Current assets:                            |                                                          |                     |           |            |   |                |           |              |   |       |         |         |  |   |            |            |   |   |           |        
|                                           | Cash and cash equivalents                                |                     | $         | 220        |   |                | $         | 390,064      |   |       | $       | 254,000 |  |   | $          |           |   |   | $         | 644,284 | 
|                                           | Trade accounts receivable and unbilled services,
    net |                     |           |           |   |                |           | 107,467      |   |       |         | 148,180 |  |   |            |           |   |   |           | 255,647 | 
|                                           | Other current assets                                     |                     |           | 12,347     |   |                |           | 38,051       |   |       |         | 41,990  |  |   |            |           |   |   |           | 92,388  | 
|                                           |                                                          |                     |           |            |   |                |           |              |   |       |         |         |  |   |            |            |   |   |           |        
|Total current assets                       |                                                          |                     | 12,567    |            |   |                | 535,582   |              |   |       | 444,170 |         |  |   |           |            |   |   | 992,319   |        
|Property and equipment, net                |                                                          |                     | 865       |            |   |                | 120,789   |              |   |       | 140,504 |         |  |   |           |            |   |   | 262,158   |        
|Intangibles and other assets:              |                                                          |                     |           |            |   |                |           |              |   |       |         |         |  |   |            |            |   |   |           |        
|                                           | Investments                                              |                     |           | 37,572     |   |                |           | 334,992      |   |       |         | 901     |  |   |            |           |   |   |           | 373,465 | 
|                                           | Goodwill and other identifiable intangibles, net         |                     |           | 2,068      |   |                |           | 68,015       |   |       |         | 142,765 |  |   |            |           |   |   |           | 212,848 | 
|                                           | Deposits and other assets                                |                     |           | 70,847     |   |                |           | 103,644      |   |       |         | 38,914  |  |   |            |           |   |   |           | 213,405 | 
|                                           | Investments in subsidiaries                              |                     |           | 1,232,909  |   |                |           | (145,491     | ) |       |         | 73,598  |  |   |            | (1,161,016 | ) |   |           |        | 
|                                           |                                                          |                     |           |            |   |                |           |              |   |       |         |         |  |   |            |            |   |   |           |        
|Total intangibles and other assets         |                                                          |                     | 1,343,396 |            |   |                | 361,160   |              |   |       | 256,178 |         |  |   | (1,161,016 | )          |   |   | 799,718   |        
|                                           |                                                          |                     |           |            |   |                |           |              |   |       |         |         |  |   |            |            |   |   |           |        
|Total assets                               |                                                          | $                   | 1,356,828 |            |   | $              | 1,017,531 |              |   | $     | 840,852 |         |  | $ | (1,161,016 | )          |   | $ | 2,054,195 |        
|                                           |                                                          |                     |           |            |   |                |           |              |   |       |         |         |  |   |            |            |   |   |           |        
|                                          
|Liabilities and Shareholders Equity      
|Current liabilities:                       |                                                          |                     |           |            |   |                |           |              |   |       |         |         |  |   |            |            |   |   |           |        
|                                           | Accounts payable and accrued expenses                    |                     | $         | 16,277     |   |                | $         | 72,557       |   |       | $       | 149,435 |  |   | $          |           |   |   | $         | 238,269 | 
|                                           | Credit arrangements                                      |                     |           |           |   |                |           | 961          |   |       |         | 20,758  |  |   |            |           |   |   |           | 21,719  | 
|                                           | Unearned income                                          |                     |           |           |   |                |           | 61,965       |   |       |         | 79,753  |  |   |            |           |   |   |           | 141,718 | 
|                                           | Other current liabilities                                |                     |           | 46,059     |   |                |           | (30,256      | ) |       |         | 6,337   |  |   |            |           |   |   |           | 22,140  | 
|                                           |                                                          |                     |           |            |   |                |           |              |   |       |         |         |  |   |            |            |   |   |           |        
|Total current liabilities                  |                                                          |                     | 62,336    |            |   |                | 105,227   |              |   |       | 256,283 |         |  |   |           |            |   |   | 423,846   |        
|Long-term liabilities:                     |                                                          |                     |           |            |   |                |           |              |   |       |         |         |  |   |            |            |   |   |           |        
|                                           | Credit arrangements, less current portion                |                     |           |           |   |                |           | 5,546        |   |       |         | 13,309  |  |   |            |           |   |   |           | 18,855  | 
|                                           | Other liabilities                                        |                     |           | 3,000      |   |                |           | 1,400        |   |       |         | 8,708   |  |   |            |           |   |   |           | 13,108  | 
|                                           | Net intercompany payables                                |                     |           | (306,894   | ) |                |           | (292,335     | ) |       |         | 599,229 |  |   |            |           |   |   |           |        | 
|                                           |                                                          |                     |           |            |   |                |           |              |   |       |         |         |  |   |            |            |   |   |           |        
|Total long-term liabilities                |                                                          |                     | (303,894  | )          |   |                | (285,389  | )            |   |       | 621,246 |         |  |   |           |            |   |   | 31,963    |        
|                                           |                                                          |                     |           |            |   |                |           |              |   |       |         |         |  |   |            |            |   |   |           |        
|Total liabilities                          |                                                          |                     | (241,558  | )          |   |                | (180,162  | )            |   |       | 877,529 |         |  |   |           |            |   |   | 455,809   |        
|Total shareholders equity                 |                                                          |                     | 1,598,386 |            |   |                | 1,197,693 |              |   |       | (36,677 | )       |  |   | (1,161,016 | )          |   |   | 1,598,386 |        
|                                           |                                                          |                     |           |            |   |                |           |              |   |       |         |         |  |   |            |            |   |   |           |        
|Total liabilities and shareholders equity |                                                          | $                   | 1,356,828 |            |   | $              | 1,017,531 |              |   | $     | 840,852 |         |  | $ | (1,161,016 | )          |   | $ | 2,054,195 |        
|                                           |                                                          |                     |           |            |   |                |           |              |   |       |         |         |  |   |            |            |   |   |           |        

112



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

The following are condensed consolidating
statements of cash flows of the Company for the periods from
September 26, 2003 through December 31, 2003 and
January 1, 2003 through September 25, 2003 and the
year ended December 31, 2002 and the year ended
December 31, 2001 (unaudited) (in thousands):

September 26, 2003 through
December 31, 2003

|                                                                                                  |                                                                                                                                        |                     |            |            |   |                |         |              |   |       |         |        |   |   |   |         |   |   |            |        |  
|------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | ---------- | ---------- | - | -------------- | ------- | ------------ | - | ----- | ------- | ------ | - | - | - | ------- | - | - | ---------- | ------ | -
|                                                                                                  |                                                                                                                                        | Quintiles           |            | Subsidiary |   | Subsidiary     |         |              |   |      
|                                                                                                  |                                                                                                                                        | Transnational Corp. |            | Guarantors |   | Non-Guarantors |         | Eliminations |   | Total
|                                                                                                  |                                                                                                                                        |                     |            |            |   |                |         |              |   |      
|Operating activities:                                                                             |                                                                                                                                        |                     |            |            |   |                |         |              |   |       |         |        |   |   |   |         |   |   |            |       
|                                                                                                  | Net (loss) income                                                                                                                      |                     | $          | (7,427     | ) |                | $       | 281          |   |       | $       | 21,980 |   |   | $ | (22,261 | ) |   | $          | (7,427 | )
|                                                                                                  | Cumulative effect on prior years (to
    December 31, 2001) of changing to a different period of
    recognizing deferred income taxes |                     |            |           |   |                |         |             |   |       |         |       |   |   |   |        |   |   |            |       |  
|                                                                                                  |                                                                                                                                        |                     |            |            |   |                |         |              |   |       |         |        |   |   |   |         |   |   |            |       
|                                                                                                  | (Loss) income from operations                                                                                                          |                     |            | (7,427     | ) |                |         | 281          |   |       |         | 21,980 |   |   |   | (22,261 | ) |   |            | (7,427 | )
|Adjustments to reconcile income from operations
    to net cash provided by operating activities: |                                                                                                                                        |                     |            |            |   |                |         |              |   |       |         |        |   |   |   |         |   |   |            |       
|                                                                                                  | Depreciation and amortization                                                                                                          |                     |            | 3,153      |   |                |         | 17,268       |   |       |         | 17,696 |   |   |   |        |   |   |            | 38,117 |  
|                                                                                                  | Amortization of debt issuance costs                                                                                                    |                     |            | 878        |   |                |         |             |   |       |         |       |   |   |   |        |   |   |            | 878    |  
|                                                                                                  | Restructuring charge (payments) accrual, net                                                                                           |                     |            | (27        | ) |                |         | (433         | ) |       |         | (1,482 | ) |   |   |        |   |   |            | (1,942 | )
|                                                                                                  | (Gain) loss from sales and impairments of
    investments, net                                                                         |                     |            | (1,149     | ) |                |         | (1,803       | ) |       |         |       |   |   |   |        |   |   |            | (2,952 | )
|                                                                                                  | Provision for (benefit from) deferred income tax
    expense                                                                           |                     |            | (387       | ) |                |         | (75          | ) |       |         | 1,167  |   |   |   |        |   |   |            | 705    |  
|                                                                                                  | Change in operating assets and liabilities                                                                                             |                     |            | 53,914     |   |                |         | 14,867       |   |       |         | 9,785  |   |   |   |        |   |   |            | 78,566 |  
|                                                                                                  | Investment in subsidiaries and intercompany                                                                                            |                     |            | (29,749    | ) |                |         | 1,074        |   |       |         | 6,414  |   |   |   | 22,261  |   |   |            |       |  
|                                                                                                  | Other                                                                                                                                  |                     |            |           |   |                |         | (157         | ) |       |         | (173   | ) |   |   |        |   |   |            | (330   | )
|                                                                                                  |                                                                                                                                        |                     |            |            |   |                |         |              |   |       |         |        |   |   |   |         |   |   |            |       
|Net cash provided by operating activities                                                         |                                                                                                                                        |                     | 19,206     |            |   |                | 31,022  |              |   |       | 55,387  |        |   |   |  |         |   |   | 105,615    |       
|Investing activities:                                                                             |                                                                                                                                        |                     |            |            |   |                |         |              |   |       |         |        |   |   |   |         |   |   |            |       
|Acquisition of property and equipment                                                             |                                                                                                                                        |                     | (586       | )          |   |                | (6,889  | )            |   |       | (7,419  | )      |   |   |  |         |   |   | (14,894    | )     
|Repurchase of common stock in Transaction                                                         |                                                                                                                                        |                     | (1,617,567 | )          |   |                |        |              |   |       |        |        |   |   |  |         |   |   | (1,617,567 | )     
|Payment of transaction costs in Transaction                                                       |                                                                                                                                        |                     | (64,734    | )          |   |                |        |              |   |       |        |        |   |   |  |         |   |   | (64,734    | )     
|Acquisition of businesses, net of cash acquired                                                   |                                                                                                                                        |                     |           |            |   |                |        |              |   |       | (3,363  | )      |   |   |  |         |   |   | (3,363     | )     
|Acquisition of commercial rights and royalties                                                    |                                                                                                                                        |                     |           |            |   |                | (3,000  | )            |   |       |        |        |   |   |  |         |   |   | (3,000     | )     
|Proceeds from disposition of property and
    equipment                                           |                                                                                                                                        |                     |           |            |   |                | 310     |              |   |       | 1,650   |        |   |   |  |         |   |   | 1,960      |       
|Proceeds from (purchases of) debt securities, net                                                 |                                                                                                                                        |                     | (1,212     | )          |   |                | 326     |              |   |       |        |        |   |   |  |         |   |   | (886       | )     
|Purchases of equity securities and other
    investments                                          |                                                                                                                                        |                     | 24,013     |            |   |                | (30,023 | )            |   |       | (10     | )      |   |   |  |         |   |   | (6,020     | )     
|Proceeds from sale of equity securities and other
    investments                                 |                                                                                                                                        |                     |           |            |   |                | 7,633   |              |   |       |        |        |   |   |  |         |   |   | 7,633      |       
|                                                                                                  |                                                                                                                                        |                     |            |            |   |                |         |              |   |       |         |        |   |   |   |         |   |   |            |       
|Net cash (used in) provided by investing
    activities                                           |                                                                                                                                        |                     | (1,660,086 | )          |   |                | (31,643 | )            |   |       | (9,142  | )      |   |   |  |         |   |   | (1,700,871 | )     
|Financing activities:                                                                             |                                                                                                                                        |                     |            |            |   |                |         |              |   |       |         |        |   |   |   |         |   |   |            |       
|Proceeds from borrowings, net of costs                                                            |                                                                                                                                        |                     | 734,529    |            |   |                | (1,096  | )            |   |       |        |        |   |   |  |         |   |   | 733,433    |       
|Principal payments on credit arrangements                                                         |                                                                                                                                        |                     | (775       | )          |   |                | (338    | )            |   |       | (4,534  | )      |   |   |  |         |   |   | (5,647     | )     
|Capital contribution (successor)                                                                  |                                                                                                                                        |                     | 390,549    |            |   |                |        |              |   |       |        |        |   |   |  |         |   |   | 390,549    |       
|                                                                                                  |                                                                                                                                        |                     |            |            |   |                |         |              |   |       |         |        |   |   |   |         |   |   |            |       
|Net cash provided by (used in) financing
    activities                                           |                                                                                                                                        |                     | 1,124,303  |            |   |                | (1,434  | )            |   |       | (4,534  | )      |   |   |  |         |   |   | 1,118,335  |       
|Effect of foreign currency exchange rate changes
    on cash                                      |                                                                                                                                        |                     |           |            |   |                |        |              |   |       | 9,788   |        |   |   |  |         |   |   | 9,788      |       
|                                                                                                  |                                                                                                                                        |                     |            |            |   |                |         |              |   |       |         |        |   |   |   |         |   |   |            |       
|(Decrease) increase in cash and cash equivalents                                                  |                                                                                                                                        |                     | (516,577   | )          |   |                | (2,055  | )            |   |       | 51,499  |        |   |   |  |         |   |   | (467,133   | )     
|Cash and cash equivalents at beginning of period                                                  |                                                                                                                                        |                     | 509,439    |            |   |                | 190,526 |              |   |       | 142,331 |        |   |   |  |         |   |   | 842,296    |       
|                                                                                                  |                                                                                                                                        |                     |            |            |   |                |         |              |   |       |         |        |   |   |   |         |   |   |            |       
|Cash and cash equivalents at end of period                                                        |                                                                                                                                        | $                   | (7,138     | )          |   | $              | 188,471 |              |   | $     | 193,830 |        |   | $ |  |         |   | $ | 375,163    |       
|                                                                                                  |                                                                                                                                        |                     |            |            |   |                |         |              |   |       |         |        |   |   |   |         |   |   |            |       

113



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

January 1, 2003 through
September 25, 2003

|                                                                                                  |                                                                                                                                        |                     |         |            |   |                |          |              |   |       |          |          |   |   |   |         |   |   |         |         |  
|------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | ------- | ---------- | - | -------------- | -------- | ------------ | - | ----- | -------- | -------- | - | - | - | ------- | - | - | ------- | ------- | -
|                                                                                                  |                                                                                                                                        | Quintiles           |         | Subsidiary |   | Subsidiary     |          |              |   |      
|                                                                                                  |                                                                                                                                        | Transnational Corp. |         | Guarantors |   | Non-Guarantors |          | Eliminations |   | Total
|                                                                                                  |                                                                                                                                        |                     |         |            |   |                |          |              |   |      
|Operating activities:                                                                             |                                                                                                                                        |                     |         |            |   |                |          |              |   |       |          |          |   |   |   |         |   |   |         |        
|                                                                                                  | Net (loss) income                                                                                                                      |                     | $       | 37,161     |   |                | $        | 45,751       |   |       | $        | 16,465   |   |   | $ | (62,216 | ) |   | $       | 37,161  |  
|                                                                                                  | Cumulative effect on prior years (to
    December 31, 2001) of changing to a different period of
    recognizing deferred income taxes |                     |         |           |   |                |          |             |   |       |          |         |   |   |   |        |   |   |         |        |  
|                                                                                                  |                                                                                                                                        |                     |         |            |   |                |          |              |   |       |          |          |   |   |   |         |   |   |         |        
|                                                                                                  | Income from operations                                                                                                                 |                     |         | 37,161     |   |                |          | 45,751       |   |       |          | 16,465   |   |   |   | (62,216 | ) |   |         | 37,161  |  
|Adjustments to reconcile income from operations
    to net cash provided by operating activities: |                                                                                                                                        |                     |         |            |   |                |          |              |   |       |          |          |   |   |   |         |   |   |         |        
|                                                                                                  | Depreciation and amortization                                                                                                          |                     |         | 1,034      |   |                |          | 27,712       |   |       |          | 37,125   |   |   |   |        |   |   |         | 65,871  |  
|                                                                                                  | Restructuring charge (payments) accrual, net                                                                                           |                     |         | (634       | ) |                |          | (2,050       | ) |       |          | 2,967    |   |   |   |        |   |   |         | 283     |  
|                                                                                                  | Transaction costs                                                                                                                      |                     |         | 44,057     |   |                |          |             |   |       |          |         |   |   |   |        |   |   |         | 44,057  |  
|                                                                                                  | Loss (gain) from sales and impairments of
    investments, net                                                                         |                     |         | 2,661      |   |                |          | (30,024      | ) |       |          |         |   |   |   |        |   |   |         | (27,363 | )
|                                                                                                  | Provision for (benefit from) deferred income tax
    expense                                                                           |                     |         | 11,696     |   |                |          | (1,414       | ) |       |          | 2,310    |   |   |   |        |   |   |         | 12,592  |  
|                                                                                                  | Change in operating assets and liabilities                                                                                             |                     |         | (37,365    | ) |                |          | 47,483       |   |       |          | 28,054   |   |   |   |        |   |   |         | 38,172  |  
|                                                                                                  | Investment in subsidiaries and intercompany                                                                                            |                     |         | 453,500    |   |                |          | (332,346     | ) |       |          | (183,370 | ) |   |   | 62,216  |   |   |         |        |  
|                                                                                                  | Other                                                                                                                                  |                     |         | (478       | ) |                |          | (1,114       | ) |       |          | 688      |   |   |   |        |   |   |         | (904    | )
|                                                                                                  |                                                                                                                                        |                     |         |            |   |                |          |              |   |       |          |          |   |   |   |         |   |   |         |        
|Net cash provided by operating activities                                                         |                                                                                                                                        |                     | 511,632 |            |   |                | (246,002 | )            |   |       | (95,761  | )        |   |   |  |         |   |   | 169,869 |        
|Investing activities:                                                                             |                                                                                                                                        |                     |         |            |   |                |          |              |   |       |          |          |   |   |   |         |   |   |         |        
|Acquisition of property and equipment                                                             |                                                                                                                                        |                     | (277    | )          |   |                | (18,915  | )            |   |       | (20,490  | )        |   |   |  |         |   |   | (39,682 | )      
|Payment of transaction costs in Transaction                                                       |                                                                                                                                        |                     | (2,896  | )          |   |                |         |              |   |       |         |          |   |   |  |         |   |   | (2,896  | )      
|Acquisition of businesses, net of cash acquired                                                   |                                                                                                                                        |                     |        |            |   |                |         |              |   |       | (1,379   | )        |   |   |  |         |   |   | (1,379  | )      
|Acquisition of intangible assets                                                                  |                                                                                                                                        |                     |        |            |   |                | (500     | )            |   |       | (4,019   | )        |   |   |  |         |   |   | (4,519  | )      
|Acquisition of commercial rights and royalties                                                    |                                                                                                                                        |                     |        |            |   |                | (17,710  | )            |   |       |         |          |   |   |  |         |   |   | (17,710 | )      
|Proceeds from disposition of property and
    equipment                                           |                                                                                                                                        |                     |        |            |   |                | 1,330    |              |   |       | 4,889    |          |   |   |  |         |   |   | 6,219   |        
|Proceeds from (purchases of) debt securities, net                                                 |                                                                                                                                        |                     | (1,353  | )          |   |                | 26,620   |              |   |       |         |          |   |   |  |         |   |   | 25,267  |        
|Purchases of equity securities and other
    investments                                          |                                                                                                                                        |                     | (6,320  | )          |   |                | (4,471   | )            |   |       | (39      | )        |   |   |  |         |   |   | (10,830 | )      
|Proceeds from sale of equity securities and other
    investments                                 |                                                                                                                                        |                     | 1,391   |            |   |                | 60,533   |              |   |       | 2        |          |   |   |  |         |   |   | 61,926  |        
|                                                                                                  |                                                                                                                                        |                     |         |            |   |                |          |              |   |       |          |          |   |   |   |         |   |   |         |        
|Net cash (used in) provided by investing
    activities                                           |                                                                                                                                        |                     | (9,455  | )          |   |                | 46,887   |              |   |       | (21,036  | )        |   |   |  |         |   |   | 16,396  |        
|Financing activities:                                                                             |                                                                                                                                        |                     |         |            |   |                |          |              |   |       |          |          |   |   |   |         |   |   |         |        
|Principal payments on credit arrangements                                                         |                                                                                                                                        |                     |        |            |   |                | (565     | )            |   |       | (12,654  | )        |   |   |  |         |   |   | (13,219 | )      
|Issuance of common stock, net (predecessor)                                                       |                                                                                                                                        |                     | 7,042   |            |   |                |         |              |   |       |         |          |   |   |  |         |   |   | 7,042   |        
|                                                                                                  |                                                                                                                                        |                     |         |            |   |                |          |              |   |       |          |          |   |   |   |         |   |   |         |        
|Net cash provided by (used in) financing
    activities                                           |                                                                                                                                        |                     | 7,042   |            |   |                | (565     | )            |   |       | (12,654  | )        |   |   |  |         |   |   | (6,177  | )      
|Effect of foreign currency exchange rate changes
    on cash                                      |                                                                                                                                        |                     |        |            |   |                | 142      |              |   |       | 17,782   |          |   |   |  |         |   |   | 17,924  |        
|                                                                                                  |                                                                                                                                        |                     |         |            |   |                |          |              |   |       |          |          |   |   |   |         |   |   |         |        
|(Decrease) increase in cash and cash equivalents                                                  |                                                                                                                                        |                     | 509,219 |            |   |                | (199,538 | )            |   |       | (111,669 | )        |   |   |  |         |   |   | 198,012 |        
|Cash and cash equivalents at beginning of period                                                  |                                                                                                                                        |                     | 220     |            |   |                | 390,064  |              |   |       | 254,000  |          |   |   |  |         |   |   | 644,284 |        
|                                                                                                  |                                                                                                                                        |                     |         |            |   |                |          |              |   |       |          |          |   |   |   |         |   |   |         |        
|Cash and cash equivalents at end of period                                                        |                                                                                                                                        | $                   | 509,439 |            |   | $              | 190,526  |              |   | $     | 142,331  |          |   | $ |  |         |   | $ | 842,296 |        
|                                                                                                  |                                                                                                                                        |                     |         |            |   |                |          |              |   |       |          |          |   |   |   |         |   |   |         |        

114



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

Year ended December 31,
2002

|                                                                                                  |                                                                                                                                        |                     |         |            |   |                |         |              |   |       |         |         |   |   |   |         |   |   |          |         |  
|------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | ------- | ---------- | - | -------------- | ------- | ------------ | - | ----- | ------- | ------- | - | - | - | ------- | - | - | -------- | ------- | -
|                                                                                                  |                                                                                                                                        | Quintiles           |         | Subsidiary |   | Subsidiary     |         |              |   |      
|                                                                                                  |                                                                                                                                        | Transnational Corp. |         | Guarantors |   | Non-Guarantors |         | Eliminations |   | Total
|                                                                                                  |                                                                                                                                        |                     |         |            |   |                |         |              |   |      
|Operating activities:                                                                             |                                                                                                                                        |                     |         |            |   |                |         |              |   |       |         |         |   |   |   |         |   |   |          |        
|                                                                                                  | Net income                                                                                                                             |                     | $       | 127,323    |   |                | $       | 58,493       |   |       | $       | 16,814  |   |   | $ | (75,307 | ) |   | $        | 127,323 |  
|                                                                                                  | Cumulative effect on prior years (to
    December 31, 2001) of changing to a different period of
    recognizing deferred income taxes |                     |         | (45,659    | ) |                |         |             |   |       |         |        |   |   |   |        |   |   |          | (45,659 | )
|                                                                                                  |                                                                                                                                        |                     |         |            |   |                |         |              |   |       |         |         |   |   |   |         |   |   |          |        
|                                                                                                  | Income from operations                                                                                                                 |                     |         | 81,664     |   |                |         | 58,493       |   |       |         | 16,814  |   |   |   | (75,307 | ) |   |          | 81,664  |  
|Adjustments to reconcile income from operations
    to net cash provided by operating activities: |                                                                                                                                        |                     |         |            |   |                |         |              |   |       |         |         |   |   |   |         |   |   |          |        
|                                                                                                  | Depreciation and amortization                                                                                                          |                     |         | 2,410      |   |                |         | 42,868       |   |       |         | 44,546  |   |   |   |        |   |   |          | 89,824  |  
|                                                                                                  | Restructuring charge (payments) accrual, net                                                                                           |                     |         | (2,609     | ) |                |         | (5,817       | ) |       |         | (12,732 | ) |   |   |        |   |   |          | (21,158 | )
|                                                                                                  | Loss (gain) from sales and impairments of
    investments, net                                                                         |                     |         | 1,870      |   |                |         | (16,531      | ) |       |         | 951     |   |   |   |        |   |   |          | (13,710 | )
|                                                                                                  | Provision for (benefit from) deferred income tax
    expense                                                                           |                     |         | 4,408      |   |                |         | (237         | ) |       |         | (1,707  | ) |   |   |        |   |   |          | 2,464   |  
|                                                                                                  | Change in operating assets and liabilities                                                                                             |                     |         | 38,648     |   |                |         | 9,226        |   |       |         | 57,135  |   |   |   |        |   |   |          | 105,009 |  
|                                                                                                  | Investment in subsidiaries and intercompany                                                                                            |                     |         | (64,383    | ) |                |         | (64,414      | ) |       |         | 53,490  |   |   |   | 75,307  |   |   |          |        |  
|                                                                                                  | Other                                                                                                                                  |                     |         | 30         |   |                |         | 1,411        |   |       |         | 958     |   |   |   |        |   |   |          | 2,399   |  
|                                                                                                  |                                                                                                                                        |                     |         |            |   |                |         |              |   |       |         |         |   |   |   |         |   |   |          |        
|Net cash provided by operating activities                                                         |                                                                                                                                        |                     | 62,038  |            |   |                | 24,999  |              |   |       | 159,455 |         |   |   |  |         |   |   | 246,492  |        
|Investing activities:                                                                             |                                                                                                                                        |                     |         |            |   |                |         |              |   |       |         |         |   |   |   |         |   |   |          |        
|Acquisition of property and equipment                                                             |                                                                                                                                        |                     | (880    | )          |   |                | (18,380 | )            |   |       | (20,897 | )       |   |   |  |         |   |   | (40,157  | )      
|Acquisition of businesses, net of cash acquired                                                   |                                                                                                                                        |                     |        |            |   |                | (5,499  | )            |   |       | (22,469 | )       |   |   |  |         |   |   | (27,968  | )      
|Acquisition of intangible assets                                                                  |                                                                                                                                        |                     |        |            |   |                |        |              |   |       | (2,541  | )       |   |   |  |         |   |   | (2,541   | )      
|Advances to customer                                                                              |                                                                                                                                        |                     |        |            |   |                | (70,000 | )            |   |       |        |         |   |   |  |         |   |   | (70,000  | )      
|Acquisition of commercial rights and royalties                                                    |                                                                                                                                        |                     |        |            |   |                | (15,790 | )            |   |       |        |         |   |   |  |         |   |   | (15,790  | )      
|Proceeds from disposition of property and
    equipment                                           |                                                                                                                                        |                     |        |            |   |                | (265    | )            |   |       | 6,555   |         |   |   |  |         |   |   | 6,290    |        
|Proceeds from (purchases of) debt securities, net                                                 |                                                                                                                                        |                     | (1,981  | )          |   |                | 767     |              |   |       |        |         |   |   |  |         |   |   | (1,214   | )      
|Purchases of equity securities and other
    investments                                          |                                                                                                                                        |                     | (25,499 | )          |   |                | 7,894   |              |   |       | (494    | )       |   |   |  |         |   |   | (18,099  | )      
|Proceeds from sale of equity securities and other
    investments                                 |                                                                                                                                        |                     | 148     |            |   |                | 27,313  |              |   |       |        |         |   |   |  |         |   |   | 27,461   |        
|Advances to unconsolidated affiliates                                                             |                                                                                                                                        |                     | (10,000 | )          |   |                |        |              |   |       | (328    | )       |   |   |  |         |   |   | (10,328  | )      
|                                                                                                  |                                                                                                                                        |                     |         |            |   |                |         |              |   |       |         |         |   |   |   |         |   |   |          |        
|Net cash (used in) provided by investing
    activities                                           |                                                                                                                                        |                     | (38,212 | )          |   |                | (73,960 | )            |   |       | (40,174 | )       |   |   |  |         |   |   | (152,346 | )      
|Financing activities:                                                                             |                                                                                                                                        |                     |         |            |   |                |         |              |   |       |         |         |   |   |   |         |   |   |          |        
|Principal payments on credit arrangements                                                         |                                                                                                                                        |                     |        |            |   |                | (617    | )            |   |       | (14,857 | )       |   |   |  |         |   |   | (15,474  | )      
|Issuance of common stock, net (predecessor)                                                       |                                                                                                                                        |                     | 9,641   |            |   |                |        |              |   |       |        |         |   |   |  |         |   |   | 9,641    |        
|Repurchase of common stock                                                                        |                                                                                                                                        |                     | (27,024 | )          |   |                |        |              |   |       |        |         |   |   |  |         |   |   | (27,024  | )      
|                                                                                                  |                                                                                                                                        |                     |         |            |   |                |         |              |   |       |         |         |   |   |   |         |   |   |          |        
|Net cash provided by (used in) financing
    activities                                           |                                                                                                                                        |                     | (17,383 | )          |   |                | (617    | )            |   |       | (14,857 | )       |   |   |  |         |   |   | (32,857  | )      
|Effect of foreign currency exchange rate changes
    on cash                                      |                                                                                                                                        |                     |        |            |   |                | (384    | )            |   |       | 18,316  |         |   |   |  |         |   |   | 17,932   |        
|                                                                                                  |                                                                                                                                        |                     |         |            |   |                |         |              |   |       |         |         |   |   |   |         |   |   |          |        
|(Decrease) increase in cash and cash equivalents                                                  |                                                                                                                                        |                     | 6,443   |            |   |                | (49,962 | )            |   |       | 122,740 |         |   |   |  |         |   |   | 79,221   |        
|Cash and cash equivalents at beginning of period                                                  |                                                                                                                                        |                     | (6,223  | )          |   |                | 440,026 |              |   |       | 131,260 |         |   |   |  |         |   |   | 565,063  |        
|                                                                                                  |                                                                                                                                        |                     |         |            |   |                |         |              |   |       |         |         |   |   |   |         |   |   |          |        
|Cash and cash equivalents at end of period                                                        |                                                                                                                                        | $                   | 220     |            |   | $              | 390,064 |              |   | $     | 254,000 |         |   | $ |  |         |   | $ | 644,284  |        
|                                                                                                  |                                                                                                                                        |                     |         |            |   |                |         |              |   |       |         |         |   |   |   |         |   |   |          |        

115



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

Year ended December 31, 2001
(Unaudited)

|                                                                                                  |                                                                               |                     |          |            |   |                |         |              |   |       |         |         |   |   |   |          |   |   |          |          |  
|------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | ------------------- | -------- | ---------- | - | -------------- | ------- | ------------ | - | ----- | ------- | ------- | - | - | - | -------- | - | - | -------- | -------- | -
|                                                                                                  |                                                                               | Quintiles           |          | Subsidiary |   | Subsidiary     |         |              |   |      
|                                                                                                  |                                                                               | Transnational Corp. |          | Guarantors |   | Non-Guarantors |         | Eliminations |   | Total
|                                                                                                  |                                                                               |                     |          |            |   |                |         |              |   |      
|Operating activities:                                                                             |                                                                               |                     |          |            |   |                |         |              |   |       |         |         |   |   |   |          |   |   |          |         
|                                                                                                  | Net (loss) income                                                             |                     | $        | (33,843    | ) |                | $       | 116,871      |   |       | $       | (821    | ) |   | $ | (116,050 | ) |   | $        | (33,843  | )
|                                                                                                  | Extraordinary gain from sale of discontinued
    operation, net of income tax |                     |          |           |   |                |         | (142,030     | ) |       |         |        |   |   |   |         |   |   |          | (142,030 | )
|                                                                                                  |                                                                               |                     |          |            |   |                |         |              |   |       |         |         |   |   |   |          |   |   |          |         
|                                                                                                  | (Loss) income from operations                                                 |                     |          | (33,843    | ) |                |         | (25,159      | ) |       |         | (821    | ) |   |   | (116,050 | ) |   |          | (175,873 | )
|Adjustments to reconcile income from operations
    to net cash provided by operating activities: |                                                                               |                     |          |            |   |                |         |              |   |       |         |         |   |   |   |          |   |   |          |         
|                                                                                                  | Depreciation and amortization                                                 |                     |          | 849        |   |                |         | 53,045       |   |       |         | 42,209  |   |   |   |         |   |   |          | 96,103   |  
|                                                                                                  | Restructuring charge (payments) accrual, net                                  |                     |          | 1,048      |   |                |         | 22,849       |   |       |         | 19,078  |   |   |   |         |   |   |          | 42,975   |  
|                                                                                                  | (Gain) loss from sales and impairments of
    investments, net                |                     |          | 356,553    |   |                |         | (32,533      | ) |       |         | (19,078 | ) |   |   |         |   |   |          | 304,942  |  
|                                                                                                  | Provision for (benefit from) deferred income tax
    expense                  |                     |          | (179,235   | ) |                |         | 120,790      |   |       |         | (5,915  | ) |   |   |         |   |   |          | (64,360  | )
|                                                                                                  | Change in operating assets and liabilities                                    |                     |          | 163,521    |   |                |         | (115,838     | ) |       |         | (4,848  | ) |   |   |         |   |   |          | 42,835   |  
|                                                                                                  | Investment in subsidiaries and intercompany                                   |                     |          | (410,882   | ) |                |         | 213,499      |   |       |         | 81,333  |   |   |   | 116,050  |   |   |          |         |  
|                                                                                                  | Other                                                                         |                     |          |           |   |                |         | 177          |   |       |         | 557     |   |   |   |         |   |   |          | 734      |  
|                                                                                                  |                                                                               |                     |          |            |   |                |         |              |   |       |         |         |   |   |   |          |   |   |          |         
|Net cash provided by operating activities                                                         |                                                                               |                     | (101,989 | )          |   |                | 236,830 |              |   |       | 112,515 |         |   |   |  |          |   |   | 247,356  |         
|Investing activities:                                                                             |                                                                               |                     |          |            |   |                |         |              |   |       |         |         |   |   |   |          |   |   |          |         
|Acquisition of property and equipment                                                             |                                                                               |                     | (17,539  | )          |   |                | (88,262 | )            |   |       | (28,182 | )       |   |   |  |          |   |   | (133,983 | )       
|Acquisition of businesses, net of cash acquired                                                   |                                                                               |                     |         |            |   |                |        |              |   |       | (6,620  | )       |   |   |  |          |   |   | (6,620   | )       
|Acquisition of intangible assets                                                                  |                                                                               |                     |         |            |   |                |        |              |   |       | (26,735 | )       |   |   |  |          |   |   | (26,735  | )       
|Acquisition of commercial rights and royalties                                                    |                                                                               |                     |         |            |   |                | (10,000 | )            |   |       |        |         |   |   |  |          |   |   | (10,000  | )       
|Proceeds from disposition of property and
    equipment                                           |                                                                               |                     |         |            |   |                | 1,004   |              |   |       | 6,544   |         |   |   |  |          |   |   | 7,548    |         
|Proceeds from (purchases of) debt securities, net                                                 |                                                                               |                     | (3,787   | )          |   |                | 75,683  |              |   |       |        |         |   |   |  |          |   |   | 71,896   |         
|Purchases of equity securities and other
    investments                                          |                                                                               |                     | (25,565  | )          |   |                | (27,379 | )            |   |       |        |         |   |   |  |          |   |   | (52,944  | )       
|Proceeds from sale of equity securities and other
    investments                                 |                                                                               |                     | 121,944  |            |   |                | 12,538  |              |   |       |        |         |   |   |  |          |   |   | 134,482  |         
|                                                                                                  |                                                                               |                     |          |            |   |                |         |              |   |       |         |         |   |   |   |          |   |   |          |         
|Net cash (used in) provided by investing
    activities                                           |                                                                               |                     | 75,053   |            |   |                | (36,416 | )            |   |       | (54,993 | )       |   |   |  |          |   |   | (16,356  | )       
|Financing activities:                                                                             |                                                                               |                     |          |            |   |                |         |              |   |       |         |         |   |   |   |          |   |   |          |         
|Principal payments on credit arrangements                                                         |                                                                               |                     |         |            |   |                | (530    | )            |   |       | (13,395 | )       |   |   |  |          |   |   | (13,925  | )       
|Issuance of common stock, net (predecessor)                                                       |                                                                               |                     | 48,439   |            |   |                |        |              |   |       |        |         |   |   |  |          |   |   | 48,439   |         
|Repurchase of common stock                                                                        |                                                                               |                     | (22,694  | )          |   |                |        |              |   |       |        |         |   |   |  |          |   |   | (22,694  | )       
|                                                                                                  |                                                                               |                     |          |            |   |                |         |              |   |       |         |         |   |   |   |          |   |   |          |         
|Net cash provided by (used in) financing
    activities                                           |                                                                               |                     | 25,745   |            |   |                | (530    | )            |   |       | (13,395 | )       |   |   |  |          |   |   | 11,820   |         
|Effect of foreign currency exchange rate changes
    on cash                                      |                                                                               |                     |         |            |   |                | (6      | )            |   |       | (7,965  | )       |   |   |  |          |   |   | (7,971   | )       
|                                                                                                  |                                                                               |                     |          |            |   |                |         |              |   |       |         |         |   |   |   |          |   |   |          |         
|(Decrease) increase in cash and cash equivalents                                                  |                                                                               |                     | (1,191   | )          |   |                | 199,878 |              |   |       | 36,162  |         |   |   |  |          |   |   | 234,849  |         
|Cash and cash equivalents at beginning of period                                                  |                                                                               |                     | (5,032   | )          |   |                | 240,148 |              |   |       | 95,098  |         |   |   |  |          |   |   | 330,214  |         
|                                                                                                  |                                                                               |                     |          |            |   |                |         |              |   |       |         |         |   |   |   |          |   |   |          |         
|Cash and cash equivalents at end of period                                                        |                                                                               | $                   | (6,223   | )          |   | $              | 440,026 |              |   | $     | 131,260 |         |   | $ |  |          |   | $ | 565,063  |         
|                                                                                                  |                                                                               |                     |          |            |   |                |         |              |   |       |         |         |   |   |   |          |   |   |          |         

116



---



##### 



QUINTILES TRANSNATIONAL CORP. AND
SUBSIDIARIES


Notes to Consolidated Financial
Statements  (Continued)

28.     Quarterly
Financial Data (Unaudited)

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

|                                                          |  |               |               |                      |  |                    |               |           |  |           |               |   |  |   |        |  |  |   |         |  
|--------------------------------------------------------- |  | ------------- | ------------- | -------------------- |  | ------------------ | ------------- | --------- |  | --------- | ------------- | - |  | - | ------ |  |  | - | ------- | -
|                                                          |  |              
|                                                          |  | 2003         
|                                                          |  |              
|                                                          |  |               |               | September 26         |  |                   
|                                                          |  |               |               | through              |  |                   
|                                                          |  |               |               | July 1, 2003 through |  | September 30,      |               | Fourth   
|                                                          |  | First Quarter |               | Second Quarter       |  | September 25, 2003 |               | 2003      |  | Quarter  
|                                                          |  |               |               |                      |  |                    |               |           |  |          
|                                                          |  | Predecessor   |               | Predecessor          |  | Predecessor        |               | Successor |  | Successor
|Gross revenues                                            |  | $             | 511,607       |                      |  | $                  | 520,033       |           |  | $         | 467,182       |   |  | $ | 22,992 |  |  | $ | 524,173 |  
|Income from continuing operations before income
    taxes |  |               | 38,121        |                      |  |                    | 44,814        |           |  |           | (17,594       | ) |  |   | 1,245  |  |  |   | 2,150   |  
|Income (loss) from continuing operations                  |  |               | 25,156        |                      |  |                    | 29,597        |           |  |           | (17,592       | ) |  |   | 819    |  |  |   | (8,246  | )
|Net income                                                |  | $             | 25,156        |                      |  | $                  | 29,597        |           |  | $         | (17,592       | ) |  | $ | 819    |  |  | $ | (8,246  | )
|                                                          |  |               |               |                      |  |                    |               |           |  |           |               |   |  |   |        |  |  |   |         |  
|Basic net income per share                                |  | $             | 0.21          |                      |  | $                  | 0.25          |           |  | $         | (0.15         | ) |  | $ | 0.01   |  |  | $ | (0.07   | )
|                                                          |  |               |               |                      |  |                    |               |           |  |           |               |   |  |   |        |  |  |   |         |  
|Diluted net income per share                              |  | $             | 0.21          |                      |  | $                  | 0.25          |           |  | $         | (0.15         | ) |  | $ | 0.01   |  |  | $ | (0.07   | )
|                                                          |  |               |               |                      |  |                    |               |           |  |           |               |   |  |   |        |  |  |   |         |  
|Range of stock prices                                     |  | $             | 11.990-13.210 |                      |  | $                  | 12.190-14.250 |           |  | $         | 13.660-14.490 |   |  |   | N/A    |  |  |   | N/A     |  

|                                                                                                                                       |                                                         |               |               |                |  |               |               |                |  |   |              |      |  |   |              |      | 
|-------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ------------- | ------------- | -------------- |  | ------------- | ------------- | -------------- |  | - | ------------ | ---- |  | - | ------------ | ---- | 
|                                                                                                                                       |                                                         |              
|                                                                                                                                       |                                                         | 2002         
|                                                                                                                                       |                                                         |              
|                                                                                                                                       |                                                         | First Quarter |               | Second Quarter |  | Third Quarter |               | Fourth Quarter
|                                                                                                                                       |                                                         |               |               |                |  |               |               |               
|                                                                                                                                       |                                                         | Predecessor   |               | Predecessor    |  | Predecessor   |               | Predecessor   
|Gross revenues                                                                                                                         |                                                         | $             | 493,296       |                |  | $             | 498,233       |                |  | $ | 490,965      |      |  | $ | 509,915      |     
|Income from continuing operations before income
    taxes                                                                              |                                                         |               | 25,762        |                |  |               | 30,074        |                |  |   | 33,798       |      |  |   | 34,026       |     
|Income (loss) from continuing operations                                                                                               |                                                         |               | 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                                                                                                                             |                                                         | $             | 62,920        |                |  | $             | 20,626        |                |  | $ | 21,179       |      |  | $ | 22,598       |     
|                                                                                                                                       |                                                         |               |               |                |  |               |               |                |  |   |              |      |  |   |              |     
|Basic net income per share:                                                                                                            |                                                         |               |               |                |  |               |               |                |  |   |              |      |  |   |              |     
|                                                                                                                                       | Income from continuing operations                       |               | $             | 0.15           |  |               | $             | 0.17           |  |   | $            | 0.18 |  |   | $            | 0.19 | 
|                                                                                                                                       | Cumulative effect of change in accounting
    principle |               |               | 0.38           |  |               |               |               |  |   |              |     |  |   |              |     | 
|                                                                                                                                       |                                                         |               |               |                |  |               |               |                |  |   |              |      |  |   |              |     
|                                                                                                                                       | Basic net income per share                              |               | $             | 0.53           |  |               | $             | 0.17           |  |   | $            | 0.18 |  |   | $            | 0.19 | 
|                                                                                                                                       |                                                         |               |               |                |  |               |               |                |  |   |              |      |  |   |              |     
|Diluted net income per share:                                                                                                          |                                                         |               |               |                |  |               |               |                |  |   |              |      |  |   |              |     
|                                                                                                                                       | Income from continuing operations                       |               | $             | 0.14           |  |               | $             | 0.17           |  |   | $            | 0.18 |  |   | $            | 0.19 | 
|                                                                                                                                       | Cumulative effect of change in accounting
    principle |               |               | 0.38           |  |               |               |               |  |   |              |     |  |   |              |     | 
|                                                                                                                                       |                                                         |               |               |                |  |               |               |                |  |   |              |      |  |   |              |     
|                                                                                                                                       | Diluted net income per share                            |               | $             | 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.

117



---



##### 



REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of
Quintiles Transnational Corp.:

In our opinion, the accompanying consolidated
balance sheet 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 its subsidiaries at
December 31, 2003 and the results of their operations and
their cash flows for the period from September 26, 2003
through December 31, 2003 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.

/s/ PricewaterhouseCoopers LLP

Raleigh, North Carolina

February 25, 2004


118



---



##### 



REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of
Quintiles Transnational Corp.:

In our opinion, the accompanying consolidated
balance sheet 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 its subsidiaries at
December 31, 2002 and the results of their operations and
their cash flows for the period from January 1, 2003
through September 25, 2003 and for the year ended
December 31, 2002, 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 audits. We
conducted our audits 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 audits provide a reasonable
basis for our opinion. The financial statements of Quintiles
Transnational Corp. as of December 31, 2001, and for the
year then ended, before the revisions described in Note 2,
12 and 26, were audited by other independent auditors who have
ceased operations. Those independent auditors 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 12 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 the year then ended, were
audited by other independent auditors 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 12, 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
financial statements. We also audited the transitional
disclosures described in Note 12. In our opinion, such
adjustments are appropriate and have been properly applied and
the transitional disclosures for 2001 in Note 12 are
appropriate. However, we were not engaged to audit, review, or
apply any procedures to the 2001 financial statements of the
Company other than with respect to such adjustments and
disclosures and, accordingly, we do not express an opinion or
any other form of assurance on the 2001 financial statements
taken as a whole.

/s/ PricewaterhouseCoopers LLP

Raleigh, North Carolina

February 25, 2004


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

119



---



##### 



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. 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.

120



---



##### 





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

On May 22, 2002, we filed a Current Report
on Form 8-K reporting that on May 17, 2002, our board
of directors dismissed Arthur Andersen LLP and engaged
PricewaterhouseCoopers LLP as our independent public accountants
for our fiscal year ended December 31, 2002.



|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Our management, with the participation of our
Chief Executive Officer and Chief Financial Officer, has
evaluated the effectiveness of our disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended
(the Exchange Act) as of the end of the period
covered by this Form 10-K. Based on such evaluation, our
Chief Executive Officer and Chief Financial Officer concluded
that, as of the end of the period covered by this
Form 10-K, our disclosure controls and procedures provide
reasonable assurances that the information we are required to
disclose in the reports we file or submit under the Exchange Act
is recorded, processed, summarized and reported within the time
period required by the United States Securities and Exchange
Commissions rules and forms. There have been no changes in
our internal controls over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) during the period covered by this Form 10-K that
materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.

121



---



##### 



PART III



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

Set forth below is certain information with
respect to each of our executive officers and directors. There
are no family relationships between any of our directors or
executive officers. Each of our directors holds office until
their respective successors are elected and qualified or until
their earlier resignation or removal. Each of our directors also
serves as a director of Pharma Services and Intermediate Holding.

|                          |  |                                                                           |  |     |    |            |  |  |      |      |  | 
|------------------------- |  | ------------------------------------------------------------------------- |  | --- | -- | ---------- |  |  | ---- | ---- |  | 
|                          |  |                                                                           |  |     |    | First Year
|                          |  |                                                                           |  |     |    | Elected   
|Name                      |  | Position With Company                                                     |  | Age |    | Director  
|                          |  |                                                                           |  |     |    |           
|Dennis B. Gillings, Ph.D. |  | Executive Chairman,Chief Executive Officer and Director                   |  |     | 59 |            |  |  | 1982 |     
|James L. Bierman          |  | Executive Vice President,Chief Financial Officer and Director             |  |     | 51 |            |  |  | 2003 |     
|John S. Russell           |  | Executive Vice President,General Counsel and Chief Administrative Officer |  |     | 49 |            |  |  | N/A  |     
|Ronald J. Wooten          |  | Executive Vice President,Corporate Development                            |  |     | 44 |            |  |  | N/A  |     
|Oppel Greeff              |  | President of Global Product Development                                   |  |     | 55 |            |  |  | N/A  |     
|Richard M. Cashin, Jr.    |  | Director                                                                  |  |     |    | 50         |  |  |      | 2003 | 
|Clateo Castellini(3)      |  | Director                                                                  |  |     |    | 68         |  |  |      | 2004 | 
|Jonathan J. Coslet(1)(2)  |  | Director                                                                  |  |     |    | 39         |  |  |      | 2004 | 
|Jack M. Greenberg(1)      |  | Director                                                                  |  |     |    | 61         |  |  |      | 2004 | 
|Robert A. Ingram(2)(3)    |  | Director                                                                  |  |     |    | 61         |  |  |      | 2004 | 
|S. Iswaran(2)             |  | Director                                                                  |  |     |    | 41         |  |  |      | 2003 | 
|Jacques Nasser(2)         |  | Director                                                                  |  |     |    | 57         |  |  |      | 2003 | 
|James S. Rubin(1)(3)      |  | Director                                                                  |  |     |    | 36         |  |  |      | 2003 | 



---



|    |                                                 
|--- | ------------------------------------------------
|(1) | Member of Audit Committee                       
|   
|(2) | Member of Compensation and Nominations Committee
|   
|(3) | Member of Quality/ Regulatory Committee         

Dennis B.
Gillings, Ph.D.has served as our
Executive Chairman and Chief Executive Officer, as well as a
Director since the Pharma Services transaction. Dr Gillings
began providing statistical consulting and data management
services to pharmaceutical customers in 1974 during his tenure
as professor of biostatistics at the University of North
Carolina at Chapel Hill. Quintiles arose from these consulting
services and was founded by Dr. Gillings in 1982.
Dr. Gillings also has served as the Chairman of
Quintiles board of directors since our inception and
served as our Chief Executive Officer from our inception until
April 2001. Dr. Gillings currently oversees our corporate
strategic planning, as chair of the strategy committee, and is
active in our continued international expansion, particularly in
Japan and the Asia-Pacific region. Dr. Gillings serves on
several other boards and councils, including ICAgen, Inc.; the
UNC School of Public Health Deans Advisory Council; the
Graduate Education Advancement board of UNC; the North Carolina
Institute of Medicine; and the UNC Health Care Systems. He
formerly served as the founding Chairman of the Association of
Clinical Research Organizations, a Washington-based trade group
formed in 2002. Dr. Gillings received a diploma in
Mathematical Statistics from Cambridge University in 1967 and a
Ph.D. in Mathematics from the University of Exeter, England, in
1972. He served for more than 15 years as a professor at
the University of North Carolina at Chapel Hill and received the
Honorary Degree of Doctor of Science from the University in May
2001.

122



---



##### 



James L. Biermanhas
served as a Director and our Executive Vice President and Chief
Financial Officer since the Pharma Services transaction. In
January 2004, Mr. Bierman announced his intention to retire
from this position. To help ensure a smooth transition of his
responsibilities, Mr. Bierman has agreed, pursuant to an
amended employment agreement, to remain in his position until
June 30, 2004, if necessary. Prior to the Pharma Services
transaction, Mr. Bierman had served as our Chief Financial
Officer since February 2000. Mr. Bierman joined us 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 us,
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. He is a member of both the North
Carolina Association of Certified Public Accountants and the
Pennsylvania Institute of Certified Public Accountants.
Mr. Bierman received his Bachelor of Arts in Economics/
History from Dickinson College and received his MBA from Cornell
Universitys Johnson Graduate School of Management.

John S. Russellhas
served as our Executive Vice President, General Counsel and
Chief Administrative Officer since the Pharma Services
transaction. Prior to the Pharma Services transaction,
Mr. Russell had served as our General Counsel since 1998.
Mr. Russells duties include acting as General
Counsel, Board Secretary and manager of global Quality Assurance
and Regulatory Matters as well as Government Relations.
Previously, he also served as our Head of Global Human
Resources. Prior to joining us in 1998, Mr. Russell
practiced law for 12 years in the Research Triangle Park
area of North Carolina, concentrating in the creation and
acquisition of high technology and life sciences companies, and
worked for four years at Houghton Mifflin Company in
New York. He has served as a director of public and private
companies and as Board Secretary of the Association of Clinical
Research Organizations. Mr. Russell holds degrees from the
University of North Carolina at Chapel Hill (B.A., 1977),
Columbia University (M.A., 1978), and Harvard Law School (J.D.,
1985).

Ronald J. Wootenhas
served as our Executive Vice President, Corporate Development
since June 2003. Mr. Wooten joined us in July 2000 as
Senior Vice President, Finance to manage the formation of the
PharmaBio Development Group and to contribute to the execution
of our merger and acquisition and corporate finance strategies.
Mr. Wootens previous experience includes nine years
with First Union Securities, now Wachovia Securities, Inc.,
where Mr. Wooten most recently served as a Managing
Director in Investment Banking. His capital markets and
corporate finance experience includes mergers and acquisitions,
public and private equity finance and fixed income advisory.
Mr. Wooten earned his Bachelors degree in Chemistry from
the University of North Carolina at Chapel Hill and a Masters
degree in Finance from Boston University.

Oppel
Greeff, M.D.has served as our
President of Global Product Development since 2002. Prior to his
current position, Dr. Greeff worked in various capacities
within our Africa-India region. Before joining us,
Dr. Greeff founded or co-founded several corporations,
including PharmaNet, Inc., a retail pharmacy franchise.
Dr. Greeff received an M.D. in Psychiatry at the University
of Natal. Dr. Greeff also received his MpharmMed and MBChB
degrees from the University of Pretoria.

Richard M. Cashin,
Jr.has served as a Director since the
Pharma Services transaction. Mr. Cashin is the Managing
Partner of One Equity, the private equity arm of Bank One
Corporation. One Equity manages $3.5 billion of investments
and commitments. Prior to joining One Equity, Mr. Cashin
was at Citicorp Venture Capital from 1980 to 2000 (President
1994  2000), where he led investments in
approximately 100 companies. Mr. Cashin serves on the board
of directors of Titan International, Inc., Delco Remy
International Inc. and Fairchild Semiconductor International
Inc. Mr. Cashin received his MBA from Harvard Business
School.

Clateo Castellinihas served as a Director since January 2004. Mr. Castellini
served as the Chairman, President & CEO of Becton,
Dickinson and Company from 1994 until 1999 and also served as
the Chairman of its board of directors from 1999 until 2003 and
continues to serve as Director Emeritus. Prior to joining Becton
Dickinson and Company, Mr. Castellini served in various
management positions at Dow-Lepetit Pharmaceuticals, a
subsidiary of the Dow Chemical Company. Mr. Castellini has
also served as a

123



---



##### 



director for Bestfoods, Inc., a leading
manufacturer of food products in the United States and Canada,
from 1997 until 1999 and currently serves on the board of
directors of A-Bio Pharma Pte. Ltd, a biologics contract
manufacturer located in Singapore and EDB and A-Bio, two other
companies located in Singapore. Mr. Castellini received a
degree from Bocconi University in Milano, Italy and an MBA from
Harvard Business School.


Jonathan J. Coslethas served as a Director since the Pharma Services transaction.
Mr. Coslet is a Senior Partner of Texas Pacific Group.
responsible for the firms generalist and healthcare
investment activities. Mr. Coslet is also a member of the
firms Investment Committee and Management Committee. Prior
to joining Texas Pacific Group in 1993, Mr. Coslet was in
the Investment Banking department of Donaldson,
Lufkin & Jenrette, specializing in leveraged
acquisitions and high yield finance from 1991 to 1993. From 1987
to 1989, Mr. Coslet worked at Drexel Burnham Lambert.
Mr. Coslet serves on the boards of directors of Oxford
Health Plans, Inc., Petco Animal Supplies, Inc., Endurance
Specialty Holdings Ltd., and J.Crew Group, Inc. Mr. Coslet
received his MBA from Harvard Graduate School of Business
Administration in 1991, where he was a Baker Scholar and a Loeb
Fellow. Mr. Coslet received his Bachelor of Science in
Economics (Finance) from the University of Pennsylvania Wharton
School, where he was Valedictorian, summa cum laude, a Gordon
Fellow, and a Steur Fellow.

Jack M. Greenberghas served as a Director since January 2004. At the end of 2002,
Mr. Greenberg retired as Chairman and Chief Executive
Officer of McDonalds Corporation. Mr. Greenberg has
served as McDonalds Chairman since May 1999 and its Chief
Executive Officer since August 1998. Mr. Greenberg served
as McDonalds President from August 1998 to May 1999, and
as its Vice-Chairman from December 1991 to 1998.
Mr. Greenberg also served as Chairman (from October 1996)
and Chief Executive Officer (from July 1997) of McDonalds
USA, a division of McDonalds Corporation until August
1998. Mr. Greenberg is a member of the American Institute
of Certified Public Accountants, the Illinois CPA Society and
the Chicago Bar Association. Mr. Greenberg is a director of
The Allstate Corporation, Abbott Laboratories, First Data
Corporation, Hasbro, Inc. and Manpower, Inc. Mr. Greenberg
is also a member of the board of trustees of Ronald McDonald
House Charities, DePaul University, where he previously served
as Chairman, the Field Museum, the Chicago Symphony Orchestra
and the Institute of International Education. Mr. Greenberg
is a graduate of DePaul Universitys School of Commerce and
School of Law.

Robert A. Ingramhas
served as a Director since February 2004. Mr. Ingram has
been the Vice Chairman of Pharmaceuticals of GlaxoSmithKline plc
since January of 2003. Mr. Ingram was the Chief Operating
Officer and President, Pharmaceutical Operations of
GlaxoSmithKline plc from January 2001 to January 2003.
Mr. Ingram was Chief Executive of Glaxo Wellcome plc from
October 1997 to December 2000 and Chairman of Glaxo Wellcome
Inc., Glaxo Wellcome plcs U.S. subsidiary, from
January 1999 to December 2000. Mr. Ingram was Chairman,
President and Chief Executive Officer of Glaxo Wellcome plc from
October 1997 to January 1999. Mr. Ingram serves on the
board of directors of Edwards Life Sciences, Lowes
Companies, Inc., Misys plc, Molson Inc., Nortel Networks, OSI
Pharmaceuticals, Valent Pharmaceuticals International and
Wachovia Corporation. Mr. Ingram received his Bachelor of
Science in Business Administration from Eastern Illinois
University.

S. Iswaranhas
served as a Director since November 2003. Mr. Iswaran is
the Managing Director at Temasek Holdings (Pte) Ltd.
Mr. Iswaran was previously Director (Strategic Development)
at Singapore Technologies Pte Ltd. Prior to that,
Mr. Iswaran was Director for Trade in the Ministry of
Trade & Industry. Mr. Iswaran is a Member of
Parliament of the West Coast GRC of Singapore. Mr. Iswaran
serves on the board of directors of Sunningdale Precision
Industries Ltd, SembCorp Industries Ltd,
Hyflux Ltd and SciGen Ltd. Mr. Iswaran graduated
with a Bachelor of Economics (First Class Honours) from the
University of Adelaide, Australia, in 1986 and a Master of
Public Administration from Harvard University in 1995.

Jacques Nasserhas
served as a Director since September 2003. Mr. Nasser is a
Senior Partner with One Equity and also serves as the
Non-Executive Chairman of Polaroid Corporation, the
instant-imaging company based in Waltham, Mass., which was
acquired by an affiliate of One Equity in July 2002 following
Polaroids voluntary bankruptcy filing in 2001.
Mr. Nasser also serves on the International

124



---



##### 



Advisory board of Allianz AG and on the board of
directors of News Corporations British Sky Broadcasting
Group. Prior to joining One Equity, Mr. Nasser served as
the President Chief Executive Officer of Ford Motor Company,
Inc. from January 1999 until October 2001 and served as a member
of Fords board of directors from 1998 until 2001.
Mr. Nassers 33-year career with Ford covered a
variety of positions and assignments including senior leadership
responsibilities in Europe, Australia, Asia and South America.
Mr. Nasser also oversaw the growth and acquisition of
Jaguar, Aston Martin, Volvo, Land Rover and Hertz.
Mr. Nasser holds an honorary Doctorate and a Business
degree from the Royal Melbourne Institute of Technology.


James S. Rubinhas
served as Director since September 2003. Mr. Rubin is a
Partner with One Equity. Prior to joining One Equity,
Mr. Rubin was a Vice President with Allen &
Company, Incorporated, a New York investment bank
specializing in media and entertainment transactions and
advisory work. From 1996 to 1998, he held a number of senior
positions with the Federal Communications Commission under
Chairman Reed Hundt, including Executive Director of the
Education Technology Task Force and General Counsel to the Chief
of the Wireless Bureau. Mr. Rubin received his Bachelor of
Arts in History from Harvard University and received his Juris
Doctor from Yale Law School.

Nomination of Directors

Pharma Services entered into a stockholders
agreement in connection with the Pharma Services transaction
that requires each stockholder who is party to that agreement to
vote his/her/its respective shares of common stock of Pharma
Services in favor of ten nominees to the board of directors of
Pharma Services. The stockholders agreement also provides that
the constituents on our board of directors and the committees
thereof are the same as Pharma Services. Each stockholder has
agreed to vote all shares for the following directors:
(i) one individual to be designated by Dr. Gillings,
who is currently Dr. Gillings; (ii) three individuals
to be designated by One Equity, whom are currently
Messrs. Cashin, Nasser and Rubin; (iii) one member of
management who shall be the chief financial officer until a
chief executive officer (other than Dr. Gillings) or a new
chief operating officer is hired, who is currently
Mr. Bierman; (iv) two individuals who are not
affiliates or associates of any stockholder or employee of
Pharma Services or any of its subsidiaries that are initially
mutually designated by One Equity, Dr. Gillings, Temasek
and TPG and thereafter by the Compensation and Nominations
Committee of the board of directors, whom are currently Messrs.
Greenberg and Ingram; (v) two individuals to be designated
by Temasek, whom are currently Messrs. S. Iswaran and
Castellini; and (vi) one individual to be designated by
TPG, who is currently Mr. Coslet. In addition, the Pharma
Services Plan requires each holder of shares of Pharma Services
common stock issued under the Pharma Services Plan to vote in
the election of directors as directed by the Pharma Services
board of directors, which shall be consistent with the
provisions of the stockholders agreement. The rollover
agreements entered by certain of our executive officers (among
others) in connection with the Pharma Services transaction
include similar provisions.

Our board has determined that Mr. Greenberg
is an independent director who qualifies as an audit committee
financial expert, as that term is defined in Item 401(h) of
Regulation S-K. The board also has determined that
Messrs. Rubin and Coslet, who serve with Mr. Greenberg
on the Audit Committee, also qualify as audit committee
financial experts. As to Messrs. Rubin and Coslet, who
serve as board representatives for One Equity and TPG,
respectively, the board made no determination of their
independence and without that determination, they should not be
assumed to be independent.

Code of Ethics

Our executive officers are subject to a code of
ethics that complies with standards mandated by the
Sarbanes-Oxley Act of 2002. The complete code of ethics is
available on our website at www.quintiles.com. At any
time it is not available on our website, we will provide a copy
upon written request made to our Corporate Communication
Department, at 4709 Creekstone Drive, Suite 200, Durham, North
Carolina 27703-8411. Information on our website is not part of
this report. If we amend or grant any waiver from a provision of
our code of ethics that applies to our executive officers, we
will publicly disclose such amendment or waiver as required by
applicable law, including by posting such amendment or waiver on
our website at www.quintiles.com or by filing a Current
Report on Form 8-K.

125



---



##### 



Section 16(a)  Beneficial
Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires
our executive officers, directors and greater-than 10%
shareholders to file reports of ownership and changes in
ownership with the SEC. Based solely upon review of Forms 3 and
4 and amendments thereto furnished to us during fiscal 2003, we
believe that all Section 16(a) filing requirements
applicable to our executive officers, directors and
greater-than-10% shareholders were fulfilled during 2003 in a
timely manner. No Forms 5 were required to be filed with respect
to fiscal year 2003.



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

The following table shows the annual and
long-term compensation paid to or accrued by us for the two
individuals serving as Chief Executive Officer and the next four
most highly compensated executive officers during the year ended
December 31, 2003 (collectively, the named executive
officers) for services rendered to us during the fiscal
years indicated.

Summary Compensation Table

|                      |                                                 |      |      |                     |  |                        |         |                     |      |        |         |              |      |           |        |              |     |   |   |      |  |  |         |           |      |  |         |  |  |   |           |         |     
|--------------------- | ----------------------------------------------- | ---- | ---- | ------------------- |  | ---------------------- | ------- | ------------------- | ---- | ------ | ------- | ------------ | ---- | --------- | ------ | ------------ | --- | - | - | ---- |  |  | ------- | --------- | ---- |  | ------- |  |  | - | --------- | ------- | ----
|                      |                                                 |      |      |                     |  |                        |         |                    
|                      |                                                 |      |      | Annual Compensation |  | Long Term Compensation |         |                    
|                      |                                                 |      |      |                     |  |                        |         |                    
|                      |                                                 |      |      |                     |  |                        |         |                     |      |       
|                      |                                                 |      |      |                     |  |                        |         | Number of Shares of |      |       
|                      |                                                 |      |      |                     |  |                        |         | Common Stock        |      |       
|                      |                                                 |      |      |                     |  |                        |         | Underlying Options  |      |       
|                      |                                                 |      |      |                     |  | Restricted             |         |                     |      |       
|Name and              |                                                 |      |      |                     |  | Other Annual           |         | Stock               |      |        |         | Pharma       |      | All Other
|Principal Position    |                                                 | Year |      | Salary              |  | Bonus                  |         | Compensation        |      | Awards |         | Quintiles(3) |      | Services  |        | Compensation
|                      |                                                 |      |      |                     |  |                        |         |                     |      |        |         |              |      |           |        |             
|Dennis B. Gillings(1) |                                                 |      | 2003 |                     |  | $                      | 706,061 |                     |      | $      | 0       |              |      | $         |       | (2)          |     |   |  |      |  |  | 242,692 | (4)       |      |  |        |  |  | $ | 1,705,704 | (5)    
|                      | Executive Chairman And                          |      |      | 2002                |  |                        |         | 600,000             | (6)  |        |         | 80,067       |      |           |        |              | (2) |   |   |      |  |  |         | 339,733   | (7)  |  |         |  |  |   |           | 847,422 | (8) 
|                      | Chief Executive Officer                         |      |      | 2001                |  |                        |         | 600,000             | (9)  |        |         | 31,875       | (10) |           |        |              | (2) |   |   |      |  |  |         | 372,323   | (11) |  |         |  |  |   |           | 724,318 | (12)
|James L. Bierman      |                                                 |      | 2003 |                     |  | $                      | 371,000 |                     |      | $      | 92,750  |              |      | $         |       | (2)          |     |   |  |      |  |  | 97,076  |           |      |  |        |  |  | $ | 595,235   | (13)   
|                      | Executive Vice President,                       |      |      | 2002                |  |                        |         | 365,750             |      |        |         | 65,956       |      |           |        |              | (2) |   |   |      |  |  |         | 144,387   |      |  |         |  |  |   |           | 5,782   | (14)
|                      | Chief Financial Officer                         |      |      | 2001                |  |                        |         | 368,749             |      |        |         | 12,031       |      |           |        |              | (2) |   |   |      |  |  |         | 106,470   |      |  |         |  |  |   |           | 9,332   | (15)
|John S. Russell       |                                                 |      | 2003 |                     |  | $                      | 316,227 | (16)                |      | $      | 709,000 |              |      | $         |       | (2)          |     | $ | 0 | (17) |  |  | 97,076  |           |      |  | 225,000 |  |  | $ | 590,587   | (18)   
|                      | Executive Vice President,                       |      |      | 2002                |  |                        |         | 283,250             | (19) |        |         | 24,694       |      |           |        |              | (2) |   |   |      |  |  |         | 142,743   |      |  |         |  |  |   |           | 9,663   | (20)
|                      | General Counsel, and                            |      |      | 2001                |  |                        |         | 271,248             | (21) |        |         | 9,453        | (22) |           |        |              | (2) |   |   |      |  |  |         | 95,800    | (23) |  |         |  |  |   |           | 9,332   | (24)
|                      | Chief Administrative Officer                    |      |      |                     |  |                        |         |                     |      |        |         |              |      |           |        |              |     |   |   |      |  |  |         |           |      |  |         |  |  |   |           |         |     
|Ronald J. Wooten(25)  |                                                 |      | 2003 |                     |  | $                      | 295,833 | (26)                |      | $      | 825,000 |              |      | $         |       | (2)          |     | $ | 0 | (27) |  |  | 54,363  |           |      |  | 225,000 |  |  | $ | 252,288   | (28)   
|                      | Executive Vice President, Corporate Development |      |      |                     |  |                        |         |                     |      |        |         |              |      |           |        |              |     |   |   |      |  |  |         |           |      |  |         |  |  |   |           |         |     
|Oppel Greeff(29)      |                                                 |      | 2003 |                     |  | $                      | 333,864 | (30)                |      | $      | 690,000 |              |      | $         | 50,914 | (31)         |     | $ | 0 | (32) |  |  | 97,076  |           |      |  | 225,000 |  |  | $ | 389,053   | (33)   
|                      | President of Global Product Development         |      |      |                     |  |                        |         |                     |      |        |         |              |      |           |        |              |     |   |   |      |  |  |         |           |      |  |         |  |  |   |           |         |     
|Pamela J. Kirby(34)   |                                                 |      | 2003 |                     |  | $                      | 471,224 |                     |      | $      | 144,375 | (35)         |      | $         |       | (2)          |     |   |  |      |  |  | 169,884 |           |      |  |        |  |  | $ | 4,908,285 | (36)   
|                      | Former Chief Executive                          |      |      | 2002                |  |                        |         | 570,625             |      |        |         | 63,463       | (37) |           |        |              | (2) |   |   |      |  |  |         | 237,813   |      |  |         |  |  |   |           | 1,413   | (38)
|                      | Officer                                         |      |      | 2001                |  |                        |         | 412,047             |      |        |         | 24,063       | (39) |           |        |              | (2) |   |   |      |  |  |         | 1,127,703 | (40) |  |         |  |  |   |           | 1,342   | (41)



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Dr. Gillings became our Executive Chairman
    and Chief Executive Officer effective September 25, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(2) | Perquisites and other personal benefits received
    did not exceed the lesser of $50,000 or 10% of salary and bonus
    compensation for the named executive officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(3) | In connection with the Pharma Services
    transaction, all options to purchase shares of our common stock,
    or the Quintiles options, became fully vested and exercisable.
    Messrs. Russell and Wooten and Dr. Greeff were each
    given the opportunity to roll over the in-the-money
    value of their Quintiles options for a combination of
    shares of common stock and Series A Preferred Stock of
    Pharma Services, referred to as the Pharma Services Units. The
    in-the-money value of such options means the excess
    of $14.50 over the exercise price of the option to purchase
    shares of our common stock, multiplied by the number of shares
    subject to each such option, less any applicable withholding
    taxes. Messrs. Russell and Wooten and Dr. Greeff
    elected to roll over $300,000, $232,028 and $361,569,
    respectively, of the in-the-money value of their
    Quintiles options to acquire Pharma Services Units. See
    Management Agreements below. Apart from the rollover
    arrangements

126



---



##### 



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | described above, in connection with the Pharma
    Services transaction, Dr. Gillings rolled over $1,456,768
    of the value of his Quintiles options (other than those options
    issued to Dr. Gillings for the use of his plane) to acquire
    Pharma Services Units. Quintiles options held by named executive
    officers prior to the Pharma Services transaction and not rolled
    over for Pharma Services Units, including those held by
    Dr. Kirby and Mr. Bierman, were canceled in exchange
    for a cash payment equal to the in-the-money value
    of such options. The value of the Quintiles options rolled over
    in the Pharma Services transaction is reflected in the All
    Other Compensation column. See Aggregated Option
    Exercises in Last Fiscal Year and Fiscal Year End Option
    Values under this Item 11 and Certain
    Relationships and Related Transactions under Item 13
    for additional details regarding Quintiles options held by the
    named executive officers that were canceled in the Pharma
    Services transaction.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | In 2003, Dr. Gillings used his own airplane
    to provide extensive business-related travel services for
    himself and other of our employees. To reimburse
    Dr. Gillings for the use of his plane prior to the Pharma
    Services transaction, we made cash payments of $2,328,724, which
    is in addition to the amounts shown in the table. In addition,
    on March 17, 2003, we granted Dr. Gillings Quintiles
    options with an aggregate Black-Scholes value of approximately
    $350,000. These options to purchase 49,869 shares at an
    exercise price of $12.27 per share are not included in the
    table because they were not treated as long-term compensation.
    To reimburse Dr. Gillings for the use of his plane after
    the Pharma Services transaction, we made a cash payment of
    $1,096,455, which is in addition the amounts shown in the table.
    See Certain Relationships and Related Transactions
    under Item 13 for additional information regarding these
    arrangements.
|   
|(5) | Includes $5,625 of matching contributions under
    the 401(k) Plan, $105 of estimated forfeitures allocated under
    the profit sharing portion of the 401(k) Plan, $240,884 for the
    present value of the benefit to Dr. Gillings of the
    premiums we paid in prior years under a split-dollar life
    insurance arrangement (we paid no premiums in 2003) (see
    Certain Relationships and Related Transactions under
    Item 13 for additional information), $2,322 of other life
    insurance premiums we paid, and $1,456,768 related to the
    cancellation of options (other than those options issued to
    Dr. Gillings for the use of his plane) in connection with
    the Pharma Services transaction, all of which Dr. Gillings
    used to acquire Pharma Services Units.                                                                                                                                                                                                                               
|   
|(6) | Includes $540,000 deferred during 2002 pursuant
    to our Elective Deferred Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(7) | In 2002, Dr. Gillings used his own plane to
    provide extensive business-related travel services for himself
    and other of our employees. To reimburse Dr. Gillings for
    these services, the Human Resources and Compensation Committee
    of our former board of directors authorized cash payments up to
    approximately $1.4 million, which is in addition to the
    amounts shown in this table. We also granted Quintiles options
    to Dr. Gillings with an aggregate Black-Scholes value of
    approximately $1.4 million in quarterly installments with
    an exercise price on March 31, 2002 of $17.75 per
    share; on June 15, 2002 of $13.09 per share; on
    September 16, 2002 of $9.76 per share; and on
    December 16, 2002 of $12.11 per share. These options
    to purchase 190,250 shares are not included in the table
    because they were not treated as long-term compensation.                                                                                                           
|   
|(8) | Includes $1,688 of matching contributions under
    the 401(k) portion of the ESOP and 401(k) Plan, $158 for the
    estimated value of forfeitures allocated under the ESOP portion
    of the ESOP and 401(k) Plan, $843,255 for the present value of
    the benefit to Dr. Gillings of the premiums we paid under a
    split-dollar life insurance arrangement, and $2,321 of other
    life insurance premiums we paid.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(9) | Includes $540,000 deferred during 2001 pursuant
    to our Elective Deferred Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Includes $31,875 relating to bonus payable for
    2001 deferred during 2002 pursuant to our Elective Deferred
    Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                   
|    
|(11) | Includes 8,281 shares subject to options
    granted pursuant to the 2001 bonus. In 2001, Dr. Gillings
    used his own plane to provide extensive business-related travel
    services for himself and other of our employees. To reimburse
    Dr. Gillings for these services, the Human Resources and
    Compensation Committee authorized cash payments up to
    $1.4 million, which is in addition to the amounts shown in
    this table. We also granted Quintiles options to
    Dr. Gillings with an aggregate Black-Scholes

127



---



##### 



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | value of $1.4 million in quarterly
    installments with an exercise price on March 31, 2001 of
    $18.875 per share; on June 30, 2001 of $25.25 per
    share; on September 30, 2001 of $14.60 per share; and
    on December 31, 2001 of $16.05 per share. These
    options are included in the table as long-term compensation.                                                                                                                                                                                                                    
|    
|(12) | Includes $2,700 of matching contributions under
    the 401(k) portion of the ESOP and 401(k) Plan, $869 for the
    estimated value of forfeitures allocated under, as well as
    $1,228 in interest under, the ESOP portion of the ESOP and
    401(k) Plan, $717,199 for the present value of the benefit to
    Dr. Gillings of the premiums we paid under a split-dollar
    life insurance arrangement, and $2,322 in other life insurance
    premiums we paid.                                                                                 
|    
|(13) | Includes $8,533 of matching contributions under
    the 401(k) Plan, $105 for the estimated forfeitures allocated
    under the profit sharing portion of the 401(k) Plan, $1,242 in
    life insurance premiums, $580,632 related to the cancellation of
    Quintiles options in connection with the Pharma Services
    transaction, and $4,723 in disqualifying dispositions under the
    Employee Stock Purchase Plan as a result of the Pharma Services
    transaction.                                                                         
|    
|(14) | Includes $3,938 in matching contributions under
    the 401(k) portion of the ESOP and 401(k) Plan, $602 for the
    estimated value of forfeitures allocated under the ESOP portion
    of the ESOP and 401(k) Plan, and $1,242 in life insurance
    premiums.                                                                                                                                                                                                                                                                                        
|    
|(15) | Includes $7,650 in matching contributions under
    the 401(k) portion of the ESOP and 401(k) Plan, $869 for the
    estimated value of forfeitures allocated under, as well as $3 in
    interest under, the ESOP portion of the ESOP and 401(k) Plan,
    and $810 in life insurance premiums.                                                                                                                                                                                                                                                        
|    
|(16) | Includes $15,215 deferred during 2003 pursuant to
    our Elective Deferred Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|(17) | Pharma Services granted Mr. Russell the
    right to purchase 450,000 shares of its restricted common
    stock, at a purchase price of $0.2438, or fair market value, per
    share. $0 represents the dollar value at the date of the grant,
    less the amounts paid by Mr. Russell for the award. The
    aggregate fair market value of the shares at the time of grant
    and at the end of fiscal year 2003 was $109,710, or the
    equivalent of the aggregate purchase price paid by
    Mr. Russell for the restricted shares.             
|    
|(18) | Includes $9,000 in matching contributions under
    the 401(k) Plan, $105 for the estimated forfeitures allocated
    under the profit sharing portion of the 401(k) Plan, $1,225 in
    life insurance premiums, $579,110 related to the cancellation of
    Quintiles options in connection with the Pharma Services
    transaction, $300,000 of which Mr. Russell used to acquire
    Pharma Services Units, and $1,147 in disqualifying dispositions
    under the Employee Stock Purchase Plan as a result of the Pharma
    Services transaction.
|    
|(19) | Includes $28,325 deferred during 2002 pursuant to
    our Elective Deferred Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|(20) | Includes $8,250 in matching contributions under
    the 401(k) portion of the ESOP and 401(k) Plan, $603 for the
    estimated value of forfeitures allocated under the ESOP portion
    of the ESOP and 401(k) Plan, and $810 in life insurance premiums.                                                                                                                                                                                                                                                                                              
|    
|(21) | Includes $27,125 deferred during 2001 pursuant to
    our Elective Deferred Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|(22) | Includes $945 relating to bonus payable for 2001
    deferred during 2002 pursuant to our Elective Deferred
    Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                                      
|    
|(23) | Includes 2,456 shares subject to Quintiles
    options granted pursuant to the 2001 bonus.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    
|(24) | Includes $7,650 in matching contributions under
    the 401(k) portion of the ESOP and 401(k) Plan, $869 for the
    estimated value of forfeitures under, as well as $3 in interest
    under, the ESOP portion of the ESOP and 401(k) plan, and $810 in
    life insurance premiums.                                                                                                                                                                                                                                                                  
|    
|(25) | Mr. Wooten became the Companys
    Executive Vice President, Corporate Development in June 2003. We
    have not provided information about any compensation paid to
    Mr. Wooten for any periods in which he did not serve as an
    executive officer.                                                                                                                                                                                                                                                                                             
|    
|(26) | Includes $28,490 deferred during 2003 pursuant to
    our Elective Deferred Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|(27) | Pharma Services granted Mr. Wooten the right
    to purchase 450,000 shares of its restricted common stock,
    at a purchase price of $0.2438, or fair market value, per share.
    $0 presents the dollar value at                                                                                                                                                                                                                                                                                                                                    

128



---



##### 



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | the date of the grant, less the amounts paid by
    Mr. Wooten for the award. The aggregate fair market value
    of the shares at the time of grant and at the end of fiscal year
    2003 was $109,710, or the equivalent of the aggregate purchase
    price paid by Mr. Wooten for the restricted shares.                                                                                                                                                                                                                           
|    
|(28) | Includes $9,000 in matching contributions under
    the 401(k) Plan, $105 for the estimated forfeitures allocated
    under the profit sharing portion of the 401(k) Plan, $850 in
    life insurance premiums, and $242,333 related to the
    cancellation of Quintiles options in connection with the Pharma
    Services transaction, $232,028 of which Mr. Wooten used to
    acquire Pharma Services Units.                                                                                                                       
|    
|(29) | Dr. Greeff became an executive officer in
    2003. We have not provided information about any compensation
    paid to Dr. Greeff for any periods in which he did not
    serve as an executive officer.                                                                                                                                                                                                                                                                                                                               
|    
|(30) | Includes $44,291 deferred during 2003 pursuant to
    our Elective Deferred Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|(31) | Includes $40,000 for housing allowance, $10,164
    for automobile allowance and $750 for tax preparation services.                                                                                                                                                                                                                                                                                                                                                                                                                     
|    
|(32) | Pharma Services granted Dr. Greeff the right
    to purchase 450,000 shares of its restricted common stock,
    at a purchase price of $0.2438, or fair market value, per share.
    $0 represents the dollar value at the date of the grant, less
    the amounts paid by Dr. Greeff for the award. The aggregate
    fair market value of the shares at the time of grant and at the
    end of fiscal year 2003 was $109,710, or the equivalent of the
    aggregate purchase price paid by Dr. Greeff for the
    restricted shares.
|    
|(33) | Includes $9,000 in matching contributions under
    the 401(k) Plan, $105 for estimated forfeitures allocated under
    the profit sharing portion of the 401(k) Plan, $2,322 in life
    insurance premiums, and $377,626 related to the cancellation of
    Quintiles options in connection with the Pharma Services
    transaction, $361,569 of which Dr. Greeff used to acquire
    Pharma Services Units.                                                                                                                         
|    
|(34) | Dr. Kirby resigned as Chief Executive
    Officer effective September 25, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|(35) | Includes $142,282 relating to bonus deferred
    during 2003 pursuant to our Elective Deferred Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                                       
|    
|(36) | Includes $983 in life insurance premiums,
    $756,822 related to the cancellation of Quintiles options in
    connection with the Pharma Services transaction, and $4,150,480
    in severance pay.                                                                                                                                                                                                                                                                                                                                    
|    
|(37) | Includes $62,543 relating to bonus payable for
    2002 deferred during 2003 pursuant to our Elective Deferred
    Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                   
|    
|(38) | Includes $603 for the estimated value of
    forfeitures allocated under the ESOP portion of the ESOP and
    401(k) Plan and $810 in life insurance premiums.                                                                                                                                                                                                                                                                                                                                                                          
|    
|(39) | Includes $24,063 relating to bonus payable for
    2001 deferred during 2002 pursuant to our Elective Deferred
    Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                   
|    
|(40) | Includes 3,126 shares subject to Quintiles
    options granted pursuant to the 2001 bonus.                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    
|(41) | Includes $869 for the estimated value of
    forfeitures allocated under the ESOP portion of the ESOP and
    401(k) plan, and $473 in life insurance premiums.                                                                                                                                                                                                                                                                                                                                                                         

129



---



##### 



Option Grants In Last Fiscal Year

Quintiles Transnational Corp.


The following table reflects the Quintiles
options granted during the past fiscal year to the named
executive officers pursuant to our 2002 Stock Option Plan,
Equity Compensation Plan and Nonqualified Stock Option Plan. No
stock appreciation rights were granted to the named executive
officers during 2003. Immediately prior to the effective time of
the Pharma Services transaction, we took all actions necessary
so that each outstanding option granted under any of our option
plans became fully vested and exercisable immediately prior to
the effective time of the Pharma Services transaction. We also
canceled any option to purchase shares of our common stock
(other than options held by Pharma Services or its subsidiaries)
that was not exercised prior to completion of the Pharma
Services transaction in exchange for the right to receive cash
in an amount equal to the in-the-money value of the
options. Following the Pharma Services transaction, each of
these plans was terminated.

|                   |  |                   |        |                  |  |           |     |                 |  |                  |       |        |  |  |            |  |  |  |     |  |  |  |     | 
|------------------ |  | ----------------- | ------ | ---------------- |  | --------- | --- | --------------- |  | ---------------- | ----- | ------ |  |  | ---------- |  |  |  | --- |  |  |  | --- | 
|                   |  |                   |        |                 
|                   |  | Individual Grants |        | Potential       
|                   |  |                   |        | Realizable Value
|                   |  |                   |        | Percent of       |  |           |     | at Assumed     
|                   |  |                   |        | Total            |  |           |     | Annual Rates of
|                   |  | Number of         |        | Options          |  |           |     | Stock Price    
|                   |  | Securities        |        | Granted to       |  | Exercise  |     |                 |  | Appreciation for
|                   |  | Underlying        |        | Employees in     |  | or Base   |     |                 |  | Option Term(1)  
|                   |  | Options           |        | Fiscal           |  | Price Per |     | Expiration      |  |                 
|Name               |  | Granted           |        | Year(2)          |  | Share($)  |     | Date(3)         |  | 5%($)            |       | 10%($)
|                   |  |                   |        |                  |  |           |     |                 |  |                  |       |       
|Dennis B. Gillings |  |                   | 89,052 | (4)              |  |           | 1.8 | %               |  |                  | 12.27 |        |  |  | 03/17/2013 |  |  |  | N/A |  |  |  | N/A | 
|                   |  |                   | 49,869 | (4)              |  |           | 1.0 | %               |  |                  | 12.27 |        |  |  | 03/17/2013 |  |  |  | N/A |  |  |  | N/A | 
|                   |  |                   | 79,011 | (5)              |  |           | 1.6 | %               |  |                  | 14.23 |        |  |  | 06/16/2013 |  |  |  | N/A |  |  |  | N/A | 
|                   |  |                   | 74,629 | (6)              |  |           | 1.5 | %               |  |                  | 14.42 |        |  |  | 09/15/2013 |  |  |  | N/A |  |  |  | N/A | 
|James L. Bierman   |  |                   | 35,621 | (4)              |  |           | 0.7 | %               |  |                  | 12.27 |        |  |  | 03/17/2013 |  |  |  | N/A |  |  |  | N/A | 
|                   |  |                   | 31,604 | (5)              |  |           | 0.6 | %               |  |                  | 14.23 |        |  |  | 06/16/2013 |  |  |  | N/A |  |  |  | N/A | 
|                   |  |                   | 29,851 | (6)              |  |           | 0.6 | %               |  |                  | 14.42 |        |  |  | 09/15/2013 |  |  |  | N/A |  |  |  | N/A | 
|John S. Russell    |  |                   | 35,621 | (4)              |  |           | 0.7 | %               |  |                  | 12.27 |        |  |  | 03/17/2013 |  |  |  | N/A |  |  |  | N/A | 
|                   |  |                   | 31,604 | (5)              |  |           | 0.6 | %               |  |                  | 14.23 |        |  |  | 06/16/2013 |  |  |  | N/A |  |  |  | N/A | 
|                   |  |                   | 29,851 | (6)              |  |           | 0.6 | %               |  |                  | 14.42 |        |  |  | 09/15/2013 |  |  |  | N/A |  |  |  | N/A | 
|Ronald J. Wooten   |  |                   | 19,948 | (4)              |  |           | 0.4 | %               |  |                  | 12.27 |        |  |  | 03/17/2013 |  |  |  | N/A |  |  |  | N/A | 
|                   |  |                   | 17,698 | (5)              |  |           | 0.4 | %               |  |                  | 14.23 |        |  |  | 06/16/2013 |  |  |  | N/A |  |  |  | N/A | 
|                   |  |                   | 16,717 | (6)              |  |           | 0.3 | %               |  |                  | 14.42 |        |  |  | 09/15/2013 |  |  |  | N/A |  |  |  | N/A | 
|Oppel Greeff       |  |                   | 35,621 | (4)              |  |           | 0.7 | %               |  |                  | 12.27 |        |  |  | 03/17/2013 |  |  |  | N/A |  |  |  | N/A | 
|                   |  |                   | 31,604 | (5)              |  |           | 0.6 | %               |  |                  | 14.23 |        |  |  | 06/16/2013 |  |  |  | N/A |  |  |  | N/A | 
|                   |  |                   | 29,851 | (6)              |  |           | 0.6 | %               |  |                  | 14.42 |        |  |  | 09/15/2013 |  |  |  | N/A |  |  |  | N/A | 
|Pamela J. Kirby    |  |                   | 62,336 | (4)              |  |           | 1.3 | %               |  |                  | 12.27 |        |  |  | 03/17/2013 |  |  |  | N/A |  |  |  | N/A | 
|                   |  |                   | 55,308 | (5)              |  |           | 1.1 | %               |  |                  | 14.23 |        |  |  | 06/16/2013 |  |  |  | N/A |  |  |  | N/A | 
|                   |  |                   | 52,240 | (6)              |  |           | 1.1 | %               |  |                  | 14.42 |        |  |  | 09/15/2013 |  |  |  | N/A |  |  |  | N/A | 



---



|    |                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | All outstanding options were canceled
    September 25, 2003 in connection with the Pharma Services
    transaction so there is no potential realizable gain.
|   
|(2) | Options to purchase an aggregate of
    4,898,293 shares were granted to employees during 2003
    prior to the Pharma Services transaction.                 
|   
|(3) | All outstanding options were canceled on
    September 25, 2003, irrespective of their expiration date.                                                      
|   
|(4) | Nonqualified stock options granted March 17,
    2003.                                                                                                       
|   
|(5) | Nonqualified stock options granted June 16,
    2003.                                                                                                        
|   
|(6) | Nonqualified stock options granted
    September 15, 2003.                                                                                                   

130



---



##### 



Option Grants In Last Fiscal Year

Pharma Services Holding, Inc.


The following table reflects the options to
purchase shares of common stock of Pharma Services granted
during the past fiscal year to the named executive officers
pursuant to the Pharma Services Plan. No stock appreciation
rights were granted to the named executive officers during 2003.
Each option will terminate upon the tenth anniversary of the
date of grant. However, except as provided in a grant
certificate, upon the grantees termination of employment
with Pharma Services and its subsidiaries for any reason, (1)
options that are not then vested and exercisable shall
immediately terminate, and (2) options that are vested and
exercisable shall generally remain exercisable until, and
terminate upon, the 91st day following such termination of
employment (or the 366th day following such termination where
such termination is by reason of death, or a disability,
retirement or redundancy that is approved by the Compensation
and Nominations Committee); provided, however, that if such
termination is for cause, as defined in the Pharma Services
Plan, or following such termination the grantee violates a
restrictive covenant, as defined in the Pharma Services Plan,
all options will terminate immediately.

|                   |  |                   |         |                      |  |           |     |                  |  |                  |       |        |  |  |            |  |  |  |     |  |  |  |     | 
|------------------ |  | ----------------- | ------- | -------------------- |  | --------- | --- | ---------------- |  | ---------------- | ----- | ------ |  |  | ---------- |  |  |  | --- |  |  |  | --- | 
|                   |  |                   |         |                      |  |          
|                   |  | Individual Grants |         |                     
|                   |  |                   |         | Potential Realizable
|                   |  |                   |         | Percent of           |  |           |     | Value at Assumed
|                   |  |                   |         | Total                |  |           |     | Annual Rates of 
|                   |  | Number of         |         | Options              |  |           |     | Stock Price     
|                   |  | Securities        |         | Granted to           |  | Exercise  |     |                  |  | Appreciation for
|                   |  | Underlying        |         | Employees in         |  | or Base   |     |                  |  | Option Term(1)  
|                   |  | Options           |         | Fiscal               |  | Price Per |     | Expiration       |  |                 
|Name               |  | Granted           |         | Year(2)              |  | Share($)  |     | Date             |  | 5%($)            |       | 10%($)
|                   |  |                   |         |                      |  |           |     |                  |  |                  |       |       
|Dennis B. Gillings |  |                   | 0       |                      |  |           | N/A |                  |  |                  | N/A   |        |  |  | N/A        |  |  |  | N/A |  |  |  | N/A | 
|James L. Bierman   |  |                   | 0       |                      |  |           | N/A |                  |  |                  | N/A   |        |  |  | N/A        |  |  |  | N/A |  |  |  | N/A | 
|John S. Russell    |  |                   | 225,000 | (3)                  |  |           | 6.7 | %                |  |                  | 14.50 |        |  |  | 11/14/2013 |  |  |  | 0   |  |  |  | 0   | 
|Ronald J. Wooten   |  |                   | 225,000 | (4)                  |  |           | 6.7 | %                |  |                  | 14.50 |        |  |  | 11/05/2013 |  |  |  | 0   |  |  |  | 0   | 
|Oppel Greeff       |  |                   | 225,000 | (5)                  |  |           | 6.7 | %                |  |                  | 14.50 |        |  |  | 12/06/2013 |  |  |  | 0   |  |  |  | 0   | 
|Pamela J. Kirby    |  |                   | 0       |                      |  |           | N/A |                  |  |                  | N/A   |        |  |  | N/A        |  |  |  | N/A |  |  |  | N/A | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Potential realizable value of each grant is
    calculated assuming that market price of the underlying security
    appreciates at annualized rates of 5% and 10%, respectively,
    over the respective term of the grant. The assumed annual rates
    of appreciation of 5% and 10% would result in the price of the
    Pharma Services common stock, which was $0.2438 on
    December 31, 2003, increasing to $0.40 and $0.63 per
    share, respectively, for the options expiring November 5,
    2013, November 14, 2013 and December 6, 2013. Because
    the exercise price per share of $14.50 is significantly greater
    than these appreciated prices, at stock price appreciation rates
    of both 5% and 10%, the options will have potential realizable
    values of zero.
|   
|(2) | Options to purchase an aggregate of
    3,350,000 shares of Pharma Services common stock were
    granted to employees during 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(3) | Nonqualified options granted November 14,
    2003. Shares subject to the options granted vest over the next
    five years, with 20% of such shares vesting on September 25
    of each year beginning September 25, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(4) | Nonqualified options granted November 5,
    2003. Shares subject to the options granted vest over the next
    five years, with 20% of such shares vesting on September 25
    of each year beginning September 25, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(5) | Nonqualified options granted December 6,
    2003. Shares subject to the options granted vest over the next
    five years, with 20% of such shares vesting on September 25
    of each year beginning September 25, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

131



---



##### 



Aggregated Option Exercises In Last Fiscal
Year

and Fiscal Year End Option Values


Quintiles Transnational Corp.


None of the named executive officers exercised
Quintiles options in 2003. All Quintiles options were canceled
on September 25, 2003 in connection with the Pharma
Services transaction. Thus, there were no unexercised Quintiles
options at fiscal year end. The following table provides
information about the cancellation of the named executive
officers Quintiles options, including the amounts they
rolled over, if any, to acquire Pharma Services Units.

|                   |  |                    |           |             |  |                   |           |  |  |  |           | 
|------------------ |  | ------------------ | --------- | ----------- |  | ----------------- | --------- |  |  |  | --------- | 
|                   |  | Shares Underlying  |           |             |  | Amount Used To   
|                   |  | Canceled Quintiles |           | Value       |  | Purchase Pharma  
|Name               |  | Options (#)        |           | Realized($) |  | Services Units($)
|                   |  |                    |           |             |  |                  
|Dennis B. Gillings |  |                    | 1,249,076 |             |  |                   | 2,221,568 |  |  |  | 2,221,568 | 
|James L. Bierman   |  |                    | 368,635   |             |  |                   | 580,632   |  |  |  | N/A       | 
|John S. Russell    |  |                    | 366,022   |             |  |                   | 579,110   |  |  |  | 300,000   | 
|Ronald J. Wooten   |  |                    | 118,291   |             |  |                   | 242,333   |  |  |  | 232,028   | 
|Oppel Greeff       |  |                    | 211,966   |             |  |                   | 377,626   |  |  |  | 361,569   | 
|Pamela J. Kirby    |  |                    | 366,534   |             |  |                   | 756,822   |  |  |  | N/A       | 

Aggregated Option Exercises In Last Fiscal
Year

and Fiscal Year End Option Values


Pharma Services Holding, Inc.


As indicated by the following table, no options
to purchase shares of Pharma Services common stock were
exercised by the named executive officers during 2003. Further,
none of such options were in-the-money on December 31, 2003.

|                   |  |             |   |             |  |                        |   |                                   |  |                |   |                  |  |  |         |  |  |  |   |  |  |  |   | 
|------------------ |  | ----------- | - | ----------- |  | ---------------------- | - | --------------------------------- |  | -------------- | - | ---------------- |  |  | ------- |  |  |  | - |  |  |  | - | 
|                   |  |             |   |             |  |                        |   |                                   |  |               
|                   |  |             |   |             |  | Number of Securities   |   |                                  
|                   |  | Shares      |   |             |  | Underlying Unexercised |   | Value of Unexercised In-the Money
|                   |  | Acquired    |   |             |  | Options at FY-End      |   | Options at FY-End(1)             
|                   |  | On          |   | Value       |  |                        |   |                                  
|Name               |  | Exercise(#) |   | Realized($) |  | Exercisable            |   | Unexercisable                     |  | Exercisable($) |   | Unexercisable($)
|                   |  |             |   |             |  |                        |   |                                   |  |                |   |                 
|Dennis B. Gillings |  |             |  |             |  |                        |  |                                   |  |                |  |                  |  |  |        |  |  |  |  |  |  |  |  | 
|James L. Bierman   |  |             |  |             |  |                        |  |                                   |  |                |  |                  |  |  |        |  |  |  |  |  |  |  |  | 
|John S. Russell    |  |             |  |             |  |                        |  |                                   |  |                |  |                  |  |  | 225,000 |  |  |  | 0 |  |  |  | 0 | 
|Ronald J. Wooten   |  |             |  |             |  |                        |  |                                   |  |                |  |                  |  |  | 225,000 |  |  |  | 0 |  |  |  | 0 | 
|Oppel Greeff       |  |             |  |             |  |                        |  |                                   |  |                |  |                  |  |  | 225,000 |  |  |  | 0 |  |  |  | 0 | 
|Pamela J. Kirby    |  |             |  |             |  |                        |  |                                   |  |                |  |                  |  |  |        |  |  |  |  |  |  |  |  | 



---



|    |                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The value of the options is based upon the
    difference between the exercise price and the fair market value
    per share on December 31, 2003, $0.2438. As of
    December 31, 2003, shares of Pharma Services common stock
    were not publicly traded.

Director Compensation

Prior to the Pharma Services transaction, each
non-officer member of our board of directors received annually a
grant of options to purchase shares of our common stock valued
at $100,000 with the number of options determined in accordance
with the Black-Scholes method. In addition, except as otherwise
indicated below, each non-officer director received (1) an
annual retainer of $24,000; (2) $1,000 for each board meeting
attended in person or by teleconference; and (3) $500 for each
committee meeting attended in person or by teleconference, each
paid quarterly in cash. Committee chairs also received an extra
$5,000 per year in compensation for their additional
responsibilities. Each member of the Audit Committee received an
additional $1,250 quarterly in light of increased
responsibilities in the current public company environment.
During 2003, each member of the Special Committee of outside
directors

132



---



##### 



that was formed in response to Pharma
Services original October 2002 proposal to acquire us
received $16,667 per month and the chair of the Special
Committee received an additional $8,333 per month through
September 25, 2003. We reimbursed each non-officer director
for out-of-pocket expenses incurred in connection with the
rendering of services as a director.


Following the Pharma Services transaction,
Messrs. Castellini, Greenberg and Ingram each will annually
receive retainer fees of $40,000 (with an additional $1,000 for
meetings attended in person and $500 for telephone meetings) for
their service on the board of directors. Mr. Greenberg will
receive an additional $10,000 retainer for his services as chair
of the Audit Committee. Messrs. Ingram and Castellini will
each receive $8,000 for their service as the chairs of the
Compensation and Nominations Committee and Quality/ Regulatory
Committee, respectively.

In connection with their appointments to the
Board of Directors, Pharma Services also provided Messrs.
Castellini, Greenberg and Ingram an opportunity to purchase
restricted shares of Pharma Services common stock, pursuant to
the Pharma Services Plan, as well as an opportunity to purchase
Pharma Services Units. Messrs. Castellini and Greenberg each
purchased 50,000 restricted shares of Pharma Services common
stock at an aggregate purchase price of $12,190 and 285 Pharma
Services Units at an aggregate purchase price of $300,000. The
restricted shares are subject to a right of repurchase
exercisable by Pharma Services upon cessation of the
directors service on the board. Unvested restricted shares
can be repurchased, under certain circumstances, at a price
equal to the price per share paid by the director. Restricted
shares that have vested and shares received upon the exercise of
a vested option can also be repurchased, but at a price equal to
the fair market value of such shares. The restricted shares vest
over a period of five years of continued service on the board of
directors by Messrs. Castellini and Greenberg. See Equity
Compensation Plans under Item 12 of this
Form 10-K for a detailed discussion of the terms and
provisions of the Pharma Services Plan. The Pharma Services
Units purchased by these directors are not subject to any
vesting provisions or any reacquisition rights, however, such
securities are subject to certain transfer restrictions,
drag-along rights with respect to the sale of Pharma Services in
certain circumstances, and voting requirements with respect to
the election of members of the Pharma Services board of
directors.

Employment Agreements

We have entered into employment agreements with
Dr. Gillings, Messrs. Bierman, Russell and Wooten and
Drs. Greeff and Kirby. Except to the extent described
below, the named executive officers are eligible to participate
in any bonus, stock option, pension, insurance, medical, dental,
401(k), disability and other plans generally made available to
our executives.

Employment Agreement with Dr. Gillings.On September 25, 2003, in
connection with the Pharma Services transaction,
Dr. Gillings entered into a new employment agreement with
us and Pharma Services to replace his then-existing employment
agreement with us. The term of the new employment agreement
commenced on September 25, 2003 and will continue until it
is terminated pursuant to its terms. Under his new employment
agreement, Dr. Gillings serves as our Executive Chairman
and Chief Executive Officer for an annual base salary of
$1.0 million, the opportunity to earn an annual cash bonus
and certain other benefits, which include, without limitation:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | participation in all of our general benefit
    programs and group health coverage for the respective lifetimes
    of Dr. Gillings and his wife;                                                                                                                                                                                                                                                                                     
|
| |  | reimbursement for expenses, at the rate of
    $10,794 per hour, related to the use of the airplane owned
    and operated by GF Management Company, Inc., or GFM, a company
    controlled by Dr. Gillings, for business- related travel
    (estimated to be approximately 700 hours per year); and                                                                                                                                 
|
| |  | our agreement to modify, revise, and/or
    terminate, to the extent permitted by applicable law, certain
    insurance arrangements providing death benefits to
    Dr. Gillings and certain irrevocable life insurance trusts
    created by Dr. Gillings, as reasonably necessary or
    appropriate, in a manner that will ultimately result in death
    benefits no less favorable to the trusts and Dr. Gillings
    than those

133



---



##### 



| |  |                                                                                                                          
| |  | -------------------------------------------------------------------------------------------------------------------------
| |  | that would have been provided had such
    arrangements prior to September 25, 2003 remained in place
    without change.

Dr. Gillings serves as Executive Chairman
and Chief Executive Officer of Pharma Services for no additional
compensation.

The employment agreement provides for severance
payments to Dr. Gillings equal to 2.9 times his then
current annual base salary and most recent annual bonus and for
the continuation of benefits in the event
Dr. Gillings employment is terminated by
Dr. Gillings due to:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | his permanent disability;                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | a material breach of the new employment agreement
    by us or by Pharma Services;                                                                                                                                                                                                                                                                                                                                                            
|
| |  | his improper termination by us for cause if cause
    is found not to exist;                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | a change in his position of Executive Chairman;                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | the consummation of an underwritten public
    offering of common stock of Pharma Services registered under the
    Securities Act that, together with the consummation of any other
    prior underwritten public offering of Pharma Services common
    stock, results in gross proceeds to Pharma Services of at least
    $100 million in the aggregate, or a Qualified
    Offering; or                                                  
|
| |  | a sale of securities representing at least 75% of
    the voting power of the common stock of Pharma Services or of
    all, or substantially all, of the assets of Pharma Services,
    each referred to as a Sale of Pharma Services, except when
    Dr. Gillings is one of the stockholders of Pharma Services
    holding a majority of the outstanding shares of Pharma Services
    common stock or votes in favor of such transaction;

or by us for any reason other than:



| |   |                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | cause;                                                                                                                                                                                                                                                 
|
| |  | a Qualified Offering; or                                                                                                                                                                                                                               
|
| |  | a Sale of Pharma Services, except when
    Dr. Gillings is not one of the stockholders of Pharma
    Services holding a majority of the outstanding shares of Pharma
    Services common stock or if he does not vote in favor of such
    transaction.

Any severance payments we owe Dr. Gillings
are to be paid in equal monthly installments during the three
year period following the termination of his employment. The
continuation of benefits applies for the three year period
following the termination of his employment. If
Dr. Gillings breaches any of the restrictive covenants
(described immediately below) following his termination, then we
are not obligated to provide him any severance benefits.

The employment agreement includes certain
restrictive covenants pursuant to which Dr. Gillings has
agreed not to:



| |   |                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | compete with us, Pharma Services or any of our
    subsidiaries in any geographic area in which we or they do
    business;                               
|
| |  | solicit or interfere with our, Pharma
    Services or any of our subsidiaries relationship
    with any person or entity doing business with us or them;
|
| |  | offer employment to any person employed by us,
    Pharma Services or any of our subsidiaries; or                                                         
|
| |  | disclose any of our confidential information                                                                                                              

until the latest of (1) five years from the
date of the Pharma Services transaction, (2) three years
following the date he ceases to own any equity interest in us,
Pharma Services, or any of our subsidiaries, and (3) three
years from the date of his termination of employment. For so
long as we require Dr. Gillings to comply with these
restrictive covenants, we are required to pay him during the non-

134



---



##### 



competition period monthly amounts equal to his
then-current annual base salary plus his most recent annual
bonus divided by 12, provided however, that we are not required
to make such payments during the three year period following
termination if we are paying Dr. Gillings any severance
payments described above.


Letter Agreement with Mr. Bierman.Mr. Bierman was party to an
employment agreement with us dated June 16, 1998 and
amended on March 31, 2003. The terms of this employment
agreement, except for certain restrictive covenants and
indemnification provisions discussed below, were expressly
superseded by the terms of a letter agreement entered into by us
and Mr. Bierman on January 21, 2004.

Pursuant to the letter agreement,
Mr. Bierman will remain employed by us through
June 30, 2004, however, we may relieve Mr. Bierman of
his duties as Chief Financial Officer at any time without
impacting his employment status. Prior to June 30, 2004,
Mr. Bierman can only be terminated by us for his breach of
the letter agreement, his failure to perform or gross negligence
in the performance of his duties, or his conviction of certain
crimes. Mr. Bierman will perform duties consistent with his
position as Chief Financial Officer or the transition of his
duties to his successor.

Mr. Bierman received a lump sum signing
bonus of $500,000 for his acceptance of the letter agreement.
Until the termination of his employment, he will be paid a base
salary at the annual rate of $550,000 and he will be able to
continue in our benefit plans. If he remains employed until
June 30, 2004, he may elect to continue to participate in
our group health plan following his termination for the earlier
of 18 months or until he becomes entitled to comparable
group coverage. If Mr. Bierman remains employed with us
through June 30, 2004, or if he dies or become disabled
prior to that date, he will receive retention bonus payments in
the aggregate amount of $4,215,502.

By the terms of the letter agreement, the
indemnification provisions and restrictive covenants in
Mr. Biermans employment agreement, dated
June 16, 1998 as amended on March 31, 2003, remain in
full force and effect, except that the non-competition period is
extended from 12 to 13 months following the termination of
his employment. Thus, during his employment and for
13 months following his termination from employment,
Mr. Bierman is prohibited from competing with us or our
affiliates in any geographic area in which we do business, from
soliciting or interfering with our relationship with any person
or entity who is our customer or a customer of our affiliates,
and from soliciting for or offering employment to any person who
had been employed by us or our affiliates during the last year
of his employment with us. Additionally, Mr. Bierman must
refrain from disclosing our confidential information and trade
secrets.



| |                                                                         
| | ------------------------------------------------------------------------
| | Employment Agreements With
    Messrs. Russell and Wooten and Dr. Greeff

Our employment agreements with
Messrs. Russell and Wooten and Dr. Greeff have
substantially the same provisions.

Mr. Russells employment agreement is
dated December 3, 1998 and was amended on October 26,
1999 and November 14, 2003. His employment arrangement with
us also is affected by three letters from Pharma Services to
him, one dated September 12, 2003 relating to the
acquisition of stock of Pharma Services by rolling over certain
options to purchase shares of our common stock in connection
with the Pharma Services transaction, and two letters dated
November 3, 2003 relating to the acquisition of restricted
stock and certain option grants under the Pharma Services Plan.

Mr. Wootens employment agreement is
dated July 25, 2000, was amended on November 5, 2003,
and further amended on November 14, 2003. His employment
arrangement with us also is affected by three letters from
Pharma Services to him, one dated September 12, 2003
relating to the acquisition of stock of Pharma Services by
rolling over certain options to purchase shares of our common
stock in connection with the Pharma Services transaction, and
two letters dated October 30, 2003 relating to the
acquisition of restricted stock and certain option grants under
the Pharma Services Plan.

Dr. Greeffs employment agreement is
dated February 8, 2002, and was amended on
November 17, 2003, and further amended on December 6,
2003. His employment arrangement with us also is affected by

135



---



##### 



three letters from Pharma Services to him, one
dated September 12, 2003 relating to the acquisition of
restricted stock of Pharma Services by rolling over certain
options to purchase shares of our common stock in connection
with the Pharma Services transaction, and two letters dated
October 30, 2003 relating to the acquisition of restricted
stock and certain option grants under the Pharma Services Plan.


Messrs. Russell and Wooten and
Dr. Greeff, pursuant to their employment agreements with
us, are each entitled to receive a monthly base salary of
$33,333.33, to participate in our annual cash bonus plan, and to
certain other benefits, including participation in all of our
general benefit plans.

Each of their employment agreements extends for
successive one year terms. Each agreement may be terminated by
us:



| |   |                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | by 90 days written notice of our
    intent not to renew the agreement;                                                                                                                                                                                      
|
| |  | without cause upon 90 days written
    notice; or                                                                                                                                                                                                            
|
| |  | immediately for cause, defined to include the
    executives death, disability, material breach of the
    agreement, acts or omissions that are materially harmful to our
    interests, or any other reason recognized as cause
    under applicable law.

The executive may terminate the agreement:



| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | by 90 days written notice of intent
    not to renew;                                                          
|
| |  | without cause upon 90 days written
    notice; or                                                              
|
| |  | because of our material breach which is not cured
    within 30 days of receiving notice of the breach from him.

If the executives employment is terminated
by us by notice of non-renewal or without cause or by him
because of our failure to cure our material breach, then,
subject to his compliance with the non-competition, confidential
information, intellectual property, and release provisions of
the agreement, the executive will be entitled to severance
payments for 36 months with each monthly payment being
equal to 1.55 times his monthly rate of pay at the time of
termination. In addition, he may continue to participate for
36 months in all of our benefit plans in which he
participated on the termination date, unless he becomes eligible
for comparable coverage. The December 6, 2003 amendment to
Dr. Greeffs agreement provides that the severance
payments and benefits also will be payable, subject to his
compliance with his obligations under the employment agreement,
if his employment terminates prior to September 25, 2006
because of his death or disability. The payments will be reduced
by any disability payments he receives from us.

Each employment agreement provides for a bonus
payable as soon as practicable following the occurrence of the
Pharma Services transaction. Mr. Russell and
Dr. Greeff each were entitled to a $500,000 bonus and
Mr. Wooten was entitled to a $200,000 bonus. We paid these
bonuses on December 31, 2003.

The employment agreements contain certain
restrictive covenants which prohibit the executive during his
employment and for one year following the termination of his
employment, from competing with us or our affiliates in any
geographic area in which we do business, soliciting from or
interfering with our relationship with any person or entity who
is our customer or a customer of our affiliates, and from
soliciting for or offering employment to any person who had been
employed by us or our affiliates during his last year of
employment. In addition, each executive must refrain from
disclosing our confidential information and trade secrets.

Employment Agreement with Dr. Kirby.Dr. Kirby was party to an
employment agreement with us, dated March 13, 2001. Prior
to the Pharma Services transaction, Dr. Kirby served as our
Chief Executive Officer for a monthly base salary of $45,833.33,
participation in our executive compensation plan, and certain
other benefits, including participation in all of our general
benefit plans. Dr. Kirbys employment with us
commenced as of April 2, 2001.

136



---



##### 



Pursuant to the terms of her employment
agreement, Dr. Kirby could choose to terminate her
employment within 18 months following the Pharma Services
transaction, with or without good reason, and
receive certain severance payments and benefits. Dr. Kirby
exercised her right to terminate her employment and resigned
from her position as Chief Executive Officer of the Company on
October 24, 2003. Dr. Kirbys employment
agreement provided for the following severance benefits:



| |   |                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | severance payments equal to 2.99 times the amount
    of her most recent annual compensation, including the amount of
    her most recent annual bonus;                                                                                                              
|
| |  | continuation of benefit plans in which she
    participated for 18 months following her resignation;                                                                                                                                                                 
|
| |  | a lump sum payment of all amounts contributed to
    a company pension or retirement plan to which she was entitled
    under the terms of such plan; and                                                                                                            
|
| |  | immediate vesting of any unvested stock options
    held by her and an extension of the exercise period for such
    options to the later of the expiration of the applicable
    exercise period or three years following the date of termination
    of employment.

We paid Dr. Kirby $4,150,480 in severance
benefits in connection with her resignation. In connection with
the Pharma Services transaction, all of Dr. Kirbys
options became fully vested and any unexercised options were
canceled and exchanged for a right to a cash payment equal to
the excess of $14.50 per share minus the applicable
exercise price of the option, multiplied by the number of shares
for which the option was exercisable immediately prior to
cancellation, and minus any amounts required to be withheld for
tax purposes.

Dr. Kirby has certain continuing obligations
to us, which include compliance with the non-compete and
confidential information provisions of the employment agreement.
Those continuing obligations prohibit her from competing with us
or our affiliates in any geographic area in which we do
business, from soliciting business from or interfering with our
relationship with any person or entity who is a customer of us
or our affiliates, and from soliciting for or offering
employment to any person who had been employed by us or our
affiliates during the last year of her employment. Additionally,
she must refrain from disclosing any of our confidential
information or trade secrets.

Special Bonus Arrangements

In connection with the Pharma Services
transaction, the Special Committee of our board of directors
established a Special Bonus Plan to provide appropriate
incentives to certain of our senior executives and to reward
such senior executives for the additional burdens, above and
beyond their normal duties, placed on them by the auction
process. The Special Bonus Plan, as administered by the Special
Committee, paid cash bonus payments to certain of our senior
executives designated by the Special Committee, including
Dr. Kirby and Messrs. Bierman, Russell and Wooten and
Dr. Greeff. These individuals received cash bonus payments
of $144,375, $92,750, $143,000, $125,000 and $124,000,
respectively.

Acceleration of Stock Options in the Pharma
Services Transaction.

Immediately prior to the effective time of the
Pharma Services transaction, we took all actions necessary so
that each outstanding option granted under any of our option
plans became fully vested and exercisable immediately prior to
the effective time of the Pharma Services transaction. We also
canceled any option to purchase shares of our common stock
(other than options held by Pharma Services or its subsidiaries)
that was not exercised prior to completion of the Pharma
Services transaction in exchange for the right to receive cash
in an amount equal to the in-the-money value of the
options. The cash payment was to be made as soon as practicable
after the holder surrendered all of the stock options held by
the holder or delivered a written agreement or acknowledgment
that all of the stock options held by the

137



---



##### 



holder were canceled as a result of the Pharma
Services transaction in exchange for the cash payment. Prior to
the Pharma Services transaction, our management, other employees
and directors held options to purchase shares of our common
stock, many of which had exercise prices below $14.50 per
share and could be accelerated by the Pharma Services
transaction. As a result of the Pharma Services transaction, our
then-current directors and executive officers (excluding
Dr. Gillings, Messrs. Russell and Wooten,
Dr. Greeff and Chester W. Douglass, one of our former
directors) cashed out all of their Quintiles options for an
aggregate payment of approximately $1,768,138. Dr. Gillings
exchanged all of his Quintiles options including those granted
to him for the use of this plane, with an aggregate value of
$2,221,568, for equity securities of Pharma Services.
Messrs. Russell and Wooten and Drs. Greeff and
Douglass, cashed out a portion of their Quintiles options for an
aggregate payment of approximately $318,845 and exchanged their
remaining options with an aggregate value of approximately
$1,038,597 for equity securities of Pharma Services.


Management Arrangements Relating to the Pharma
Services Transaction

Rollover by Executive Officers other than
Dr. Gillings.In connection with
the Pharma Services transaction, Messrs. Russell and Wooten
and Dr. Greeff exchanged all or some portion of their
respective shares of our common stock and Quintiles options for
equity securities of Pharma Services. These officers did not
receive any consideration from us for any such shares or options
so exchanged in connection with the Pharma Services transaction.
Messrs. Russell and Wooten and Dr. Greeff purchased
61,525, 47,585 and 390,009 shares of common stock of Pharma
Services, respectively, and 285, 220 and 1,806 shares of
preferred stock of Pharma Services, respectively, by exchanging
all or a portion of their respective shares of our common stock
and/or the in-the-money value of their Quintiles
options outstanding immediately prior to the Pharma Services
transaction. The Pharma Services securities purchased pursuant
to these rollover arrangements are not subject to any vesting
provisions or any reacquisition rights, provided however, that
if during the 18 month period following the Pharma Services
transaction, an executive resigns his position under
circumstances which would entitle him to severance payments as a
result of a change in control, Pharma Services will reacquire
the Pharma Services securities in exchange for a cash payment
equal to the purchase price. Such securities are subject to
certain transfer restrictions, drag-along rights with respect to
the sale of Pharma Services in certain circumstances, and voting
requirements with respect to the election of members of the
Pharma Services board of directors.

Pharma Services Stock Incentive Plan
Arrangements.Pharma Services has
established a Stock Incentive Plan, referred to in this report
as the Pharma Services Plan, under which each of
Messrs. Russell and Wooten and Dr. Greeff purchased
450,000 restricted shares of Pharma Services common stock
and was granted an option to purchase 225,000 shares of
Pharma Services common stock. The restricted shares and shares
received upon the exercise of vested options are subject to a
right of repurchase exercisable by Pharma Services upon
termination of the executives employment with us. Unvested
restricted shares can be repurchased, under certain
circumstances, at a price equal to the price per share paid by
the employee. Restricted shares that have vested and shares
received upon the exercise of a vested option can also be
repurchased, but at a price equal to the fair market value of
such shares. The restricted shares and options vest over a
period of five years of continued employment from the date of
grant. See Equity Compensation Plans under
Item 12 of this Form 10-K for a detailed discussion of
the terms and provisions of the Pharma Services Plan.

138



---



##### 





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

Principal Stockholders

On September 25, 2003, Pharma Services
acquired all of our issued and outstanding common stock.
Intermediate Holding currently owns 99.2% of our outstanding
common stock with Pharma Services owning the remainder. Pharma
Services was formed for purposes of the Pharma Services
transaction by Dr. Gillings, our Executive Chairman, Chief
Executive Officer and founder, and One Equity, the private
equity arm of Bank One Corporation.

Since we are an indirect wholly-owned subsidiary
of Pharma Services, set forth below is certain information
regarding the beneficial ownership of the outstanding preferred
stock and common stock of Pharma Services. As of March 1,
2004, there were 523,282 shares of preferred stock and
126,776,446 shares of common stock of Pharma Services
outstanding. Currently, there is only one series of preferred
stock, Series A Redeemable Preferred Stock, authorized
under Pharma Services certificate of incorporation. Shares
of preferred stock have no voting rights except as required by
law. Holders of shares of common stock are entitled to one vote
per share in the election of directors and all other matters
submitted to a vote of stockholders. The preferred stock will be
senior in right of payment to the common stock. Shares of the
preferred stock are subject to mandatory redemption on the
earliest to occur of a sale of Pharma Services, an initial
public offering with gross proceeds greater than
$100 million and the 20th anniversary of the issue date,
subject to the terms of our senior secured credit facility.
Dividends on the preferred stock are cumulative and will
initially accrue at the rate of 12% per annum.

Notwithstanding the beneficial ownership of
common and preferred stock presented below, a stockholders
agreement governs the stockholders exercise of their
voting rights with respect to election of directors and certain
other material events. The parties to the stockholders agreement
have agreed to vote their shares to elect the board of directors
as set forth therein. See Certain Relationships and
Related Party Transactions under Item 13 for a
detailed description of the stockholders agreement.

139



---



##### 



The following table sets forth certain beneficial
ownership of Pharma Services of (1) each person or entity
who is known to us to beneficially own more than 5% of Pharma
Services common or preferred stock, (2) each of our named
executive officers, (3) each of our directors, and
(4) all of our directors and executive officers, in each
case as of March 1, 2004. Our executive officers and
directors are identical to those of Pharma Services and of
Intermediate Holding. Beneficial ownership has been determined
in accordance with the applicable rules and regulations of the
SEC, which generally require inclusion of shares over which a
person has voting or investment power. Share ownership in each
case includes shares that may be acquired within sixty days
through the exercise of any options. Except as otherwise
indicated, the address for each of the named individuals is 4709
Creekstone Drive, Riverbirch Building, Suite 200, Durham,
North Carolina 27703.

|                                                                             |  |              |            |                 |  |           |       |            |  |  |         |  |  |  |       |  
|---------------------------------------------------------------------------- |  | ------------ | ---------- | --------------- |  | --------- | ----- | ---------- |  |  | ------- |  |  |  | ----- | -
|                                                                             |  |              |            |                
|                                                                             |  | Common Stock |            | Preferred Stock
|                                                                             |  | (voting)     |            | (non-voting)   
|                                                                             |  |              |            |                
|                                                                             |  | Number of    |            |                 |  | Number of |       |           
|                                                                             |  | Shares       |            | Percent(1)      |  | Shares    |       | Percent(2)
|                                                                             |  |              |            |                 |  |           |       |           
|One Equity Partners LLC(3)                                                   |  |              | 45,416,357 |                 |  |           | 35.82 |            |  |  | 210,377 |  |  |  | 40.20 | %
|Temasek Holdings (Private) Limited(4)                                        |  |              | 18,457,752 |                 |  |           | 14.56 |            |  |  | 85,500  |  |  |  | 16.34 |  
|TPG Advisors III, Inc.(5)                                                    |  |              | 18,457,752 |                 |  |           | 14.56 |            |  |  | 85,500  |  |  |  | 16.34 |  
|Dennis B. Gillings, Ph.D.(6)                                                 |  |              | 24,943,777 |                 |  |           | 19.68 |            |  |  | 89,045  |  |  |  | 17.02 |  
|James L. Bierman                                                             |  |              |           |                 |  |           |      |            |  |  |        |  |  |  |      |  
|John S. Russell(7)                                                           |  |              | 511,525    |                 |  |           | *     |            |  |  | 285     |  |  |  | *     |  
|Oppel Greeff(8)                                                              |  |              | 840,009    |                 |  |           | *     |            |  |  | 1,806   |  |  |  | *     |  
|Ronald Wooten(9)                                                             |  |              | 497,585    |                 |  |           | *     |            |  |  | 220     |  |  |  | *     |  
|Richard M. Cashin, Jr.(10)                                                   |  |              | 45,293,306 |                 |  |           | 35.73 |            |  |  | 209,807 |  |  |  | 40.09 |  
|Clateo Castellini(11)                                                        |  |              | 111,525    |                 |  |           | *     |            |  |  | 285     |  |  |  | *     |  
|Jonathan J. Coslet(12)                                                       |  |              |           |                 |  |           |      |            |  |  |        |  |  |  |      |  
|Jack M. Greenberg(13)                                                        |  |              | 111,525    |                 |  |           | *     |            |  |  | 285     |  |  |  | *     |  
|Robert A. Ingram(14)                                                         |  |              |           |                 |  |           |      |            |  |  |        |  |  |  |      |  
|S. Iswaran(15)                                                               |  |              | 18,457,752 |                 |  |           | 14.56 |            |  |  | 85,500  |  |  |  | 16.34 |  
|Jacques Nasser(16)                                                           |  |              | 44,370,418 |                 |  |           | 35.00 |            |  |  | 205,532 |  |  |  | 39.28 |  
|James S. Rubin(17)                                                           |  |              | 44,288,384 |                 |  |           | 34.93 |            |  |  | 205,152 |  |  |  | 39.20 |  
|Pamela J. Kirby                                                              |  |              |           |                 |  |           |      |            |  |  |        |  |  |  |      |  
|All directors and current executive officers as a
    group (13 persons)(18) |  |              | 90,890,060 |                 |  |           | 71.69 | %          |  |  | 387,089 |  |  |  | 74.11 | %
|                                                                             |  |              |            |                 |  |           |       |            |  |  |         |  |  |  |       |  



---



| |   |             
| | - | ------------
| | * | Less than 1%



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The foregoing percentage amount is based upon
    126,776,446 shares of common stock held as of March 1,
    2004. This amount includes 7,888,500 shares of restricted
    common stock held by certain members of management and our Board
    of Directors under the Pharma Services Plan, which are subject
    to certain repurchase rights exercisable by Pharma Services.                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(2) | The foregoing percentage amount is based upon
    523,282 shares preferred stock outstanding as of
    March 1, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(3) | Includes 454,615 shares of common stock and
    2,105 shares of preferred stock held by OEP Co-Investors,
    LLC, an entity affiliated with One Equity Partners, LLC.
    Includes 1,025,430 shares of common stock and
    4,750 shares of preferred stock held by Mr. Cashin,
    the Chairman of One Equity, 102,543 shares of common stock
    and 475 shares of preferred stock held by Mr. Nasser,
    a senior partner at One Equity, and 20,508 shares of common
    stock and 95 shares of preferred stock held by
    Mr. Rubin, a partner of One Equity. One Equity disclaims
    beneficial ownership of the shares held by Messrs. Cashin,
    Nasser and Rubin. The principal business address of One Equity
    is 320 Park Avenue, 18th Floor, New York, New York
    10022.

140



---



##### 





|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | The shares of common stock and shares of
    preferred stock indicated as beneficially owned by Temasek
    Holdings (Private) Limited are directly held by Temasek Life
    Sciences Investments Private Limited. The foregoing entity is
    affiliated with Temasek Holdings (Private) Limited. The
    principal business address of Temasek Holdings (Private) Limited
    is 60 B. Orchard Road #06-18, Tower 2 The Atrium Orchard
    Singapore 238891.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(5) | The shares of common stock and shares of
    preferred stock indicated as beneficially owned by TPG
    Advisors III, Inc. are directly held by TPG Quintiles
    Holdco LLC. The foregoing entities are affiliated with TPG. The
    principal business address of TPG Advisors III, Inc. is 301
    Commerce Street, Suite 3300, Fort Worth, Texas 76102.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(6) | Includes 5,720,665 shares of common stock
    subject to a repurchase right exercisable by Pharma Services
    under certain circumstances (such restricted amount to be
    reduced to zero over a period of five years). Also, includes
    (i) 39,678 shares of common stock and 183 shares
    of preferred stock owned by Dr. Gillings daughter;
    (ii) 713,699 shares of common stock and
    3,306 shares of preferred stock owned by the Gillings
    Family Limited Partnership, of which Dr. Gillings and his
    wife are the general partners; (iii) 42,227 shares of
    common stock and 195 shares of preferred stock owned by the
    GFEF Limited Partnership, of which Dr. Gillings is the
    general partner; (iv) 767,459 shares of common stock
    and 3,555 shares of preferred stock owned by
    Dr. Gillings wife; (v) 163,556 shares of
    common stock and 757 shares of preferred stock owned by the
    Gillings Family Foundation, of which Dr. Gillings is the
    general partner; and (vi) 1,000,000 shares of common
    stock owned by the Dennis B. Gillings Grantor Retained Annuity
    Trust, of which Dr. Gillings is trustee. Dr. Gillings
    shares voting and investment power over certain of these shares.
    Dr. Gillings disclaims beneficial ownership of all shares
    owned by his wife and daughter, all shares in the Gillings
    Family Limited Partnership, all shares in the Gillings Family
    Foundation, all shares owned by the GFEF Limited Partnership,
    and all shares in the Dennis B. Gillings Grantor Retained
    Annuity Trust, except to the extent of his interest therein.
|   
|(7) | Includes 61,525 shares of common stock and
    285 shares of preferred stock, subject to repurchase rights
    exercisable by Pharma Services under certain circumstances
    during the 18 month period following the closing of the
    Pharma Services transaction. Also includes 450,000 shares
    of issued but restricted common stock subject to a repurchase
    right exercisable by Pharma Services under certain circumstances.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(8) | Includes 390,009 shares of common stock and
    1,806 shares of preferred stock held by The Oppel Greeff
    Family Trust subject to repurchase rights exercisable by Pharma
    Services under certain circumstances during the 18 month period
    following the closing of the Pharma Services transaction. Also
    includes 450,000 shares of issued but restricted common
    stock subject to a repurchase right exercisable by Pharma
    Services under certain circumstances.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(9) | Includes 47,585 shares of common stock and
    220 shares of preferred stock, subject to repurchase rights
    exercisable by Pharma Services under certain circumstances
    during the 18 month period following the closing of the
    Pharma Services transaction. Also includes 450,000 shares
    of issued restricted common stock subject to a repurchase right
    exercisable by Pharma Services under certain circumstances.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Includes 43,813,259 shares of common stock
    and 202,951 shares of preferred stock held by One Equity
    Partners LLC, of which Mr. Cashin is Chairman. Includes
    454,615 shares of common stock and 2,105 shares of
    preferred stock held by OEP Co-Investors, LLC, an entity
    affiliated with One Equity. Mr. Cashin disclaims beneficial
    ownership of such shares, except to the extent of his pecuniary
    interest therein. The principal business address of
    Mr. Cashin is 320 Park Avenue, 18th Floor, New York,
    New York 10022.
|    
|(11) | Includes 61,525 shares of common stock and 285
    shares of preferred stock, subject to repurchase rights
    exercisable by Pharma Services under certain circumstances
    during the 18 month period following the closing of the Pharma
    Services transaction. Also includes 50,000 shares of issued
    restricted stock subject to a repurchase right exercisable by
    Pharma Services under certain                                                                                                                                                

141



---



##### 



| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | circumstances. The principal business address of
    Mr. Castellini is Via P. Verri, 1, 20121 Milano, Italy.



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(12) | Mr. Coslet disclaims beneficial ownership of
    the shares held by TPG. The principal business address of
    Mr. Coslet is 301 Commerce Street, Suite 3300,
    Fort Worth, Texas 76102.                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    
|(13) | Includes 61,525 shares of common stock and 285
    shares of preferred stock, subject to repurchase rights
    exercisable by Pharma Services under certain circumstances
    during the 18 month period following the closing of the Pharma
    Services transaction. Also includes 50,000 shares of issued
    restricted stock subject to a repurchase right exercisable by
    Pharma Services under certain circumstances. The principal
    business address of Mr. Greenberg is
    333 W. Wacker Drive, Suite 1015, Chicago,
    Illinois 60606.                                                                                     
|    
|(14) | The principal business address of Mr. Ingram
    is Five Moore Drive, Research Triangle Park, North Carolina
    27709.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    
|(15) | Includes 18,457,752 shares of common stock
    and 85,500 shares of preferred stock held by Temasek
    Holdings (Private) Limited, of which Mr. Iswaran is a
    Managing Director. Mr. Iswaran disclaims beneficial
    ownership of such shares, except to the extent of his pecuniary
    interest therein. The principal business address of
    Mr. Iswaran is c/o Temasek Holdings (Private) Limited
    is 60 B. Orchard Road #06-18, Tower 2 The Atrium Orchard
    Singapore 238891.                                                                                                                                               
|    
|(16) | Includes 43,813,259 shares of common stock
    and 202,951 shares of preferred stock held by One Equity
    Partners LLC, of which Mr. Nasser is a senior partner.
    Includes 454,615 shares of common stock and
    2,105 shares of preferred stock held by OEP Co-Investors,
    LLC, an entity affiliated with One Equity. Mr. Nasser
    disclaims beneficial ownership of any shares held by either One
    Equity or OEP Co-Investors, except to the extent of his
    pecuniary interest therein. The principal business address of
    Mr. Nasser is 100 Bloomfield Hills Parkway, Suite 175,
    Bloomfield Hills, Michigan 48304.
|    
|(17) | Includes 43,813,659 shares of common stock
    and 202,951 shares of preferred stock held by One Equity
    Partners LLC, of which Mr. Rubin is a partner. Includes
    454,615 shares of common stock and 2,105 shares of
    preferred stock held by OEP Co-Investors, LLC, an entity
    affiliated with One Equity. Mr. Rubin disclaims beneficial
    ownership of any shares held by either One Equity or OEP
    Co-Investors, except to the extent of his pecuniary interest
    therein. The principal business address of Mr. Rubin is 320
    Park Avenue, 18th Floor, New York, New York 10022.                                  
|    
|(18) | Includes shares of restricted common stock and
    beneficially owned shares as described in the preceding
    footnotes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

142



---



##### 



Equity Compensation Plans

As of December 31, 2003, we do not have any
compensation plans (including individual compensation
arrangements) under which our equity securities are authorized
for issuance. The following table summarizes information
regarding compensation plans (including individual compensation
arrangements) under which the equity securities of our parent
company, Pharma Services, are authorized for issuance as of
December 31, 2003.

|                                                               |  |                   |            |                  |  |                      |       |  |  |  |           |    
|-------------------------------------------------------------- |  | ----------------- | ---------- | ---------------- |  | -------------------- | ----- |  |  |  | --------- | ---
|                                                               |  |                   |            |                  |  | Number of           
|                                                               |  |                   |            |                  |  | securities          
|                                                               |  | Number of         |            | Weighted         |  | remaining available 
|                                                               |  | securities to be  |            | average exercise |  | for future issuance 
|                                                               |  | issued upon       |            | price of         |  | under equity        
|                                                               |  | exercise of       |            | outstanding      |  | compensation        
|                                                               |  | outstanding       |            | options,         |  | plans (excluding    
|                                                               |  | options, warrants |            | warrants and     |  | securities reflected
|Plan Category                                                  |  | and rights(1)     |            | rights           |  | in column (a))(1)   
|                                                               |  |                   |            |                  |  |                     
|                                                               |  | (a)               |            | (b)              |  | (c)                 
|Equity compensation plans approved by security
    holders     |  |                   | N/A        |                  |  |                      | N/A   |  |  |  | N/A       |    
|Equity compensation plans not approved by
    security holders |  |                   | 10,706,000 | (2)              |  | $                    | 14.50 |  |  |  | 3,746,208 | (3)
|Total                                                          |  |                   | 10,706,000 |                  |  | $                    | 14.50 |  |  |  | 3,746,208 |    



---



|    |                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Refers to shares of common stock of Pharma
    Services and options to purchase shares of common stock of
    Pharma Services. All amounts are as of December 31, 2003.                                                              
|   
|(2) | Includes 7,356,000 shares of restricted
    common stock of Pharma Services granted under the Pharma
    Services Plan and 3,350,000 shares issuable upon exercise
    of outstanding options granted under the Pharma Services Plan.
|   
|(3) | Includes 2,278,805 restricted shares and
    1,467,403 options to purchase shares of common stock remaining
    for future issuance under the Pharma Services Plan.                                                                  

Summary Description of the Pharma Services
Plan

On September 25, 2003, in connection with
the closing of the Pharma Services transaction, Pharma Services
adopted the Pharma Services Plan. Under the Pharma Services
Plan, 14,452,208 shares of Pharma Services common stock are
authorized for issuance in the form of shares or options. Shares
may be vested or unvested. Options may be incentive stock
options, or ISOs, or nonqualified options.

The Pharma Services Plan is administered by the
Compensation and Nominations Committee, or the Committee, which
is composed entirely of directors who are not our employees. The
Committee has broad discretion to determine, among other things,
(1) the individuals to whom options and shares may be
granted, (2) the terms and conditions of any option,
including the exercise price, conditions relating to exercise
and termination of the right to exercise, (3) whether
shares shall be vested or unvested and the conditions pursuant
to which any unvested shares shall become vested,
(4) whether any option shall be an ISO or a nonqualified
option. The Committee may grant options under the Pharma
Services Plan to employees, directors and other service
providers of ours and of our subsidiaries.

Except as provided in a grant certificate, upon
the grantees termination of employment with Pharma
Services and its subsidiaries for any reason, (1) options that
are not then vested and exercisable shall immediately terminate,
and (2) options that are vested and exercisable shall
generally remain exercisable until, and terminate upon, the
91st day following such termination of employment (or the
366th day following such termination where such termination is
by reason of death, or a disability, retirement or redundancy
that is approved by the Committee for purposes hereof);
provided, however, that if such termination is for cause, as
defined in the Pharma Services Plan, or following such
termination the grantee violates a restrictive covenant, as
defined in the Pharma Services Plan, all options will terminate

143



---



##### 



immediately; provided, further, that in any
event, each option will terminate upon the tenth anniversary of
the date of grant.


The Pharma Services Plan provides that the number
and kind of securities subject to unvested shares or outstanding
options, as well as the exercise price per share subject to
options, shall be appropriately adjusted in the event of any
recapitalization, forward or reverse split, reorganization, or
other specified events involving a change in the capitalization
of Pharma Services. In addition, the Committee is authorized to
make adjustments in the terms and conditions of, and the
criteria included in, unvested shares or options, including,
without limitation, acceleration of the expiration date of
options, cancellation of options in exchange for the
in-the-money value, if any, of vested options or
substitution of unvested shares or options of a successor or
other entity in recognition of unusual or nonrecurring events,
including a sale of Pharma Services. Unless otherwise determined
by the Committee, the terms of the plan provide that all options
and unvested shares shall become fully vested immediately prior
to a sale of Pharma Services. The terms of the plan permit the
Committee to amend or terminate the plan, provided that no such
action shall adversely affect the rights of grantees with
respect to options or shares previously granted.

Shares of Pharma Services common stock acquired
through the Pharma Services Plan are subject to transfer
restrictions and other limitations set forth in the plan. These
limitations include repurchase rights upon termination of
employment and drag-along rights that require holders of shares
issued under the plan to sell a pro rata portion of such shares
to third parties along with certain sales by stockholders
holding a majority of the Pharma Services common stock on the
same terms, and subject to the same conditions, as such sales.
In addition, the Pharma Services Plan requires each holder of
Pharma Services common stock issued under the Pharma Services
Plan to vote in the election of directors as directed by the
Pharma Services board of directors which shall be consistent
with the provisions of the stockholder agreement.



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

Effect of the Pharma Services Transaction on
Share Ownership of Executive Officers

Dr. Gillings and his affiliates exchanged
6,311,057 shares of our common stock and all options to
purchase shares of our common stock held by Dr. Gillings
and his affiliates for equity securities of Pharma Services in
the Pharma Services transaction. Dr. Gillings and his
affiliates received the $14.50 per share Pharma Services
transaction consideration for a total of approximately
$2,634,343 with respect to shares of our common stock
Dr. Gillings and his affiliates cashed out in the Pharma
Services transaction. At the effective time of the Pharma
Services transaction, Dr. Gillings also purchased an
additional 6,021,753 shares of Pharma Services common stock,
then equal to 4.7% of the outstanding common stock of Pharma
Services. Dr. Gillings and his affiliates are parties to
the stockholders agreement. The restrictions on transfers of
shares described in the stockholders agreement (below) also
apply to the additional shares acquired by Dr. Gillings.
These shares of Pharma Services common stock also are subject to
a repurchase right in certain limited instances upon termination
of Dr. Gillings employment with Pharma Services. The
number of shares subject to this repurchase right declines to
zero over the five years following the Pharma Services
transaction. The repurchase price for any such shares shall be
the price paid by Dr. Gillings for the shares.

In addition, Messrs. Russell and Wooten and
Dr. Greeff exchanged all or some portion of their
respective shares and options to purchase shares of our common
stock for equity securities of Pharma Services. They did not
receive any consideration from us for any such shares or options
so exchanged in connection with the Pharma Services transaction.
With respect to shares cashed out in the Pharma Services
transaction, each of Messrs. Bierman, Russell and Wooten
received the $14.50 per share merger consideration for a
total of $60,287, $30,577 and $10,365, respectively.
Dr. Greeff exchanged all of his shares of our common stock
for equity securities of Pharma Services. With respect to
Quintiles options canceled in the Pharma Services transaction,
each of Messrs. Bierman, Russell and Wooten and
Dr. Greeff received a total of approximately $580,632,
$279,110, $10,305, and $16,057, respectively, for options held
at the time of the Pharma Services transaction that were not
exchanged for Pharma Services securities. For a description of
the equity and other arrangements of our executive officers
(other than

144



---



##### 



Dr. Gillings) following the consummation of
the Pharma Services transaction, please see Management
Arrangements under Item 12 of this Form 10-K.


Stockholders Agreement

In connection with the Pharma Services
transaction, Pharma Services entered into a stockholders
agreement with One Equity, Dr. Gillings and his affiliates,
Temasek and TPG, and certain other investors who acquired equity
securities of Pharma Services, dated as of the closing.
Messrs. Cashin, Nasser and Rubin are parties to the
stockholders agreement in their individual capacities.



| |                      
| | ---------------------
| | Transfer Restrictions

The stockholders agreement prohibits transfers of
securities of Pharma Services except (1) to certain
Permitted Transferees, (2) in a registered
public offering, (3) pursuant to certain drag-along rights
that require stockholders to sell all or part of their equity
interest in Pharma Services to third parties along with certain
sales by stockholders holding a majority of the outstanding
shares of common stock or a majority of the outstanding shares
of preferred stock and on the same terms, and subject to the
same conditions, as such sales, (4) pursuant to certain
duty of first offer requirements and tag-along rights that
require a stockholder wishing to sell all or part of its equity
interest in Pharma Services to first offer its shares on the
same terms to Pharma Services and the other stockholders of
Pharma Services who are party to the stockholders agreement, and
if not purchased by Pharma Services or such stockholders, to
include shares of such stockholders, at their option, in the
event of a sale to a third party, and (5) on the terms, and
subject to the conditions, set forth in the restricted stock
purchase agreement entered into with Dr. Gillings in
connection with his purchase of an additional 4.7% of Pharma
Services outstanding common stock at the effective time of
the Pharma Services transaction.

The stockholders agreement also restricts
transfers of securities to our competitors, except pursuant to a
sale of Pharma Services.

Under the stockholders agreement,
Dr. Gillings and his affiliates are permitted to enter into
a bona fide pledge of preferred stock of Pharma Services to
financial institutions that agree to be bound by certain
provisions of the stockholders agreement.

The stockholders agreement provides for a right
to purchase additional securities allowing stockholders of
Pharma Services to maintain their respective ownership
percentage in Pharma Services upon certain sales of stock by
Pharma Services.



| |                     
| | --------------------
| | Corporate Governance

The stockholders agreement also provides that the
constituents on our board of directors and committees thereof
are the same as those of Pharma Services. In addition, as
described in more detail under Directors and Offices of
the Registrant  Nomination of Directors under
Item 10 of this Form 10-K, the stockholders agreement
requires each stockholder to vote their respective shares of
Pharma Services in favor of the ten specified nominees to the
board of directors.

All decision making by the board of directors
generally requires the affirmative vote of a majority of the
members of the entire board of directors, except that any
transactions entered into between Pharma Services or any of its
subsidiaries and any stockholder or affiliate or associate of
any stockholder will require the affirmative vote of a majority
of the board of directors of Pharma Services with the nominee(s)
of the interested stockholder abstaining from such vote.

Registration Rights Agreement

Pharma Services and its stockholders that are
parties to the stockholders agreement are also parties to a
registration rights agreement dated as of September 25,
2003. Pursuant to the registration rights agreement, at any time
after the first anniversary of the registration rights
agreement, the holders of a majority of the registrable
securities of Pharma Services will have the right to require
that Pharma

145



---



##### 



Services effect an initial public offering. After
the earlier of six months following the completion of an initial
public offering or the date on which Pharma Services merges with
a publicly held company whereby the common stock of Pharma
Services is exchanged for publicly held stock or the common
stock of Pharma Services otherwise becomes registered under the
Exchange Act, each stockholder of Pharma Services that is a
party to the registration rights agreement will be entitled to
demand registration of their registrable securities under
certain circumstances, and Pharma Services will be required to
establish and maintain, as soon as eligible to do so, a
shelf registration statement for sale of registrable
securities by the stockholders until all registrable securities
held by them have been sold or are freely transferable. In
addition, in most circumstances when Pharma Services proposes
(other than pursuant to a demand registration) to register any
of its equity securities under the Securities Act, the
stockholders that are parties to the registration rights
agreement will have the opportunity to register their
registrable securities on such registration statement.


Exchange Agreement

The holders of the Pharma Services preferred
stock entered into an exchange agreement pursuant to which
transferees of the Series A preferred stock who are
unaffiliated with the initial holders of such stock may, under
certain circumstances, exchange their shares of Series A
preferred stock at any time and from time to time for notes of
Intermediate Holding.

Fee Agreements

Pharma Services entered into agreements with GFM
and certain of the other equity investors of Pharma Services,
including One Equity, pursuant to which Pharma Services paid
GFM, a company controlled by Dr. Gillings, and One Equity a
one-time transaction fee of $5.0 million and
$15.0 million, respectively, at the effective time of the
Pharma Services transaction, and, agreed to pay GFM and such
investors an annual management service fee of approximately
$3.75 million, of which GFM, TPG and Cassia Fund Management
Pte Ltd., an affiliate of Temasek, each receive approximately
$750,000 and One Equity receives approximately $1.5 million
until 2008.

Pharma Services was also responsible for the fees
and expenses of Dr. Gillings, One Equity, Temasek and TPG,
and each of their respective affiliates and advisors, related to
the Pharma Services transaction. Pharma Services paid
$17.1 million to Dr. Gillings pursuant to this
arrangement.

Other Transactions

Dr. Gillings provides extensive use of his
own plane for business-related travel services for himself and
other of our employees. For the year ended December 31,
2003, we reimbursed Dr. Gillings for the use of his plane
with cash payments totaling approximately $3.6 million and
by granting options to Dr. Gillings with a Black-Scholes
value of approximately $350,000 on March 17, 2003. Under
the terms of Dr. Gillings new employment agreement
with us, GFM will be reimbursed for business use of
Dr. Gillings plane on behalf of Pharma Services and
its subsidiaries at an hourly rate of $10,794.

As of May 16, 1996, we entered into
split-dollar life insurance agreements with certain trusts
created by Dr. Gillings whereby we and the trusts shared in
the premium costs of certain variable and whole life insurance
policies that will pay an aggregate death benefit to the trusts
upon the death of Dr. Gillings or his wife,
Joan Gillings, whichever occurs later. The trusts paid
premiums on the policies as if each policy were a one year term
life policy, and we paid the remaining premiums. On
December 19, 2003, we terminated three of the six policies
that were then in place and, commensurate with that, received
repayment from the trusts of $7,652,126.00 of the cumulative
premiums previously paid by us with respect to those policies.
On December 23, 2003, the trusts also repaid $6,000,000, or
approximately 70% of the cumulative premiums previously paid by
us with respect to the remaining policies. We did not make any
premium payments with respect to the remaining policies in 2003,
nor will we in the future. To the extent those arrangements
remain in place, any ongoing funding obligations will be the
responsibility of Dr. Gillings. Upon any surrender of a
remaining policy, the liability of the related trust to us is
limited to

146



---



##### 



the cash value of the policy. See footnotes (5),
(8) and (12) to the Summary Compensation
Table above for additional information on premium payments
we made under the policies.


We use the facilities of several buildings in
South Africa owned and operated by two South African entities.
Dr. Greeff serves on the board of directors of each of
these entities and his trust owns 40% of the outstanding shares
of stock of each of these entities. We lease these buildings
from these entities pursuant to separate lease agreements on
market standard terms. The initial term of each of the three
leases is six years and four months, expiring in March 2006,
three years and one month, expiring in March 2005, and five
years, expiring in March 2006, respectively, and each lease is
renewable for one 5-year term. Under the terms of the lease
arrangements covering those facilities, we paid these entities
approximately $790,000 in rent during 2003.



|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

We engaged PricewaterhouseCoopers LLP as our
independent auditors on May 21, 2002. The following table
presents fees for professional audit services rendered by
PricewaterhouseCoopers LLP for the audit of our annual financial
statements for the periods from January 1, 2003 through
September 25, 2003 and from September 26, 2003 through
December 31, 2003 and for the year ended December 31,
2002 and fees billed for other services rendered by
PricewaterhouseCoopers LLP during those periods.

|                      |  |                |       |      |  |   |       | 
|--------------------- |  | -------------- | ----- | ---- |  | - | ----- | 
|Fiscal Year           |  | 2003           |       | 2002
|                      |  |                |       |     
|                      |  |               
|                      |  | $ in thousands
|Audit Fees            |  | $              | 1,700 |      |  | $ | 1,650 | 
|Audit Related Fees(1) |  | $              | 611   |      |  | $ | 280   | 
|Tax Fees(2)           |  | $              | 2,627 |      |  | $ | 1,594 | 
|All Other Fees(3)     |  | $              | 4     |      |  | $ |      | 
|Total                 |  | $              | 4,942 |      |  | $ | 3,524 | 



---



|    |                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Audit Related Fees consist of services related to
    mergers and acquisitions, primarily the Pharma Services
    transaction and related regulatory filings, and consultation
    concerning financial accounting and reporting standards.
|   
|(2) | Tax Fees consist of tax compliance, tax planning
    and advice.                                                                                                                                                                           
|   
|(3) | All Other Fees consist of miscellaneous
    accounting research tools.                                                                                                                                                                     

Arthur Andersen LLP served as our independent
public accountants until May 17, 2002. We paid $205,000 to
Arthur Andersen LLP for audit fees relating to the review of
financial statements included in our Form 10-Q for the
quarterly period ended March 31, 2002 and certain statutory
filings for the 2002 fiscal year.

Our Audit Committee is responsible for
appointing, setting compensation, and overseeing the work of the
independent public accountants. As part of this responsibility,
the Audit Committee is required to pre-approve the audit and
non-audit services performed by the independent public
accountants in order to assure the public accountants
independence. Our Audit Committee has adopted and our board of
directors has ratified, an Audit and Non-Audit Pre-Approval
Policy, which established a policy requiring our Audit Committee
to review and approve all audit services, review and attest
engagements and permitted non-audit services to be performed by
our independent accountants. Pre-approval fee levels for all
services to be provided by our independent public accountants
are established annually by our Audit Committee. Audit services
are subject to specific pre-approval while audit-related
services, tax services and all other services may be granted
pre-approvals within specified categories. Any proposed services
exceeding these levels require specific pre-approval by our
Audit Committee. Additionally, our Audit Committee may delegate
either type of pre-approval authority to one or more if its
members. The member to whom such authority is delegated must
report, for informational purposes only, any pre-approval
decisions to our Audit Committee at its next scheduled meeting.

147



---



##### 



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 Annual Report on Form 10-K.

|                                                                                                                                                                                                                                                                      |  |                |     | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | --- | 
|Financial Statements                                                                                                                                                                                                                                                  |  | Form 10-K Page
|                                                                                                                                                                                                                                                                      |  |               
|Consolidated Statements of Operations for the
    periods from September 26, 2003 through December 31,
    2003 (successor), January 1, 2003 through
    September 25, 2003 (predecessor), and the years ended
    December 31, 2002 and 2001 (predecessor)           |  |                | 54  | 
|Consolidated Balance Sheets as of
    December 31, 2003 (successor) and 2002 (predecessor)                                                                                                                                                                            |  |                | 55  | 
|Consolidated Statements of Cash Flows for the
    periods from September 26, 2003 through December 31,
    2003 (successor), January 1, 2003 through
    September 25, 2003 (predecessor), and the years ended
    December 31, 2002 and 2001 (predecessor)           |  |                | 57  | 
|Consolidated Statements of Shareholders
    Equity for the periods from September 26, 2003 through
    December 31, 2003 (successor), January 1, 2003 through
    September 25, 2003 (predecessor), and the years ended
    December 31, 2002 and 2001 (predecessor) |  |                | 59  | 
|Notes to Consolidated Financial Statements                                                                                                                                                                                                                            |  |                | 60  | 
|Report of Independent Public Auditors,
    PricewaterhouseCoopers LLP, dated February 25, 2004                                                                                                                                                                        |  |                | 118 | 
|Report of Independent Public Auditors,
    PricewaterhouseCoopers LLP, dated February 25, 2004                                                                                                                                                                        |  |                | 119 | 
|Report of Independent Public Accountants, Arthur
    Andersen LLP, dated January 23, 2002 (previously issued and
    not reissued)                                                                                                                                    |  |                | 120 | 

(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
|        |          |            
|        | 2.01(1)  |             |  | Agreement and Plan of Merger, dated
    April 10, 2003, by and among Pharma Services Holding, Inc.,
    Pharma Services Acquisition Corp, and Quintiles Transnational
    Corp.                                                                                                                                                                                                                                                                                                                                                           
|        | 2.02     |             |  | Amendment No. 1 to Agreement and Plan of
    Merger, dated as of August 18, 2003, by and among Pharma
    Services Holding, Inc., Pharma Services Acquisition Corp, and
    Quintiles Transnational Corp.                                                                                                                                                                                                                                                                                                                                 
|        | 3.01(2)  |             |  | Restated Articles of Incorporation of Quintiles
    Transnational Corp.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 3.02(2)  |             |  | Amended and Restated Bylaws of Pharma Services
    Acquisition Corp., as Adopted by Quintiles Transnational Corp.                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 4.01(2)  |             |  | Specimen Stock Certificate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 4.02(2)  |             |  | Indenture, dated as of September 25, 2003,
    among the Company, the Subsidiary Guarantors named therein and
    Wells Fargo Bank Minnesota, N.A., as Trustee                                                                                                                                                                                                                                                                                                                                                                            
|        | 4.03(2)  |             |  | Registration Rights Agreement, dated as of
    September 25, 2003, among the Company and Citigroup Global
    Markets, Inc., as Representative of the Initial Purchasers named
    therein                                                                                                                                                                                                                                                                                                                                                
|        | 4.04(2)  |             |  | Form of Global Note (included as Exhibit A
    to Exhibit 4.02 hereto)                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10.01(2) |             |  | Credit Agreement, dated September 25, 2003,
    among the Company, Pharma Services Holding, Inc. and Pharma
    Services Intermediate Holding Corp., as Parent Guarantors, the
    Lender referred to therein, Citigroup Global Markets, Inc., as
    Sole Lead Arranger and Sole Bookrunner, Citicorp North America,
    as Administrative Agent, ABN AMRO Bank N.V. and Banc One
    Mezzanine Corporation, as Co-Syndication Agents and Residential
    Funding Corporation (DBA GMAC  RFC Health Capital),
    as Documentation Agent

148



---



##### 



|        |             |             |  |                                                                                                                                                                                             
|------- | ----------- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |             | Description
|        |             |            
|        | 10.02(2)(3) |             |  | Executive Employment Agreement, dated
    September 25, 2003, by and among Dr. Dennis B.
    Gillings, Pharma Services Holding, Inc. and Quintiles
    Transnational Corp.                  
|        | 10.03(3)(4) |             |  | Employment Agreement, dated March 13, 2001,
    by and between Dr. Pamela J. Kirby and Quintiles
    Transnational Corp.                                                                    
|        | 10.04(3)(5) |             |  | Executive Employment Agreement, dated
    June 16, 1998, by and between James L. Bierman and
    Quintiles Transnational Corp.                                                              
|        | 10.05(3)(6) |             |  | Amendment to Executive Employment Agreement,
    dated March 31, 2003, by and between James L. Bierman and
    Quintiles Transnational Corp.                                                
|        | 10.06(3)    |             |  | Letter Agreement, dated January 21, 2004, to
    James L. Bierman from Quintiles Transnational Corp.                                                                                        
|        | 10.07(3)    |             |  | Executive Employment Agreement, dated
    February 8, 2002, by and between Oppel Greeff and Quintiles
    Transnational Corp.                                                               
|        | 10.08(3)    |             |  | Amendment to Executive Employment Agreement,
    dated November 17, 2003, by and between Oppel Greeff and
    Quintiles Transnational Corp.                                                 
|        | 10.09(3)    |             |  | Letter dated December 6, 2003 to Oppel
    Greeff from Quintiles Transnational Corp. re. Amendment to
    Executive Employment Agreement                                                    
|        | 10.10(3)    |             |  | Letter dated October 30, 2003 to Oppel
    Greeff from Pharma Services Holding, Inc. re. Opportunity to
    Purchase Shares                                                                 
|        | 10.11(3)    |             |  | Letter dated October 30, 2003 to Oppel
    Greeff from Pharma Services Holding, Inc. re. Stock Option                                                                                       
|        | 10.12(3)(5) |             |  | Executive Employment Agreement, dated
    December 3, 1998, by and between John S. Russell and
    Quintiles Transnational Corp.                                                            
|        | 10.13(3)(5) |             |  | Amendment to Executive Employment Agreement,
    dated October 26, 1999, by and between John S. Russell and
    Quintiles Transnational Corp.                                               
|        | 10.14(3)    |             |  | Amendment to Executive Employment Agreement,
    dated November 14, 2003, by and between John S. Russell and
    Quintiles Transnational Corp.                                              
|        | 10.15(3)    |             |  | Letter dated November 3, 2003 to John S.
    Russell from Pharma Services Holding, Inc. re. Opportunity to
    Purchase Shares                                                              
|        | 10.16(3)    |             |  | Letter dated November 3, 2003 to John S.
    Russell from Pharma Services Holding, Inc. re. Stock Option                                                                                    
|        | 10.17(3)    |             |  | Executive Employment Agreement, dated
    July 25, 2000, by and between Ron Wooten and Quintiles
    Transnational Corp.                                                                    
|        | 10.18(3)    |             |  | Amendment to Executive Employment Agreement,
    dated November 5, 2003, by and between Ron Wooten and
    Quintiles Transnational Corp.                                                    
|        | 10.19(3)    |             |  | Letter dated November 13, 2003 to Ron Wooten
    from Quintiles Transnational Corp. re. Amendment to Executive
    Employment Agreement                                                     
|        | 10.20(3)    |             |  | Letter dated October 30, 2003 to Ron Wooten
    from Pharma Services Holding, Inc. re. Opportunity to Purchase
    Shares                                                                   
|        | 10.21(3)    |             |  | Letter dated October 30, 2003 to Ron Wooten
    from Pharma Services Holding, Inc. re. Stock Option                                                                                         
|        | 10.22(3)(7) |             |  | Quintiles Transnational Corp. Special Bonus Plan                                                                                                                                            
|        | 10.23(3)    |             |  | Pharma Services Stock Option Incentive Plan                                                                                                                                                 
|        | 10.24(8)    |             |  | Underlease, dated November 28, 1997, by and
    between PDFM Limited and Quintiles (UK) Limited and
    guaranteed by the Company                                                           
|        | 10.25(9)    |             |  | Agreement for the Provision of Research Services
    and Purchase of Business Assets, dated as of January 1,
    1999, between Hoechst Marion Roussel, Inc. and Quintiles, Inc.             
|        | 10.26(10)   |             |  | 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.

149



---



##### 



|        |           |             |  |                                                                                                                                                          
|------- | --------- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |           | Description
|        |           |            
|        | 10.27(11) |             |  | Settlement Agreement, dated October 12,
    2001, between Quintiles Transnational Corp. and WebMD
    Corporation.                                       
|        | 10.28     |             |  | Agreement of Lease, dated April 26, 2003,
    entered into between Shibbolet (Proprietary) Limited and
    Quintiles Clindepharm (Proprietary) Limited   
|        | 10.29     |             |  | Agreement of Lease, dated December 13, 1999,
    entered into between Shibbolet (Proprietary) Limited and
    Quintiles Clindepharm (Proprietary) Limited
|        | 10.30     |             |  | Memorandum of Agreement of Lease, dated
    March 13, 2000, between Rosenpark Eindomme CC and Quintiles
    Clindepharm (Proprietary) Limited            
|        | 16.01(12) |             |  | Letter regarding change in the Companys
    certifying accountant dated May 17, 2002                                                                    
|        | 21        |             |  | Subsidiaries                                                                                                                                             
|        | 24.01     |             |  | Power of Attorney (included on the signature page
    hereto)                                                                                            
|        | 31.01     |             |  | Certification Pursuant to
    Rule 13a-14/15d-14, As Adopted Pursuant to Section 302
    of The Sarbanes-Oxley Act of 2002                               
|        | 31.02     |             |  | Certification Pursuant to
    Rule 13a-14/15d-14, As Adopted Pursuant to Section 302
    of The Sarbanes-Oxley Act of 2002                               
|        | 32.01     |             |  | Certification Pursuant to 18 U.S.C.
    Section 1350, As Adopted Pursuant to Section 906 of
    The Sarbanes-Oxley Act of 2002                           
|        | 32.02     |             |  | 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 Current Report on Form 8-K
    dated April 10, 2003, as filed with the Securities and
    Exchange Commission on April 11, 2003 and incorporated
    herein by reference.                           
|   
|(2) | Exhibit to our Quarterly Report on Form 10-Q
    for the period ended September 30, 2003, as filed with the
    Securities and Exchange Commission on November 14, 2003,
    and incorporated herein by reference. 
|   
|(3) | Executive compensation plans and arrangements.                                                                                                                                                                     
|   
|(4) | 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.          
|   
|(5) | 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.   
|   
|(6) | Exhibit to our Annual Report on Form 10-K/ A
    for the fiscal year ended December 31, 2002, as filed with
    the Securities and Exchange Commission on April 29, 2003,
    and incorporated herein by reference.
|   
|(7) | Exhibit to our Annual Report on Form 10-K
    for the fiscal year ended December 31, 2002, as filed with
    the Securities and Exchange Commission on February 24,
    2003, and incorporated herein by reference.
|   
|(8) | 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.   
|   
|(9) | 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.                            



|     |                                                                                                                                                                                                                  
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | 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.                   
|    
|(11) | 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.

150



---



##### 





|     |                                                                                                                                                                                      
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(12) | 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 did not file nor furnish any Current Reports
on Form 8-K during the period between October 1, 2003
and December 31, 2003.

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

See (a)(3) above.

(d) Financial Statements and
Schedules.

See (a)(2) above.

151



---



##### 



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 1st day of March, 2004.



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



| |     |                              
| | --- | -----------------------------
| | By: | /s/ DENNIS B. GILLINGS, PH.D.

| | 
| | 
| | 



| |                          
| | -------------------------
| | Dennis B. Gillings, Ph.D.
| | Executive Chairman and   
| | Chief Executive Officer  

152



---



##### 



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/ DENNIS B. GILLINGS, PH.D.Dennis B. Gillings, Ph.D. |  | Executive Chairman, Chief Executive Officer and
    Director (principal executive officer)       |  | March 1, 2004
|                                                      
|/s/ JAMES L. BIERMANJames L. Bierman                   |  | Executive Vice President, Chief Financial Officer
    and Director (principal financial officer) |  | March 1, 2004
|                                                      
|/s/ RICHARD M. CASHIN, JR.Richard M. Cashin, Jr.       |  | Director                                                                                         |  | March 1, 2004
|                                                      
|/s/ CLATEO CASTELLINIClateo Castellini                 |  | Director                                                                                         |  | March 1, 2004
|                                                      
|/s/ JONATHAN COSLETJonathan Coslet                     |  | Director                                                                                         |  | March 1, 2004
|                                                      
|/s/ JACK M. GREENBERGJack M. Greenberg                 |  | Director                                                                                         |  | March 1, 2004
|                                                      
|/s/ ROBERT A. INGRAMRobert A. Ingram                   |  | Director                                                                                         |  | March 1, 2004
|                                                      
|S. Iswaran                                             |  | Director                                                                                         |  |              
|                                                      
|/s/ JACQUES NASSERJacques Nasser                       |  | Director                                                                                         |  | March 1, 2004
|                                                      
|/s/ JAMES S. RUBINJames S. Rubin                       |  | Director                                                                                         |  | March 1, 2004

153



---



##### 



EXHIBIT INDEX

|        |             |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- | ----------- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |             | Description
|        |             |            
|        | 2.01(1)     |             |  | Agreement and Plan of Merger, dated
    April 10, 2003, by and among Pharma Services Holding, Inc.,
    Pharma Services Acquisition Corp, and Quintiles Transnational
    Corp.                                                                                                                                                                                                                                                                                                                                                           
|        | 2.02        |             |  | Amendment No. 1 to Agreement and Plan of
    Merger, dated as of August 18, 2003, by and among Pharma
    Services Holding, Inc., Pharma Services Acquisition Corp, and
    Quintiles Transnational Corp.                                                                                                                                                                                                                                                                                                                                 
|        | 3.01(2)     |             |  | Restated Articles of Incorporation of Quintiles
    Transnational Corp.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 3.02(2)     |             |  | Amended and Restated Bylaws of Pharma Services
    Acquisition Corp., as Adopted by Quintiles Transnational Corp.                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 4.01(2)     |             |  | Specimen Stock Certificate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 4.02(2)     |             |  | Indenture, dated as of September 25, 2003,
    among the Company, the Subsidiary Guarantors named therein and
    Wells Fargo Bank Minnesota, N.A., as Trustee                                                                                                                                                                                                                                                                                                                                                                            
|        | 4.03(2)     |             |  | Registration Rights Agreement, dated as of
    September 25, 2003, among the Company and Citigroup Global
    Markets, Inc., as Representative of the Initial Purchasers named
    therein                                                                                                                                                                                                                                                                                                                                                
|        | 4.04(2)     |             |  | Form of Global Note (included as Exhibit A
    to Exhibit 4.02 hereto)                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10.01(2)    |             |  | Credit Agreement, dated September 25, 2003,
    among the Company, Pharma Services Holding, Inc. and Pharma
    Services Intermediate Holding Corp., as Parent Guarantors, the
    Lender referred to therein, Citigroup Global Markets, Inc., as
    Sole Lead Arranger and Sole Bookrunner, Citicorp North America,
    as Administrative Agent, ABN AMRO Bank N.V. and Banc One
    Mezzanine Corporation, as Co-Syndication Agents and Residential
    Funding Corporation (DBA GMAC  RFC Health Capital),
    as Documentation Agent
|        | 10.02(2)(3) |             |  | Executive Employment Agreement, dated
    September 25, 2003, by and among Dr. Dennis B.
    Gillings, Pharma Services Holding, Inc. and Quintiles
    Transnational Corp.                                                                                                                                                                                                                                                                                                                                                                
|        | 10.03(3)(4) |             |  | Employment Agreement, dated March 13, 2001,
    by and between Dr. Pamela J. Kirby and Quintiles
    Transnational Corp.                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10.04(3)(5) |             |  | Executive Employment Agreement, dated
    June 16, 1998, by and between James L. Bierman and
    Quintiles Transnational Corp.                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.05(3)(6) |             |  | Amendment to Executive Employment Agreement,
    dated March 31, 2003, by and between James L. Bierman and
    Quintiles Transnational Corp.                                                                                                                                                                                                                                                                                                                                                                                              
|        | 10.06(3)    |             |  | Letter Agreement, dated January 21, 2004, to
    James L. Bierman from Quintiles Transnational Corp.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10.07(3)    |             |  | Executive Employment Agreement, dated
    February 8, 2002, by and between Oppel Greeff and Quintiles
    Transnational Corp.                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 10.08(3)    |             |  | Amendment to Executive Employment Agreement,
    dated November 17, 2003, by and between Oppel Greeff and
    Quintiles Transnational Corp.                                                                                                                                                                                                                                                                                                                                                                                               
|        | 10.09(3)    |             |  | Letter dated December 6, 2003 to Oppel
    Greeff from Quintiles Transnational Corp. re. Amendment to
    Executive Employment Agreement                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10.10(3)    |             |  | Letter dated October 30, 2003 to Oppel
    Greeff from Pharma Services Holding, Inc. re. Opportunity to
    Purchase Shares                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 10.11(3)    |             |  | Letter dated October 30, 2003 to Oppel
    Greeff from Pharma Services Holding, Inc. re. Stock Option                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10.12(3)(5) |             |  | Executive Employment Agreement, dated
    December 3, 1998, by and between John S. Russell and
    Quintiles Transnational Corp.                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 10.13(3)(5) |             |  | Amendment to Executive Employment Agreement,
    dated October 26, 1999, by and between John S. Russell and
    Quintiles Transnational Corp.                                                                                                                                                                                                                                                                                                                                                                                             
|        | 10.14(3)    |             |  | Amendment to Executive Employment Agreement,
    dated November 14, 2003, by and between John S. Russell and
    Quintiles Transnational Corp.                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.15(3)    |             |  | Letter dated November 3, 2003 to John S.
    Russell from Pharma Services Holding, Inc. re. Opportunity to
    Purchase Shares                                                                                                                                                                                                                                                                                                                                                                                                            



---



##### 



|        |             |             |  |                                                                                                                                                                                             
|------- | ----------- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |             | Description
|        |             |            
|        | 10.16(3)    |             |  | Letter dated November 3, 2003 to John S.
    Russell from Pharma Services Holding, Inc. re. Stock Option                                                                                    
|        | 10.17(3)    |             |  | Executive Employment Agreement, dated
    July 25, 2000, by and between Ron Wooten and Quintiles
    Transnational Corp.                                                                    
|        | 10.18(3)    |             |  | Amendment to Executive Employment Agreement,
    dated November 5, 2003, by and between Ron Wooten and
    Quintiles Transnational Corp.                                                    
|        | 10.19(3)    |             |  | Letter dated November 13, 2003 to Ron Wooten
    from Quintiles Transnational Corp. re. Amendment to Executive
    Employment Agreement                                                     
|        | 10.20(3)    |             |  | Letter dated October 30, 2003 to Ron Wooten
    from Pharma Services Holding, Inc. re. Opportunity to Purchase
    Shares                                                                   
|        | 10.21(3)    |             |  | Letter dated October 30, 2003 to Ron Wooten
    from Pharma Services Holding, Inc. re. Stock Option                                                                                         
|        | 10.22(3)(7) |             |  | Quintiles Transnational Corp. Special Bonus Plan                                                                                                                                            
|        | 10.23(3)    |             |  | Pharma Services Stock Option Incentive Plan                                                                                                                                                 
|        | 10.24(8)    |             |  | Underlease, dated November 28, 1997, by and
    between PDFM Limited and Quintiles (UK) Limited and
    guaranteed by the Company                                                           
|        | 10.25(9)    |             |  | Agreement for the Provision of Research Services
    and Purchase of Business Assets, dated as of January 1,
    1999, between Hoechst Marion Roussel, Inc. and Quintiles, Inc.             
|        | 10.26(10)   |             |  | 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.
|        | 10.27(11)   |             |  | Settlement Agreement, dated October 12,
    2001, between Quintiles Transnational Corp. and WebMD Corporation                                                                               
|        | 10.28       |             |  | Agreement of Lease, dated April 26, 2003,
    entered into between Shibbolet (Proprietary) Limited and
    Quintiles Clindepharm (Proprietary) Limited                                      
|        | 10.29       |             |  | Agreement of Lease, dated December 13, 1999,
    entered into between Shibbolet (Proprietary) Limited and
    Quintiles Clindepharm (Proprietary) Limited                                   
|        | 10.30       |             |  | Memorandum of Agreement of Lease, dated
    March 13, 2000, between Rosenpark Eiendomme CC and
    Quintiles Clindepharm (Proprietary) Limited                                              
|        | 16.01(12)   |             |  | Letter regarding change in the Companys
    certifying accountant dated May 17, 2002                                                                                                       
|        | 21          |             |  | Subsidiaries                                                                                                                                                                                
|        | 24.01       |             |  | Power of Attorney (included on the signature page
    hereto)                                                                                                                               
|        | 31.01       |             |  | Certification Pursuant to
    Rule 13a-14/15d-14, As Adopted Pursuant to Section 302
    of The Sarbanes-Oxley Act of 2002                                                                  
|        | 31.02       |             |  | Certification Pursuant to
    Rule 13a-14/15d-14, As Adopted Pursuant to Section 302
    of The Sarbanes-Oxley Act of 2002                                                                  
|        | 32.01       |             |  | Certification Pursuant to 18 U.S.C.
    Section 1350, As Adopted Pursuant to Section 906 of
    The Sarbanes-Oxley Act of 2002                                                              
|        | 32.02       |             |  | 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 Current Report on Form 8-K
    dated April 10, 2003, as filed with the Securities and
    Exchange Commission on April 11, 2003 and incorporated
    herein by reference.                          
|   
|(2) | Exhibit to our Quarterly Report on Form 10-Q
    for the period ended September 30, 2003, as filed with the
    Securities and Exchange Commission on November 14, 2003,
    and incorporated herein by reference.
|   
|(3) | Executive compensation plans and arrangements.                                                                                                                                                                    
|   
|(4) | 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.         



---



##### 





|    |                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | 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.   
|   
|(6) | Exhibit to our Annual Report on Form 10-K/ A
    for the fiscal year ended December 31, 2002, as filed with
    the Securities and Exchange Commission on April 29, 2003,
    and incorporated herein by reference.
|   
|(7) | Exhibit to our Annual Report on Form 10-K
    for the fiscal year ended December 31, 2002, as filed with
    the Securities and Exchange Commission on February 24,
    2003, and incorporated herein by reference.
|   
|(8) | 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.   
|   
|(9) | 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.                            



|     |                                                                                                                                                                                                                  
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | 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.                   
|    
|(11) | 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.
|    
|(12) | 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.