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FORM 10-K/A

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


AMENDMENT NO. 2

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

Commission file number 000-23520

QUINTILES TRANSNATIONAL CORP.

(Exact name of registrant as specified in its charter)


|                                                                                                               |  |                                                   
|-------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------
|North Carolina
(State of incorporation)                                                                        |  | 56-1714315
(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 (and Rights Attached Thereto)
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes  x                  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. [  ]

The aggregate market value of the registrants Common Stock at March 31,
2003 held by those persons deemed by the registrant to be non-affiliates was
approximately $1,344,254,791.

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).

Yes  x                  No  o


The aggregate market value of the registrants Common Stock at June 28,
2002 held by those persons deemed by the registrant to be non-affiliates was
approximately $1,344,280,396.

As of March 31, 2003 (the latest practicable date), there were 118,283,920
shares of the registrants Common Stock, $.01 par value per share, outstanding.

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EXPLANATORY NOTE



| |  | Quintiles Transnational Corp. is
filing this amendment to its Annual Report on Form 10-K for the year ended
December 31, 2002, which was originally filed on February 24, 2003 and
amended on April 29, 2003. This report clarifies or expands
certain disclosures pertaining primarily to the Companys revenue
recognition policy in its Financial Statements and Managements Discussion and
Analysis of Financial Condition and Results of Operations. In
addition, certain balance sheet items have been reclassified.
Specifically, the Company is no longer grossing up its balance sheet
for amounts representing accounts receivable billed to customers in
accordance with contract terms for services that have not yet been
rendered. Also, the Company is presenting separately from commercial
rights and royalties on its balance sheet certain accounts
receivable and advances to customers. The revisions
had no effect on previously reported net income (loss), shareholders
equity or net income (loss) per share. This report continues to be
presented as of the date of the original filing, and the Company has not
updated the disclosure in this report to a later date. All information
in this report and the original filing, as amended, is subject to
updating and supplementing as provided in the Companys periodic reports
filed with the Securities and Exchange Commission.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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QUINTILES TRANSNATIONAL CORP.

Form 10-K Annual Report

INDEX

|        |                                                                                              |  |      |    | 
|------- | -------------------------------------------------------------------------------------------- |  | ---- | -- | 
|        |                                                                                              |  | Page
|        |                                                                                              |  |     
|PART II |                                                                                              |  |      |   
|        | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation |  |      | 4  | 
|        | Item 8. Financial Statements and Supplementary Data                                          |  |      | 33 | 
|PART IV |                                                                                              |  |      |   
|        | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    |  |      | 78 | 

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PART II

|        |  |                                                                                     
|------- |  | ------------------------------------------------------------------------------------
|ITEM 7. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

Overview

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

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

On October 14, 2002, we announced that Pharma Services Company, a newly
formed company owned by our Chairman of the Board and Founder, made a
non-binding proposal to acquire all of our outstanding shares for a cash price
of $11.25 per share. In response to the proposal, our Board of Directors
established a special committee of independent directors to act on our behalf
with respect to the proposal or alternatives in the context of evaluating what
is in our best interest and the best interest of our shareholders. On November
11, 2002, the special committee announced its rejection of the proposal by
Pharma Services Company and its intention to investigate strategic alternatives
available to us for purposes of enhancing shareholder value, including the
possibility of a sale of our company and alternatives that would keep us
independent and publicly owned.

On April 10, 2003, following the unanimous recommendation of the special
committee, our Board of Directors approved a merger transaction with Pharma
Services Holding, Inc., or Pharma Services, for our public shareholders to
receive $14.50 per share in cash. Pharma Services was founded by Dennis B.
Gillings, Ph.D., the Companys Chairman of the Board and Founder, and One
Equity Partners, LLC, the private equity arm of Bank One Corporation. Dr.
Gillings and certain of his affiliates will retain their equity interest in the
Company. In addition, in order to finance the transaction, Pharma Services has
received an equity commitment of $415.7 million from One Equity Partners, LLC
and debt commitments totaling $875 million from Citicorp North America, Inc.
and Citigroup Global Markets Inc. Pharma Services also intends to use
approximately $586 million of the Companys existing cash to fund the
transaction. The transaction, which is anticipated to be completed later this
year, is subject to Pharma Services completion of its committed financing and
customary conditions, including regulatory and shareholder approvals.

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Results of Operations

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

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

Gross revenues for the year ended December 31, 2002 were $1.99 billion
versus $1.88 billion for the year ended December 31, 2001. Gross revenues
include service revenues, revenues from commercial rights and royalties and
revenues from investments. Net revenues exclude reimbursed service costs.
Reimbursed service costs may fluctuate due, in part, to the payment provisions
of the respective service contract. Below is a summary of revenues (in
thousands):

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



| |  |  | Service revenues were $1.87 billion for 2002 compared to
$1.86 billion for 2001. Service revenues less reimbursed service
costs, or net service revenues, for 2002 were $1.47 billion, a
decrease of $125.4 million or (7.9%) over net service revenues of
$1.59 billion in 2001. Included in net service revenues for 2002
was $20.3 million from our informatics group as compared to $58.2
million from that group for 2001. Our informatics group was
transferred to a joint venture during May 2002, therefore revenues
for this group are not included in our net service revenues since
the date of transfer. Net service revenues for 2002 were positively
impacted by approximately $15.2 million due to the effect of foreign
currency fluctuations. The positive foreign currency fluctuation
due to the weakening of the US Dollar relative to the euro and the
British pound was partially offset by the strengthening of the US
Dollar relative to the South African Rand and the Japanese yen. 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.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | Commercial rights and royalties revenues, which include
product revenues, royalties and commissions, for 2002 were $110.4
million, an increase of $84.6 million over 2001 commercial rights
and royalties revenues of $25.8 million. Commercial rights and
royalties revenues were positively impacted by approximately $3.8
million due to the effect of foreign currency fluctuations related
to the weakening of the US Dollar relative to the euro. These
revenues include products for which we have acquired certain
commercial rights, such as the dermatology products, Solaraze and
ADOXA. 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 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 Pharma, Inc., 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 Inc. and
Kos Pharmaceuticals, Inc., 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.
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 related to our PharmaBio Development
groups financing arrangements, which include gains and losses from
the sale of equity securities and impairments from other than
temporary declines in the fair values of our direct and indirect
investments, for 2002 were $13.7 million versus $611,000 for 2001.
Included in 2002 and 2001 are $4.3 million and $14.0 million,
respectively, of impairment losses on investments whose decline in
fair value was considered to be other than temporary.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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

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



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

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

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

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

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

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

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

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

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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.

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

Because the original acquisition of ENVOY Corporation, or 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 Corporation 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.

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.

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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 | %

Net service revenues for the product development group were $944.9 million
for 2002 compared to $913.9 million for 2001. Net services 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.

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

10



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##### 



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.

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 Solaraze and ADOXA 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.

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 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.

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

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

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



| |  |  | Service revenues were $1.86 billion for 2001 compared to
$1.86 billion for 2000. Net service revenues for 2001 were $1.59
billion, a decrease of $55.6 million or (3.4%) over net service
revenues of $1.65 billion in 2000. However, there was a negative
impact of approximately $49.0 million due to the effect of foreign
currency fluctuations related to the strengthening of the US Dollar
relative to the euro, other European currencies and the Japanese yen
combined with the effects of the devaluation of several currencies
including the South African Rand. Net service revenues for the
commercial services group decreased $113.6 million or (15.2%) as a
result of large contracts that were terminated or converted in-house
by our customers instead of being renewed. The decrease was
partially offset by an increase of approximately $11.7 million from
our Phase I development services and an increase of approximately
$76.6 million from our clinical development services, primarily
Phase II and III services. Net service revenues increased in the
Asia Pacific region $44.0 million or 36.7% to $163.8 million but
decreased $116.7 million or (12.2%) to $839.5 million in the
Americas region primarily resulting from the decline in the
commercial services segment. Net service revenues in the Europe and
Africa region increased $20.3 million or 3.5% to $601.8 million.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Commercial rights and royalties revenues, which include
product revenues, royalties and commissions, for 2001 were $25.8
million, an increase of $15.6 million over 2000 commercial rights
and royalties revenues of $10.2 million. The increase was primarily
attributable to the contract with Scios becoming operational by the
third quarter of 2001 contributing approximately $12.9 million of
the 2001 revenues.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |  | Investment revenues related to our PharmaBio Development
groups financing arrangements, which include gains and losses from
the sale of equity investments and impairments from other than
temporary declines in the fair values of our direct and indirect
investments, for 2001 were $611,000 versus $579,000 for 2000.
Included in 2001 and 2000 are $14.0 million and $5.5 million,
respectively, of impairment losses on investments whose decline in
fair value was considered to be other than temporary.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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

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



| |  |  | Reimbursed service costs were $263.4 million and $210.6
million for 2001 and 2000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                               
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Service costs, which include compensation and benefits for
billable employees, and certain other expenses directly related to
service contracts, were $931.0 million or 58.4% of 2001 net service
revenues versus $986.3 million or 59.8% of 2000 net service
revenues. This reduction is primarily a result of the continued
effect of our process enhancements and cost reduction efforts.                                                                                                                   
|
| |  |  | Commercial rights and royalties costs, which include
compensation and related benefits for employees, amortization of
commercial rights, infrastructure costs of the PharmaBio Development
group and other expenses directly related to commercial rights and
royalties, were $26.8 million for 2001 versus $9.4 million for 2000.
These costs include services and products provided by third parties,
as well as services provided by our other service groups totaling
approximately $12.9 million for 2001.
|
| |  |  | Investment costs, which include costs directly related to
direct and indirect investments in our customers or other strategic
partners as part of the PharmaBio Development groups financing
arrangements, were $1.9 million in 2001, the initial year of the
groups operations.                                                                                                                                                                                                                             
|
| |  |  | Depreciation and amortization, which include depreciation of
our property and equipment and amortization of our definite-lived
intangible assets except commercial rights, increased to $95.1
million for 2001 versus $91.2 million for 2000. Depreciation
expense increased $4.2 million due to the increase in our
capitalized asset base while amortization expense decreased $300,000
primarily as a result of the write-off of goodwill.                                                                  

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

Net interest income, which represents interest income received from bank
balances and

13



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investments in debt securities, net of interest expense incurred on lines
of credit, notes and capital leases, was $16.7 million in 2001 versus $15.9
million in 2000.

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

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

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

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

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

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

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

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

Loss before income taxes was $262.5 million for 2001 versus $51.0 million
for 2000.

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

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

14



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allocated by us.

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

Net loss was $33.8 million for 2001 versus a net income of $418.9 million
for 2000.

Analysis by Segment:

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

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

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

Net service revenues for the product development group were $913.9 million
for 2001 compared to $841.5 million for 2000. Net service revenues for 2001
were negatively impacted by approximately $30.1 million due to the effect of
foreign currency fluctuations. Net service revenues increased in the Asia
Pacific region $25.6 million or 49.8% to $77.0 million including a negative
impact of approximately $8.7 million due to the effect of foreign currency
fluctuations. Net service revenues increased $31.5 million or 9.5% to $361.3
million in the Europe and Africa region including a negative impact of
approximately $20.7 million due to the effect of foreign currency fluctuations.
Net service revenues increased $15.3 million or 3.3% to $475.7 million in the
Americas region. Our product development group experienced growth in our Phase
I and clinical development services, primarily Phase II and III services.

Contribution for the product development group was $438.4 million for 2001
compared to $382.6 million for 2000. As a percentage of net service revenues,
contribution margin was 48.0% for 2001 compared to 45.5% for 2000. Our product
development benefited during 2001 from process

15



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enhancements and cost reduction efforts in the American and European
operations.

Net service revenues for the commercial services group were $634.9 million
for 2001 compared to $748.5 million for 2000. Net service revenues for 2001
were negatively impacted by approximately $20.0 million due to the effect of
foreign currency fluctuations. Net service revenues increased in the Asia
Pacific region $18.8 million or 32.1% to $77.2 million including a negative
impact of approximately $8.7 million due to the effect of foreign currency
fluctuations. Net service revenues decreased $17.0 million or (7.2%) to $237.8
million in the Europe and Africa region including a negative impact of
approximately $11.3 million due to the effect of foreign currency fluctuations.
Net service revenues decreased $115.1 million or (25.5%) to $336.5 million in
the Americas region primarily as the effect of large contracts being converted
in-house or terminated by our customers instead of being renewed.

Contribution for the commercial services group was $197.4 million for 2001
compared to $247.6 million for 2000. As a percentage of net service revenues,
contribution margin was 31.1% for 2001 compared to 33.1% for 2000. The
contribution for our commercial services group decreased as a direct result of
the reduction in service revenues. In addition, the contribution was
negatively impacted by the effects of a collection issue with a
non-pharmaceutical customer receivable during 2001.

Net revenues for the PharmaBio Development group increased $15.6 million
during 2001 as compared to 2000 due to an increase in the commercial rights and
royalties revenues. Investment revenues remained relatively constant
increasing slightly by $32,000 to $611,000 in 2001. This group benefited
during 2001 from the SCIOS contract becoming operational during the third
quarter of 2001 contributing approximately $12.9 million to the 2001 net
revenues. The commercial rights and royalties costs increased $17.4 million
during 2001 to $26.8 million. Included in the 2001 commercial rights and
royalties costs is approximately $12.9 million in service costs provided by our
commercial services group in connection with the SCIOS contract. The PharmaBio
Development groups initial year of operation was 2001.

Net revenues and contribution for the informatics group decreased
approximately $1.5 million and $6.0 million, respectively, during 2001 as
compared to 2000. These decreases are primarily due to the effects of the
strategic plan and related restructuring, the costs associated with developing
new data products and a decrease in new business as a result of the dispute
with WebMD and concerns regarding our continuing ability to receive data from
WebMD.

Liquidity and Capital Resources

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

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

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

Capital asset purchases required cash outlays of $40.2 million, $134.0
million and $108.8 million in 2002, 2001 and 2000, respectively. Capital asset
purchases by our informatics group was $666,000 in

16



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

During 2002, cash used to acquire commercial rights and royalties related
assets was $88.3 million versus $36.7 million during 2001. The 2002
acquisitions included $70.0 million of advances to a customer representing
payments under our agreement with Eli Lilly and Company. Also in 2002, we
acquired certain assets of Bioglan Pharma, Inc., including its management team
and sales force and approximately $1.6 million in cash, for approximately $27.9
million. In 2001, we acquired the rights to market for 14 years in the United
States, Canada and Mexico SkyePharmas Solaraze, a treatment of actinic
keratosis, for $26.7 million.

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

17



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

|                                               |  |                   |          |                   |  |   |          |  
|---------------------------------------------- |  | ----------------- | -------- | ----------------- |  | - | -------- | -
|                                               |  | December 31, 2002 |          | December 31, 2001
|                                               |  |                   |          |                  
|Trade accounts receivable, net                 |  | $                 | 129,748  |                   |  | $ | 164,971  |  
|Unbilled services                              |  |                   | 120,383  |                   |  |   | 166,754  |  
|Unearned income                                |  |                   | (141,710 | )                 |  |   | (111,837 | )
|                                               |  |                   |          |                   |  |   |          |  
|Net service receivables outstanding            |  | $                 | 108,421  |                   |  | $ | 219,888  |  
|                                               |  |                   |          |                   |  |   |          |  
|Number of days of service revenues
outstanding |  |                   | 21       |                   |  |   | 43       |  
|                                               |  |                   |          |                   |  |   |          |  

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

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

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

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

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

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

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

18



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

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

We have also additional future PharmaBio funding commitments that are
contingent upon satisfaction of certain milestones by the third party such as
receiving FDA approval, obtaining funding from additional third parties,
agreement of a marketing plan and other similar milestones. Due to the
uncertainty of the amounts and timing of these commitments, they are not
included in the commitment amounts above. If all of these contingencies were
satisfied over approximately the same time period, then we estimate these
commitments to be a minimum of approximately $115-140 million per year for a
period of five to six years, subject to certain limitations and varying time
periods.

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

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

The proposed merger described in the Overview calls for the use of a
large portion of our existing cash as part of the financing for the
transaction. In addition, the proposed merger calls for substantial debt
financing and after the merger, assuming its completion, much of our available
cash

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would be used to service the debt incurred in the merger.

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.

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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 differs
from expected results, then an adjustment is recorded in the period in which
they become reasonably estimable. These adjustments could have a material
effect on our results of operations.

Marketable Debt and Equity Investments

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

Non-Marketable Equity Investments and Loans

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

Income Taxes

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

Certain items of income and expense are not recognized on our income tax
returns and financial statements in the same year, which creates timing
differences. The income tax effect of these timing differences results in (1)
deferred income tax assets that create a reduction in future income taxes and
(2) deferred income tax liabilities that create an increase in future income
taxes. Recognition of deferred income tax assets is based on managements
belief that it is more likely than not that the income tax benefit associated
with certain temporary differences, income tax operating loss and capital loss
carry forwards and income tax credits, will be realized. We record a valuation
allowance to reduce our deferred income tax assets for those deferred income
tax items for which it is more likely than not that realization will not occur.
We determine the amount of the valuation allowance based, in part, on our
assessment of future taxable income and in light of our ongoing prudent and
feasible income tax strategies. If our estimate of future taxable income or
tax strategies change at any time in the future, we would be required to record
an additional income tax provision; recording such a provision could have a
material adverse effect on our results of operations.

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Foreign Currencies

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

Long-Lived Assets

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

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

Goodwill and Identifiable Intangible Assets

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

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Employee Stock Compensation

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

Backlog Reporting

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



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

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

Inflation

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

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Market Risk

Market risk is the potential loss arising from adverse changes in market
rates and prices, such as foreign currency rates, interest rates and other
relevant market rate or price changes. In the ordinary course of business, we
are exposed to various market risks, including changes in foreign currency
exchange rates, interest rates and equity price changes, and we regularly
evaluate our exposure to such changes. Our overall risk management strategy
seeks to balance the magnitude of the exposure and the cost and availability of
appropriate financial instruments. From time to time, we have utilized forward
exchange contracts to manage our foreign currency exchange rate risk. The
following analyses present the sensitivity of our financial instruments to
hypothetical changes in interest and foreign currency exchange rates that are
reasonably possible over a one-year period.

Foreign Currency Exchange Rates

Approximately 56.4%, 49.7% and 44.0% of our total net revenue for the
years ended December 31, 2002, 2001, and 2000, respectively, was derived from
our operations outside the United States. We do not have significant
operations in countries in which the economy is considered to be
highly-inflationary. Our financial statements are denominated in U.S. dollars,
and accordingly, changes in the exchange rate between foreign currencies and
the U.S. dollar will affect the translation of our subsidiaries financial
results into U.S. dollars for purposes of reporting our consolidated financial
results. Accumulated currency translation adjustments recorded as a separate
component (reduction) of shareholders equity were ($18.4) million at December
31, 2002 as compared to ($60.6) million at December 31, 2001.

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

Interest Rates

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

Equity Prices

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

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Recently Issued Accounting Standards

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

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

From time to time the Staff of the United States Securities and Exchange
Commission communicates its interpretations of accounting rules and
regulations. The manner by which these views are communicated varies by topic.
While these communications represent the views of the Staff, they do not carry
the authority of law or regulation. Nonetheless, the practical effect of these
communications is that changes in the Staffs views from time to time can
impact the accounting and reporting policies of public companies, like ours.

Risk Factors

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

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

Economic factors and industry trends that affect our primary customers,
pharmaceutical and biotechnology companies, also affect our business. For
example, the practice of many companies in these industries has been to hire
outside organizations like us to conduct large clinical research and sales and
marketing projects. This practice grew substantially during the 1990s and we
benefited from this trend. Some industry commentators believe that the rate of
growth of outsourcing will tend to decrease. If these industries reduce their
tendency to outsource those projects, our operations, financial condition and
growth rate could be materially and adversely affected. Recently, we also
believe we have been negatively impacted by mergers and other factors in the
pharmaceutical industry, which appear to have slowed decision making by our
customers and delayed certain trials. A continuation of these trends would
have an ongoing adverse effect on our business. In addition, numerous
governments have undertaken efforts to control growing healthcare costs through
legislation, regulation and voluntary agreements with medical care providers
and pharmaceutical companies. If future regulatory cost

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containment efforts limit the profits which can be derived on new drugs,
our customers may reduce their research and development spending, which could
reduce the business they outsource to us. We cannot predict the likelihood of
any of these events or the effects they would have on our business, results of
operations or financial condition.

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

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

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

We are currently developing an Internet platform for our product
development and commercialization services. We have entered into agreements
with certain vendors for them to provide web-enablement services to help us
develop this platform. If such vendors fail to perform as required or if there
are substantial delays in developing and implementing this platform, we may
have to make substantial further investments, internally or with third parties,
to achieve our objectives. Meeting our objectives is dependent on a number of
factors which may not take place as we anticipate, including obtaining adequate
web-enablement services, creating web-enablement services which our customers
will find desirable and implementing our business model with respect to these
services. Also, these expenditures are likely to negatively impact our
profitability, at least until our web-enabled products are operationalized.
Over time, we envision continuing to invest in extending and enhancing our
Internet platform in other ways to further support and improve our services.
We cannot assure you that any improvements in operating income resulting from
our Internet capabilities will be sufficient to offset our investments in the
Internet platform. Our results could be further negatively impacted if our
competitors are able to execute their services on a web-based platform before
we can launch our Internet services or if they are able to structure a platform
that attracts customers away from our services.

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

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



| |  | its ability to obtain continuous access to de-identified healthcare data from third parties in sufficient quantities to
support its informatics products;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

As part of our PharmaBio Development business strategy, we enter into
arrangements with customers in which we take on some of the risk of the
potential success or failure of the customers product. These transactions may
include making a strategic investment in a customer, providing financing to a
customer, or acquiring an interest in the revenues from a customers product.
For example, we may build or provide a sales organization for a biotechnology
customer to commercialize a new product in exchange for a share in the revenues
of the product. We anticipate that in the early periods of many of these
relationships, our expenses will exceed revenues from these arrangements,
particularly where we are providing a sales force for the product at our own
cost. Aggregate royalty or other payments made to us under these arrangements
may not be adequate to offset our total expenditure in providing a sales force
or in making milestone or marketing payments to our customers. We must

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carefully analyze and select the customers and products with which we are
willing to structure our risk-based deals. Products underlying our commercial
rights strategies may not complete clinical trials, receive FDA approval or
achieve the level of market acceptance or consumer demand that we expect, in
which case we might not be able to earn a profit or recoup our investment with
regard to a particular arrangement. In addition, the timing of regulatory
approval and product launch and the achievement of other milestones are
generally beyond our control and can affect our actual return from these
investments. The potential negative effect to us could increase depending on
the nature and timing of our investments and the length of time before it
becomes apparent that the product will not achieve commercial success. Our
financial results would be adversely affected if our customers or their
products do not achieve the level of success that we anticipate and/or our
return or payment from the product investment or financing is less than our
costs of performance, investment or financing.

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

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

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

Our plans to market and sell Solaraze and other pharmaceutical products
also subject us to risks associated with entering into a new line of business.
We have limited experience operating in this line of business. If we are
unable to operate this new line of business as we expect, the financial results
from this new line of business could have a negative impact on our results of
operations as a whole. The risk that our results may be affected if we are
unable to successfully operate our pharmaceutical operations may increase in
proportion with (1) the number of products or product rights we license or
acquire in the future, (2) the applicable stage of the drug approval process of
the products and (3) the levels of outsourcing involved in the development,
manufacture and commercialization of such products.

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

Our success substantially depends on the performance, contributions and
expertise of our senior management team, led by Dennis B. Gillings, Ph.D., our
Chairman, and Pamela J. Kirby, Ph.D., our Chief Executive Officer. Our
performance also depends on our ability to attract and retain qualified
management and professional, scientific and technical operating staff, as well
as our ability to recruit qualified representatives for our contract sales
services. The departure of Dr. Gillings, Dr. Kirby, or any

28



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key executive, or our inability to continue to attract and retain
qualified personnel could have a material adverse effect on our business,
results of operations or financial condition.

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

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

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

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

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

29



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

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

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

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

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

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

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

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

30



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to us.

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

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



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

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

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



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

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

We may be adversely affected by customer concentration.

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

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

If we were unable to submit electronic records to the United States Food
and Drug Administration, also referred to as the FDA, which meet the
requirements of FDA regulations, this may adversely affect our customers when
they submit the data concerned to the FDA in support of an

31



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application for
approval of a product. The FDA published 21 CFR Part 11 Electronic Records;
Electronic Signatures; Final Rule (Part 11) in 1997. Part 11 became
effective in August 1997 and defines the regulatory requirements that must be
met for FDA acceptance of electronic records and/or electronic signatures in
place of the paper equivalents. Part 11 requires that those utilizing such
electronic records and/or signatures employ procedures and controls designed to
ensure the authenticity, integrity and, as appropriate, confidentiality of
electronic records and, Part 11 requires those utilizing electronic signatures
ensure that a person appending an electronic signature cannot readily repudiate
the signed record. Pharmaceutical, medical device and biotechnology
companies are increasing their utilization of electronic records and
electronic signatures and are requiring their service providers and partners to
do likewise. Becoming compliant with Part 11 involves considerable complexity
and cost. Our ability to provide services to our customers in full compliance
with applicable regulations includes a requirement that, over time, we become
compliant and maintain compliance with the requirements of Part 11. If we are
unable to achieve this objective, our ability to provide services to our
customers which meet FDA requirements may be adversely affected.

Our proposed transaction with Pharma Services is subject to uncertainties.

Our proposed transaction with Pharma Services is subject to customary
conditions, including regulatory and shareholder approval, and Pharma Services
completion of its committed financing. If any of the conditions to closing are
not satisfied or waived, the proposed transaction would not be completed and
our public shareholders would not receive $14.50 per share in cash. In
addition, the merger agreement relating to the proposed transaction can be
terminated prior to completion of the transaction under certain circumstances,
including where we receive an acquisition proposal from a third party that our
board believes is more favorable to our shareholders than the Pharma Services
transaction (after following specific procedures described in our merger
agreement with Pharma Services). If the merger agreement is terminated, the
proposed transaction would not be completed, our public shareholders would not
receive $14.50 per share in cash and, in certain circumstances, we could be
required to pay Pharma Services a termination fee of $52 million, as well as
reimburse its costs, fees and expenses up to $5 million. If the merger is not
completed, our common stock would continue to trade on the Nasdaq National
Market, however, the value of our stock could decline substantially below the
$14.50 per share consideration in the merger. We are currently targeting to
close the proposed transaction, assuming the satisfaction or waiver of all
conditions, in the third quarter of 2003. The closing of the proposed
transaction could be delayed beyond the third quarter of 2003 due to many
factors, including factors beyond the control of either party. In addition, we
may not prevail in pending litigation regarding Pharma Services proposal to
acquire us. An injunction or other adverse outcome in that litigation could
have a material adverse effect on our financial condition, regardless of
whether the merger is completed.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

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

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

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QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

|                              |                                                           |                      |         |          |                                   |  |         |          |           |  | 
|----------------------------- | --------------------------------------------------------- | -------------------- | ------- | -------- | --------------------------------- |  | ------- | -------- | --------- |  | 
|                              |                                                           |                      |         |          | December 31,                     
|                              |                                                           |                      |         |          |                                  
|                              |                                                           |                      |         |          | 2002                              |  | 2001   
|                              |                                                           |                      |         |          |                                   |  |        
|                              |                                                           |                      |         |          | (in thousands, except share data)
|                              |                                                           |                      | Assets  |          |                                   |  |         |          |           |  | 
|Current assets:               |                                                           |                      |         |          |                                   |  |         |         
|                              | Cash and cash equivalents                                 |                      | $       | 644,284  |                                   |  | $       | 565,063  |          
|                              | Trade accounts receivable and unbilled services, net      |                      |         | 255,647  |                                   |  |         | 333,008  |          
|                              | Investments in debt securities                            |                      |         | 27,218   |                                   |  |         | 27,489   |          
|                              | Prepaid expenses                                          |                      |         | 22,516   |                                   |  |         | 28,085   |          
|                              | Other receivables                                         |                      |         | 17,185   |                                   |  |         | 19,630   |          
|                              | Other current assets                                      |                      |         | 25,469   |                                   |  |         | 12,517   |          
|                              |                                                           |                      |         |          |                                   |  |         |         
|                              |                                                           | Total current assets |         |          | 992,319                           |  |         |          | 985,792   | 
|Property and equipment:       |                                                           |                      |         |          |                                   |  |         |         
|                              | Land, buildings and leasehold improvements                |                      |         | 202,465  |                                   |  |         | 192,290  |          
|                              | Equipment                                                 |                      |         | 190,312  |                                   |  |         | 200,012  |          
|                              | Furniture and fixtures                                    |                      |         | 44,094   |                                   |  |         | 44,020   |          
|                              | Motor vehicles                                            |                      |         | 38,672   |                                   |  |         | 33,597   |          
|                              |                                                           |                      |         |          |                                   |  |         |         
|                              |                                                           |                      | 475,543 |          |                                   |  | 469,919 |         
|                              | Less accumulated depreciation                             |                      |         | (213,385 | )                                 |  |         | (196,144 | )        
|                              |                                                           |                      |         |          |                                   |  |         |         
|                              |                                                           |                      | 262,158 |          |                                   |  | 273,775 |         
|Intangibles and other assets: |                                                           |                      |         |          |                                   |  |         |         
|                              | Investments in debt securities                            |                      |         | 9,453    |                                   |  |         | 9,510    |          
|                              | Investments in marketable equity securities               |                      |         | 64,926   |                                   |  |         | 77,992   |          
|                              | Investments in non-marketable equity securities and loans |                      |         | 46,449   |                                   |  |         | 37,590   |          
|                              | Investments in unconsolidated affiliates                  |                      |         | 121,101  |                                   |  |         |         |          
|                              | Commercial
rights and royalties                           |                      |         | 1,786    |                                   |  |         | 1,943    |          
|                              | Accounts receivable  unbilled                            |                      |         | 59,750   |                                   |  |         | 8,057    |          
|                              | Advances to customer                                      |                      |         | 70,000   |                                   |  |         |         |          
|                              | Goodwill                                                  |                      |         | 70,133   |                                   |  |         | 163,651  |          
|                              | Other identifiable intangibles, net                       |                      |         | 142,715  |                                   |  |         | 123,999  |          
|                              | Deferred income taxes                                     |                      |         | 174,534  |                                   |  |         | 136,686  |          
|                              | Deposits and other assets                                 |                      |         | 38,871   |                                   |  |         | 34,799   |          
|                              |                                                           |                      |         |          |                                   |  |         |         
|                              |                                                           |                      | 799,718 |          |                                   |  | 594,227 |         
|                              |                                                           |                      |         |          |                                   |  |         |         
|                              |                                                           | Total Assets         |         | $        | 2,054,195                         |  |         | $        | 1,853,794 | 
|                              |                                                           |                      |         |          |                                   |  |         |         

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

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QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)

|                              |  |                                                                                                                                                    |                            |                                            |         |              |           |      |         |           |           | 
|----------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ------- | ------------ | --------- | ---- | ------- | --------- | --------- | 
|                              |  |                                                                                                                                                    |                            |                                            |         | December 31,
|                              |  |                                                                                                                                                    |                            |                                            |         |             
|                              |  |                                                                                                                                                    |                            |                                            |         | 2002         |           | 2001
|                              |  |                                                                                                                                                    |                            |                                            |         |              |           |     
|                              |  |                                                                                                                                                    |                            | Liabilities and Shareholders Equity       |         |              |           |      |         |           |           | 
|Current liabilities:          |  |                                                                                                                                                    |                            |                                            |         |              |           |     
|                              |  | Accounts payable                                                                                                                                   |                            | $                                          | 57,535  |              |           | $    | 54,400  |          
|                              |  | Accrued expenses                                                                                                                                   |                            |                                            | 180,734 |              |           |      | 169,173 |          
|                              |  | Unearned income                                                                                                                                    |                            |                                            | 141,718 |              |           |      | 111,837 |          
|                              |  | Income taxes payable                                                                                                                               |                            |                                            | 20,067  |              |           |      | 14,073  |          
|                              |  | Deferred income taxes                                                                                                                              |                            |                                            |        |              |           |      | 738     |          
|                              |  | Current portion of obligations held under capital leases                                                                                           |                            |                                            | 18,372  |              |           |      | 13,147  |          
|                              |  | Current portion of long-term debt                                                                                                                  |                            |                                            | 3,347   |              |           |      | 2,969   |          
|                              |  | Other current liabilities                                                                                                                          |                            |                                            | 2,073   |              |           |      | 1,903   |          
|                              |  |                                                                                                                                                    |                            |                                            |         |              |           |     
|                              |  |                                                                                                                                                    |                            | Total current liabilities                  |         |              | 423,846   |      |         |           | 368,240   | 
|Long-term liabilities:        |  |                                                                                                                                                    |                            |                                            |         |              |           |     
|                              |  | Obligations held under capital leases, less current portion                                                                                        |                            |                                            | 10,645  |              |           |      | 11,415  |          
|                              |  | Long-term debt, less current portion                                                                                                               |                            |                                            | 8,210   |              |           |      | 10,335  |          
|                              |  | Other liabilities                                                                                                                                  |                            |                                            | 13,108  |              |           |      | 8,716   |          
|                              |  |                                                                                                                                                    |                            |                                            |         |              |           |     
|                              |  |                                                                                                                                                    | 31,963                     |                                            |         |              | 30,466    |     
|                              |  |                                                                                                                                                    |                            |                                            |         |              |           |     
|                              |  |                                                                                                                                                    |                            | Total liabilities                          |         |              | 455,809   |      |         |           | 398,706   | 
|Commitments and contingencies |  |                                                                                                                                                    |                            |                                            |         |              |           |     
|Shareholders equity:         |  |                                                                                                                                                    |                            |                                            |         |              |           |     
|                              |  | Preferred stock, none issued and outstanding at
December 31, 2002 and 2001, respectively                                                           |                            |                                            |        |              |           |      |        |          
|                              |  | Common stock and additional paid-in capital, 117,850,597 and
118,623,669 shares issued and outstanding at December 31, 2002
and 2001, respectively |                            |                                            | 881,927 |              |           |      | 897,075 |          
|                              |  | Retained earnings                                                                                                                                  |                            |                                            | 716,465 |              |           |      | 589,142 |          
|                              |  | Accumulated other comprehensive loss                                                                                                               |                            |                                            | (6      | )            |           |      | (31,129 | )        
|                              |  |                                                                                                                                                    |                            |                                            |         |              |           |     
|                              |  |                                                                                                                                                    | Total shareholders equity |                                            |         | 1,598,386    |           |      |         | 1,455,088 |          
|                              |  |                                                                                                                                                    |                            |                                            |         |              |           |     
|                              |  |                                                                                                                                                    |                            | Total liabilities and shareholders equity |         | $            | 2,054,195 |      |         | $         | 1,853,794 | 
|                              |  |                                                                                                                                                    |                            |                                            |         |              |           |     

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

35



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##### 



QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                                                |                                                                                                                                |                                            |          |                         |        |      |         |                |         |   |         |          |         |  
|--------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | -------- | ----------------------- | ------ | ---- | ------- | -------------- | ------- | - | ------- | -------- | ------- | -
|                                                                                                                |                                                                                                                                |                                            |          | Year Ended December 31,
|                                                                                                                |                                                                                                                                |                                            |          |                        
|                                                                                                                |                                                                                                                                |                                            |          | 2002                    |        | 2001 |         | 2000          
|                                                                                                                |                                                                                                                                |                                            |          |                         |        |      |         |               
|                                                                                                                |                                                                                                                                |                                            |          |                         |        |      |         | (in thousands) |         |   |         |         
|Operating activities:                                                                                           |                                                                                                                                |                                            |          |                         |        |      |         |                |         |   |         |         
|                                                                                                                | Net income (loss)                                                                                                              |                                            | $        | 127,323                 |        |      | $       | (33,843        | )       |   | $       | 418,923  |        
|                                                                                                                | Income from discontinued operation, net of income taxes                                                                        |                                            |          |                        |        |      |         |               |         |   |         | (16,770  | )      
|                                                                                                                | Extraordinary gain from sale of discontinued operation,
net of tax                                                             |                                            |          |                        |        |      |         | (142,030       | )       |   |         | (436,327 | )      
|                                                                                                                | Cumulative effect on prior years (to December 31, 2001)
of changing to a different method of recognizing
deferred income taxes |                                            |          | (45,659                 | )      |      |         |               |         |   |         |         |        
|                                                                                                                |                                                                                                                                |                                            |          |                         |        |      |         |                |         |   |         |         
|                                                                                                                | Income (loss) from continuing operations                                                                                       |                                            |          | 81,664                  |        |      |         | (175,873       | )       |   |         | (34,174  | )      
|Adjustments to reconcile income (loss) from continuing
operations to net cash provided by operating activities: |                                                                                                                                |                                            |          |                         |        |      |         |                |         |   |         |         
|                                                                                                                | Depreciation and amortization                                                                                                  |                                            |          | 89,824                  |        |      |         | 96,103         |         |   |         | 92,567   |        
|                                                                                                                | Restructuring (payments) accrual and write-off of
other assets, net                                                            |                                            |          | (21,158                 | )      |      |         | 42,975         |         |   |         | 25,886   |        
|                                                                                                                | Loss on disposal of business                                                                                                   |                                            |          |                        |        |      |         |               |         |   |         | 17,325   |        
|                                                                                                                | Loss on sale of property and equipment, net                                                                                    |                                            |          | 2,399                   |        |      |         | 287            |         |   |         | 190      |        
|                                                                                                                | Loss (gain) on investments, net                                                                                                |                                            |          | (13,710                 | )      |      |         | 304,942        |         |   |         | (578     | )      
|                                                                                                                | Provision for (benefit from) deferred income taxes                                                                             |                                            |          | 2,464                   |        |      |         | (64,360        | )       |   |         | 12,460   |        
|                                                                                                                | Change in operating assets and liabilities:                                                                                    |                                            |          |                         |        |      |         |                |         |   |         |          |        
|                                                                                                                |                                                                                                                                | Accounts receivable and unbilled services  |          |                         | 63,827 |      |         |                | (24,705 | ) |         |          | (31,233 | )
|                                                                                                                |                                                                                                                                | Prepaid expenses and other assets          |          |                         | (5,639 | )    |         |                | 6,935   |   |         |          | (15,881 | )
|                                                                                                                |                                                                                                                                | Accounts payable and accrued expenses      |          |                         | 12,966 |      |         |                | 19,263  |   |         |          | 16,429  |  
|                                                                                                                |                                                                                                                                | Unearned income                            |          |                         | 26,048 |      |         |                | 16,203  |   |         |          | 11,713  |  
|                                                                                                                |                                                                                                                                | Income taxes payable and other liabilities |          |                         | 7,807  |      |         |                | 25,139  |   |         |          | (84,285 | )
|                                                                                                                | Other                                                                                                                          |                                            |          |                        |        |      |         | 447            |         |   |         | 95       |        
|                                                                                                                |                                                                                                                                |                                            |          |                         |        |      |         |                |         |   |         |         
|Net cash provided by operating activities                                                                       |                                                                                                                                |                                            | 246,492  |                         |        |      | 247,356 |                |         |   | 10,514  |         
|Investing activities:                                                                                           |                                                                                                                                |                                            |          |                         |        |      |         |                |         |   |         |         
|                                                                                                                | Acquisition of property, equipment and software                                                                                |                                            |          | (40,157                 | )      |      |         | (133,983       | )       |   |         | (108,782 | )      
|                                                                                                                | Acquisition of businesses, net of cash acquired                                                                                |                                            |          | (27,968                 | )      |      |         | (6,620         | )       |   |         | (15,169  | )      
|                                                                                                                | Acquisition of intangible assets                                                                                               |                                            |          | (2,541                  | )      |      |         | (26,735        | )       |   |         |         |        
|                                                                                                                | Advances to customer                                                                                                           |                                            |          | (70,000                 | )      |      |         |               |         |   |         |         |        
|                                                                                                                | Acquisition
of commercial rights and royalties                                                                                 |                                            |          | (15,790                 | )      |      |         | (10,000        | )       |   |         |         |        
|                                                                                                                | Proceeds from disposition of property and equipment                                                                            |                                            |          | 6,290                   |        |      |         | 7,548          |         |   |         | 8,591    |        
|                                                                                                                | Proceeds from disposal of discontinued operation, net
of expenses                                                              |                                            |          |                        |        |      |         |               |         |   |         | 390,722  |        
|                                                                                                                | Purchase of held-to-maturity investments                                                                                       |                                            |          |                        |        |      |         |               |         |   |         | (1,296   | )      
|                                                                                                                | Maturities of held-to-maturity investments                                                                                     |                                            |          | 397                     |        |      |         | 437            |         |   |         | 465      |        
|                                                                                                                | Purchase of available-for-sale investments                                                                                     |                                            |          | (1,611                  | )      |      |         |               |         |   |         | (2,717   | )      
|                                                                                                                | Proceeds from sale of available-for-sale investments                                                                           |                                            |          |                        |        |      |         | 71,422         |         |   |         | 5,296    |        
|                                                                                                                | Purchase of marketable equity securities                                                                                       |                                            |          | (6,616                  | )      |      |         | (22,660        | )       |   |         | (14,379  | )      
|                                                                                                                | Proceeds from sale of marketable equity securities                                                                             |                                            |          | 26,853                  |        |      |         | 134,379        |         |   |         | 3,514    |        
|                                                                                                                | Purchase of other investments                                                                                                  |                                            |          | (11,483                 | )      |      |         | (30,247        | )       |   |         | (1,617   | )      
|                                                                                                                | Proceeds from other investments                                                                                                |                                            |          | 608                     |        |      |         | 103            |         |   |         | 2,959    |        
|                                                                                                                | Advances to unconsolidated affiliates                                                                                          |                                            |          | (10,328                 | )      |      |         |               |         |   |         |         |        
|                                                                                                                | Payment from ESOP, net                                                                                                         |                                            |          |                        |        |      |         |               |         |   |         | 2,857    |        
|                                                                                                                | Other                                                                                                                          |                                            |          |                        |        |      |         |               |         |   |         | (2       | )      
|                                                                                                                |                                                                                                                                |                                            |          |                         |        |      |         |                |         |   |         |         
|Net cash (used in) provided by investing activities                                                             |                                                                                                                                |                                            | (152,346 | )                       |        |      | (16,356 | )              |         |   | 270,442 |         

36



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##### 



QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

|                                                         |                                                                           |   |                         |         |      |   |                |          |   |   |          |          |  
|-------------------------------------------------------- | ------------------------------------------------------------------------- | - | ----------------------- | ------- | ---- | - | -------------- | -------- | - | - | -------- | -------- | -
|                                                         |                                                                           |   | Year Ended December 31,
|                                                         |                                                                           |   |                        
|                                                         |                                                                           |   | 2002                    |         | 2001 |   | 2000          
|                                                         |                                                                           |   |                         |         |      |   |               
|                                                         |                                                                           |   |                         |         |      |   | (in thousands) |          |   |   |         
|Financing activities:                                    |                                                                           |   |                         |         |      |   |                |          |   |   |          |         
|                                                         | (Decrease) increase in lines of credit, net                               |   | $                       |        |      |   | $              | (44      | ) |   | $        | 33       |  
|                                                         | Proceeds from issuance of debt                                            |   |                         |        |      |   |                |         |   |   |          | 11,183   |  
|                                                         | Repayment of debt                                                         |   |                         | (2,487  | )    |   |                | (3,263   | ) |   |          | (151,653 | )
|                                                         | Principal payments on capital lease obligations                           |   |                         | (12,987 | )    |   |                | (10,618  | ) |   |          | (14,419  | )
|                                                         | Issuance of common stock                                                  |   |                         | 9,641   |      |   |                | 48,439   |   |   |          | 21,748   |  
|                                                         | Repurchase of common stock                                                |   |                         | (27,024 | )    |   |                | (22,694  | ) |   |          | (21,883  | )
|                                                         | Dividend from discontinued operation                                      |   |                         |        |      |   |                |         |   |   |          | 17,086   |  
|                                                         |                                                                           |   |                         |         |      |   |                |          |   |   |          |         
|Net cash (used in) provided by financing activities      |                                                                           |   | (32,857                 | )       |      |   | 11,820         |          |   |   | (137,905 | )       
|Effect of foreign currency exchange rate changes on cash |                                                                           |   | 17,932                  |         |      |   | (7,971         | )        |   |   | (4,490   | )       
|                                                         |                                                                           |   |                         |         |      |   |                |          |   |   |          |         
|Increase in cash and cash equivalents                    |                                                                           |   | 79,221                  |         |      |   | 234,849        |          |   |   | 138,561  |         
|Cash and cash equivalents at beginning of year           |                                                                           |   | 565,063                 |         |      |   | 330,214        |          |   |   | 191,653  |         
|                                                         |                                                                           |   |                         |         |      |   |                |          |   |   |          |         
|Cash and cash equivalents at end of year                 |                                                                           | $ | 644,284                 |         |      | $ | 565,063        |          |   | $ | 330,214  |         
|                                                         |                                                                           |   |                         |         |      |   |                |          |   |   |          |         
|Supplemental Cash Flow Information:                      |                                                                           |   |                         |         |      |   |                |          |   |   |          |         
|                                                         | Interest paid                                                             |   | $                       | 2,633   |      |   | $              | 2,724    |   |   | $        | 5,435    |  
|                                                         | Income taxes paid (refunded), net                                         |   |                         | 19,466  |      |   |                | (56,243  | ) |   |          | 64,451   |  
|Non-cash Investing and Financing Activities:             |                                                                           |   |                         |         |      |   |                |          |   |   |          |         
|                                                         | Acquisition of property and equipment utilizing capital
leases            |   |                         | 9,903   |      |   |                | 14,578   |   |   |          | 12,948   |  
|                                                         | Equity impact of mergers, acquisitions and dispositions                   |   |                         |        |      |   |                | (20,952  | ) |   |          | 82,557   |  
|                                                         | Transfer of assets to joint venture                                       |   |                         | 112,136 |      |   |                |         |   |   |          |         |  
|                                                         | Marketable equity securities received from sale of
discontinued operation |   |                         |        |      |   |                |         |   |   |          | 447,353  |  
|                                                         | Unrealized gain (loss) on marketable securities,
net of income tax        |   | $                       | 6,026   |      |   | $              | (124,182 | ) |   | $        | (69,619  | )

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

37



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##### 



QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(in thousands, except share data)

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

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

38



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QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements



|1. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- |  | ------------------------------------------

The Company

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

Principles of Consolidation

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

Use of Estimates

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

Foreign Currencies

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

Foreign Currency Hedging

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

Cash Equivalents and Investments

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

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

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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 loss until realized. Changes in
fair value of effective fair value hedges are recorded in earnings as an offset
to the changes in the fair value of the related hedge item. Changes in the
fair values of derivative instruments that are not an effective hedge are
recognized in earnings. The Company has, and may in the future, enter into
derivative contracts (calls or puts, for example) related to its investments in
marketable equity securities. While these contracts do not qualify for hedge
accounting, the Company utilizes these transactions to mitigate its economic
exposure to market price fluctuations.

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

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

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

40



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

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 are terminable upon
15 - 90 days notice by the customer. In the event of termination, contracts typically
require payment for services rendered through the date of termination, as well
as for subsequent services rendered to close out the contract. Any anticipated
losses resulting from contract performance are charged to earnings in the
period identified.

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 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

41



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##### 



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.

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. One customer accounted for approximately
11.3%, 10.8% and 10.2% of consolidated net service revenue in 2002, 2001 and
2000, respectively. These revenues were derived from the Companys product
development, commercial services and informatics segments.

42



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Research and Development Costs

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

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 Income Per Share

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

Employee Stock Compensation

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

Pro forma information regarding net income and net income per share is
required by SFAS No. 123, as amended by SFAS No. 148, and has been determined
as if the Company had accounted for its employee stock options under the fair
value method of SFAS No. 123. The per share weighted-average fair value of
stock options granted during 2002, 2001 and 2000 was $3.72, $5.57 and $4.93 per
share, respectively, on the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions:

43



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##### 



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

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

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

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

Comprehensive Income

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

44



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Recently Adopted Accounting Standards

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

Recently Issued Accounting Standards

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

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



|2. |  | REVISIONS TO PRIOR FINANCIAL STATEMENTS
|-- |  | ---------------------------------------

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

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

45



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|3. |  | ACCOUNTS RECEIVABLE AND UNBILLED SERVICES
|-- |  | -----------------------------------------

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

|                                |                   |   |              |         |      |   |         |         | 
|------------------------------- | ----------------- | - | ------------ | ------- | ---- | - | ------- | ------- | 
|                                |                   |   | DECEMBER 31,
|                                |                   |   |             
|                                |                   |   | 2002         |         | 2001
|                                |                   |   |              |         |     
|Trade:                          |                   |   |              |         |      |   |         |        
|                                | Billed            |   | $            | 142,407 |      |   | $       | 177,760 | 
|                                | Unbilled services |   |              | 118,501 |      |   |         | 166,712 | 
|                                |                   |   |              |         |      |   |         |        
|                                |                   |   | 260,908      |         |      |   | 344,472 |        
|Allowance for doubtful accounts |                   |   | (5,261       | )       |      |   | (11,464 | )      
|                                |                   |   |              |         |      |   |         |        
|                                |                   | $ | 255,647      |         |      | $ | 333,008 |        
|                                |                   |   |              |         |      |   |         |        

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

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

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

46



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|4. |  | COMMERCIAL RIGHTS AND ROYALTIES
|-- |  | -------------------------------

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

|                                                     |  |              |         |      |  |   |        | 
|---------------------------------------------------- |  | ------------ | ------- | ---- |  | - | ------ | 
|                                                     |  | December
31,
|                                                     |  |             
|                                                     |  | 2002         |         | 2001
|                                                     |  |              |         |     
|Commercial
rights and royalties                      |  | $            | 1,786   |      |  | $ | 1,943  | 
|Accounts receivable - unbilled                       |  |              | 59,750  |      |  |   | 8,057  | 
|Advances
to customer                                 |  |              | 70,000  |      |  |   |       | 
|                                                     |  |              |         |      |  |   |        | 
|Total
commercial rights and royalties related assets |  | $            | 131,536 |      |  | $ | 10,000 | 
|                                                     |  |              |         |      |  |   |        | 

Below is a brief description of these agreements:

In May 1999, the Company entered into an agreement with CV Therapeutics,
Inc. (CVTX) to commercialize Ranexa (formerly known as Ranolazine) for
angina in the United States and Canada. Under the terms of this agreement, the
Company purchased 1,043,705 shares of CVTXs common stock for $5 million of
which the Company owns 126,705 shares as of December 31, 2002, and has made
available a $10 million credit line for pre-launch sales and marketing
activities. If Ranexa, which has been submitted to the United States Food and
Drug Administration (FDA) under a New Drug Application (NDA) for review, is
approved, the Company will provide a $10 million milestone payment to CVTX
which will be used to pay off any outstanding balances on the credit line. The
Company will also make available an additional line of credit to help fund a
portion of the first year sales and marketing expenses. Additionally, the
Company has committed to provide a minimum of approximately $14.4 million per
year of commercialization services and to fund a minimum of $7.8 million per
year of marketing activities, for a period of five years. In return it will
receive payment for services rendered by the Company in year one and royalties
based on the net sales of Ranexa in years two through five subject to a cap
not to exceed 300% of funding by the Company in any year or over the life of
the contract. In addition, the Company will also receive royalties in years
six and seven.

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

In January 2001, the Company entered into an agreement with Scios Inc.
(SCIO) to market Natrecor® for acute congestive heart failure in the United
States and Canada. Under the terms of the agreement, the Company agreed to
provide $30 million in funding over a two and one-half year period for sales
and marketing activities following product launch. As of December 31, 2002,
$23.5 million has been paid by the Company. The payments are reported in the
accompanying statement of cash flows as an investing activity 
acquisition of commercial rights and royalties. In addition to receiving payments on a fee for service
basis for providing commercialization services, the Company will receive
royalties based on net sales of the product from 2002 through 2008. The
royalty payments are subject to minimum and maximum amounts of $50 million and
$65 million, respectively, over the life of the agreement. The Company also
received a warrant to purchase 700,000 shares of SCIOs common stock at $20 per
share,

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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
Company continues to be entitled to receive future royalty payments under the
contract. The commercial rights and royalties related asset accounts
receivable-unbilled of approximately $40.7
million will be reduced as the Company receives future royalty payments.

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

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

In December 2001, the Company acquired the license to market SkyePharmas
Solaraze skin treatment in the United States, Canada and Mexico for 14 years
from Bioglan Pharma Plc for a total consideration of $26.7 million. The
Company will amortize the rights ratably over 14 years. The Company has a
commitment to pay royalties to SkyePharma based on a percentage of net sales of
Solaraze. 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 Solaraze NDA and Investigational New Drug.

In January 2002, the Company entered into an agreement with Kos
Pharmaceuticals, Inc. (KOSP) to commercialize, in the United States, KOSPs
treatments for cholesterol disorders, Advicor® and Niaspan®. Advicor® was
launched in January 2002 and Niaspan® is also on the market. Under the terms
of the agreement, the Company will provide, at its own expense, a dedicated
sales force of 150 cardiovascular-trained representatives who, in combination
with KOSPs sales force of 300 representatives, will commercialize Advicor® and
Niaspan® for two years. In return, the Company also received warrants to
purchase 150,000 shares of KOSPs common stock at $32.79 per share, exercisable

48



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in installments over two years. Further, the Company will receive
commissions based on net sales of the product from 2002 through 2006. The
commission payments are subject to minimum and maximum amounts of $45 million
and $75 million, respectively, over the life of the agreement.

In March 2002, the Company acquired certain assets of Bioglan Pharma, Inc.
for a total consideration of approximately $27.9 million. The assets included
distribution rights to market ADOXA in the United States for nine years along
with other products and product rights that Bioglan Pharma, Inc., had
previously marketed, as well as approximately $1.6 million in cash. Under the
purchase method of accounting, the results of operations of Bioglan Pharma,
Inc. are included in the Companys results of operations as of March 22, 2002
and the assets and liabilities of Bioglan Pharma, Inc. were recorded at their
respective fair values. The acquisition did not have a material impact on the
financial position or results of operations for the Company. The acquisition
resulted in total intangible assets of $29.3 million. The Company will
amortize the intangible assets 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. The
Company will provide, at its own expense, sales and marketing resources over
the five-year life of the agreement. As of December 31, 2002, the Company
estimates the cost of its minimum obligation over the remaining contract life
to be approximately $44 million, in return for which the customer will pay the
Company royalties on product sales in excess of certain baselines. The total
royalty is comprised of a minimal royalty on the baseline sales targets for
these products plus a share of incremental net sales above these baselines.
Either party may cancel the contract at six-month intervals in the event that
sales are not above certain levels specified. Subsequent to December 31, 2002,
the Company exercised its rights to terminate the contract in Germany. The
termination reduces the Companys minimum remaining obligation from $44 million
to $25 million.

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

49



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write-off any payments made through that date, unless the FDA had failed
to grant approval for Cymbalta based on concerns over LLYs manufacturing
processes and facilities.

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

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

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

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

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

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|5. |  | INVESTMENTS - DEBT SECURITIES
|-- |  | -----------------------------

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

|                             |                              |      |           |       |            |        |            |       |        |   |   |   |  |   |       |       | 
|---------------------------- | ---------------------------- | ---- | --------- | ----- | ---------- | ------ | ---------- | ----- | ------ | - | - | - |  | - | ----- | ----- | 
|                             |                              |      |           |       |            |        | GROSS      |       | GROSS  |   |   |   | 
|                             |                              |      | AMORTIZED |       | UNREALIZED |        | UNREALIZED |       | MARKET
|                             |                              | COST |           | GAINS |            | LOSSES |            | VALUE
|                             |                              |      |           |       |            |        |            |      
|HELD-TO-MATURITY SECURITIES: |                              |      |           |       |            |        |            |       |        |   |   |   |  |   |       |      
|State Securities            |                              |      |           |       |            |        |            |       |        |   |   |   |  |   |       |      
|                             | Maturing in one year or less |      | $         | 576   |            |        | $          |      |        |   | $ |  |  |   | $     | 576   | 
|                             | Maturing in over five years  |      |           | 5,315 |            |        |            |      |        |   |   |  |  |   |       | 5,315 | 
|                             |                              |      |           |       |            |        |            |       |        |   |   |   |  |   |       |      
|                             |                              | $    | 5,891     |       |            | $      |           |       |        | $ |  |   |  | $ | 5,891 |      
|                             |                              |      |           |       |            |        |            |       |        |   |   |   |  |   |       |      

|                               |  |           |        |            |  |            |   |        |  |   |        |   |  |   |        | 
|------------------------------ |  | --------- | ------ | ---------- |  | ---------- | - | ------ |  | - | ------ | - |  | - | ------ | 
|                               |  |           |        |            |  | GROSS      |   | GROSS  |  |   |        |  
|                               |  | AMORTIZED |        | UNREALIZED |  | UNREALIZED |   | MARKET
|                               |  | COST      |        | GAINS      |  | LOSSES     |   | VALUE 
|                               |  |           |        |            |  |            |   |       
|AVAILABLE-FOR-SALE SECURITIES: |  |           |        |            |  |            |   |        |  |   |        |   |  |   |        | 
|Money Funds                    |  | $         | 27,186 |            |  |            |  |        |  |   | (544   | ) |  | $ | 26,642 | 
|Other                          |  |           | 5,476  |            |  |            |  |        |  |   | (1,338 | ) |  |   | 4,138  | 
|                               |  |           |        |            |  |            |   |        |  |   |        |   |  |   |        | 
|                               |  | $         | 32,662 |            |  | $          |  |        |  | $ | (1,882 | ) |  | $ | 30,780 | 
|                               |  |           |        |            |  |            |   |        |  |   |        |   |  |   |        | 

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

|                             |                              |      |           |       |            |        |            |       |        |   |   |   |  |   |       |       | 
|---------------------------- | ---------------------------- | ---- | --------- | ----- | ---------- | ------ | ---------- | ----- | ------ | - | - | - |  | - | ----- | ----- | 
|                             |                              |      |           |       |            |        | GROSS      |       | GROSS  |   |   |   | 
|                             |                              |      | AMORTIZED |       | UNREALIZED |        | UNREALIZED |       | MARKET
|                             |                              | COST |           | GAINS |            | LOSSES |            | VALUE
|                             |                              |      |           |       |            |        |            |      
|HELD-TO-MATURITY SECURITIES: |                              |      |           |       |            |        |            |       |        |   |   |   |  |   |       |      
|State Securities            |                              |      |           |       |            |        |            |       |        |   |   |   |  |   |       |      
|                             | Maturing in one year or less |      | $         | 591   |            |        | $          |      |        |   | $ |  |  |   | $     | 591   | 
|                             | Maturing in over five years  |      |           | 6,016 |            |        |            |      |        |   |   |  |  |   |       | 6,016 | 
|                             |                              |      |           |       |            |        |            |       |        |   |   |   |  |   |       |      
|                             |                              | $    | 6,607     |       |            | $      |           |       |        | $ |  |   |  | $ | 6,607 |      
|                             |                              |      |           |       |            |        |            |       |        |   |   |   |  |   |       |      

|                               |  |      |           |        |            |        |            |       |        |   |      |      |   |   |        |        | 
|------------------------------ |  | ---- | --------- | ------ | ---------- | ------ | ---------- | ----- | ------ | - | ---- | ---- | - | - | ------ | ------ | 
|                               |  |      |           |        |            |        | GROSS      |       | GROSS  |   |      |      |  
|                               |  |      | AMORTIZED |        | UNREALIZED |        | UNREALIZED |       | MARKET
|                               |  | COST |           | GAINS  |            | LOSSES |            | VALUE
|                               |  |      |           |        |            |        |            |      
|AVAILABLE-FOR-SALE SECURITIES: |  |      |           |        |            |        |            |       |        |   |      |      |   |   |        |       
|Money Funds                    |  | $    | 27,186    |        |            | $      |           |       |        | $ | (288 | )    |   | $ | 26,898 |       
|Other                          |  |      | 3,494     |        |            |        |           |       |        |   |     |      |   |   | 3,494  |       
|                               |  |      |           |        |            |        |            |       |        |   |      |      |   |   |        |        | 
|                               |  |      | $         | 30,680 |            |        | $          |      |        |   | $    | (288 | ) |   | $      | 30,392 | 
|                               |  |      |           |        |            |        |            |       |        |   |      |      |   |   |        |        | 

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

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|6. |  | INVESTMENTS  MARKETABLE EQUITY SECURITIES
|-- |  | ------------------------------------------

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

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

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

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



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

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

The Company recognized $14.1 million, $22.9 million and $3.3 million of
gains from the sale of marketable equity securities during 2002, 2001 and 2000,
respectively. The Company recognized $66,000 in losses from the sale of
marketable equity securities during 2002. Gross unrealized gains totaled $31.5
million as of December 31, 2002 and $46.4 million as of December 31, 2001 from
investments in marketable equity securities. The net after-tax adjustment to
unrealized holding gains (losses) on marketable equity securities included as a
separate component of shareholders equity was ($10.1) million, $81.3 million
and ($51.2) million in 2002, 2001 and 2000 respectively. In accordance with
its policy to continually review declines in fair value of the marketable
equity securities for declines that may be other than temporary, the Company
also recognized losses due to the impairment of marketable equity securities of
$335,000, $338.8 million and $5.5 million in 2002, 2001 and 2000, respectively.
Included in the 2001 amount is $334.0 million relating to the Companys
investment in
WebMD common stock.

52



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

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



|7. |  | INVESTMENTS  NON-MARKETABLE EQUITY SECURITIES AND LOANS
|-- |  | --------------------------------------------------------

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

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

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

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

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

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

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

The Company also has future loan commitments that are contingent upon
satisfaction of certain milestones by the third party such as receiving FDA
approval, obtaining funding from additional third

53



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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 investees management, as appropriate. If the review
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 $4.0 million
and $9.2 million of losses due to such impairments in 2002 and 2001,
respectively, relating to non-marketable equity securities and loans mainly due
to declining financial condition of investees.



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

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

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

As of December 31, 2002 and 2001, the Company has several freestanding
warrants to purchase common stock of various customers and other third parties.
These freestanding warrants primarily were acquired as part of the financial
arrangements with such customers and third parties. No quoted price is
available for the Companys freestanding warrants to purchase shares of common
stock. The Company uses various valuation techniques including the present
value of estimated expected future cash flows, option-pricing models and
fundamental analysis. Factors affecting the valuation include the current
price of the underlying asset, strike price, time to expiration of the option,
estimated price volatility of the underlying asset over the life of the option
and restrictions on the transferability or ability to exercise the option. As
of January 1, 2001, the Companys derivative instruments included two warrants
to purchase an aggregate of 282,385 shares of common stock of The Medicines
Company (NASDAQ: MDCO). The Company estimated the fair value of these
derivative instruments to be insignificant at January 1, 2001 and December 31,
2001 because the Company concluded that the implicit restrictions on
exercisability and transferability impaired the value of the warrants. The
most significant of these restrictions were eliminated in January 2002. In
March 2002, the Company exercised the MDCO warrants under its cashless exercise
option and received 162,976 shares of MDCO common stock. At December 31, 2002,
the Company held warrants from various contracts valued at $5.8 million which
are included in the accompanying balance sheet as deposits and other assets.
During 2002, the Company recognized investment revenues of $535,000 related to
changes in the fair values of the warrants.

The Company had exchange-traded option contracts with a fair value as of
December 31, 2001 of approximately $1.3 million. These contracts expired in
January 2002 and April 2002. There were no

54



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open exchange-traded option
contracts at December 31, 2002. During 2002 and 2001, the Company recorded a
$3.4 million gain and a $1.9 million loss, respectively, in earnings related to
changes in the fair value of put and call option contracts.



|9. |  | INVESTMENT REVENUES
|-- |  | -------------------

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

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



|10. |  | INVESTMENTS IN UNCONSOLIDATED AFFILIATES AND OTHER
|--- |  | --------------------------------------------------

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

In May 2002, the Company and McKesson Corporation (McKesson) completed
the formation of a previously announced healthcare informatics joint venture
named Verispan, L.L.C. (Verispan). The Company and McKesson are equal
co-owners of a majority of the equity of Verispan. The Company contributed the
net assets of its informatics group 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, 2002, the Company owns
approximately 45% 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, 2002, as an investment in
unconsolidated affiliates.

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

55



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other.



|11. |  | GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS
|--- |  | -------------------------------------------

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

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

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

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

|                                                          |  |             |        |            |  |             |        |              |  |   |          |   |  |   |          |  
|--------------------------------------------------------- |  | ----------- | ------ | ---------- |  | ----------- | ------ | ------------ |  | - | -------- | - |  | - | -------- | -
|                                                          |  | Product     |        | Commercial |  |             |        |              |  |   |          |  
|                                                          |  | development |        | services   |  | Informatics |        | Consolidated
|                                                          |  |             |        |            |  |             |        |             
|Balance as of December 31, 2001                           |  | $           | 31,746 |            |  | $           | 30,168 |              |  | $ | 101,737  |   |  | $ | 163,651  |  
|Add: acquisition                                          |  |             | 2,937  |            |  |             |       |              |  |   |         |   |  |   | 2,937    |  
|Less: 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   |  
|                                                          |  |             |        |            |  |             |        |              |  |   |          |   |  |   |          |  

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

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

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

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

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



|12. |  | ACCRUED EXPENSES
|--- |  | ----------------

Accrued expenses consist of the following (in thousands):

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

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|13. |  | CREDIT ARRANGEMENTS
|--- |  | -------------------

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

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

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

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

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

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

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

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

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



|14. |  | LEASES
|--- |  | ------

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

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

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



|15. |  | COMMITMENTS AND CONTINGENCIES
|--- |  | -----------------------------

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

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

In October 2002, seven purported class action lawsuits were filed in
Superior Court, Durham County, North Carolina by shareholders seeking to enjoin
the consummation of a transaction proposed by Pharma Services Company, a newly
formed company wholly owned by Dennis B. Gillings, Ph.D., to acquire all the
Companys outstanding shares for $11.25 per share in cash. All of the lawsuits
were

59



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subsequently transferred to the North Carolina Business Court. The
lawsuits name as defendants Dr. Gillings, other members of the Companys Board
of Directors, the Company and, in some cases Pharma Services Company. The
complaints allege, among other things, that the directors breached their
fiduciary duties with respect to the proposal. The complaints seek to enjoin
the transaction proposed by Pharma Services Company, and the plaintiffs seek to
recover damages. On November 11, 2002, a special committee of the Companys
Board of Directors announced its rejection of the proposal by Pharma Services
Company and its intention to investigate strategic alternatives available to
the Company for purposes of enhancing shareholder value, including the
possibility of a sale of the Company and alternatives that would keep the
Company independent and publicly owned. On January 6, 2003, the North Carolina
Business Court entered a Case Management Order consolidating all seven lawsuits
for all purposes and staying the lawsuits until March 29, 2003 or until the
Company provides notice of a change-of-control transaction involving the
Company. Based upon its preliminary review, the Company believes the lawsuits
are without merit and intends to defend them vigorously.

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

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



|16. |  | SHAREHOLDERS EQUITY
|--- |  | --------------------

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

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

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

To enhance its stock repurchase program, the Company sold put options
during 2000 to an independent third party. These put options entitled the
holder to sell a total of 500,000 shares of the Companys Common Stock to the
Company on January 2, 2001 at $13.7125 per share. The put options expired
unexercised in accordance with their terms on January 2, 2001. The transaction
has been recorded as a component of shareholders equity.

In November 1999, the Board of Directors declared a dividend distribution
of one preferred stock purchase right (a Right) for each outstanding share of
the Companys Common
Stock. Each Right, if

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



|17. |  | LOSS ON DISPOSAL
|--- |  | ----------------

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



|18. |  | DISCONTINUED OPERATION
|--- |  | ----------------------

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

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

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

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contracts with WebMD were terminated, which among other things, absolved
the Company from any obligation to fund WebMD to develop a web-based suite of
integrated products and services. Also, the outstanding warrant to purchase up
to 10 million shares of the Companys Common Stock, at $40 per share, held by
WebMD, was cancelled. The Company recorded an $83.2 million gain from the
settlement of litigation during 2001.

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

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

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

|                           |  |                              |        | 
|-------------------------- |  | ---------------------------- | ------ | 
|                           |  | YEAR ENDED DECEMBER 31, 2000
|                           |  |                             
|Net revenue                |  | $                            | 99,041 | 
|                           |  |                              |        | 
|Income before income taxes |  | $                            | 27,121 | 
|Income taxes               |  |                              | 10,351 | 
|                           |  |                              |        | 
|Net income                 |  | $                            | 16,770 | 
|                           |  |                              |        | 



|19. |  | CHANGE IN ACCOUNTING FOR DEFERRED INCOME TAXES
|--- |  | ----------------------------------------------

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

The new methodology of accounting for deferred income taxes incorporates a
strict jurisdictional view of SFAS No. 109, Accounting for Income Taxes, and
assumes that the Company recorded deferred income taxes only for the future
income tax impact of book and tax basis differences created as

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

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



|20. |  | BUSINESS COMBINATIONS
|--- |  | ---------------------

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

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

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



|21. |  | RESTRUCTURING
|--- |  | -------------

During the second quarter of 2002, the Company revised its estimates of
the restructuring plan adopted during 2001 (2001 Plan) which resulted in a
reduction of $9.1 million in accruals for the 2001 Plan. The reduction
included approximately $5.7 million in severance payments and $3.4 million of
exit

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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, 2002, 78
individuals have been terminated.

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

Activity Twelve Months Ended December 31, 2002

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

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

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

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

Activity Twelve Months Ended December 31, 2002

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

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

Activity Twelve Months Ended December 31, 2001

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

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

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

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

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

Activity Twelve Months Ended December 31, 2002

|                            |  |                   |       |              |  |              |     |              |  |               |       |          |  |                   |       |  |  |         |        |   |  |   |        |   |  |   |       | 
|--------------------------- |  | ----------------- | ----- | ------------ |  | ------------ | --- | ------------ |  | ------------- | ----- | -------- |  | ----------------- | ----- |  |  | ------- | ------ | - |  | - | ------ | - |  | - | ----- | 
|                            |  |                   |       |              |  | Revisions to |     | Revisions to |  |               |       |          |  |                   |       |  |  | Follow- |        |   |  |  
|                            |  | Balance at        |       | January 2000 |  | Follow-On    |     | Revised      |  | January 2000  |       | On Plan  |  | Balance at       
|                            |  | December 31, 2001 |       | Plan         |  | Plan         |     | Accrual      |  | Plan Payments |       | Payments |  | December 31, 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 | 
|                            |  |                   |       |              |  |              |     |              |  |               |       |          |  |                   |       |  |  |         |        |   |  |   |        |   |  |   |       | 

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

Activity Twelve Months Ended December 31, 2001

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

65



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

Activity Twelve Months Ended December 31, 2000

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

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

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



|22. |  | INCOME TAXES
|--- |  | ------------

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

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

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

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

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

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

Income (loss) before income taxes from foreign operations was
approximately $33.0 million, $14.9 million, and ($40.3) million for the years
2002, 2001, and 2000, respectively. Income (loss) from foreign operations was

approximately $59.6 million, $41.2 million, and ($11.6) million for the years
2002, 2001 and 2000, respectively. The difference between income from
operations and income (loss) before income taxes is due primarily to
intercompany charges which eliminate in consolidation for financial statement
purposes but, in some cases, do not eliminate for tax purposes. Undistributed
earnings of the Companys foreign subsidiaries amounted to approximately $180.7
million at December 31, 2002. Those earnings are considered to be indefinitely
reinvested, and accordingly, no U.S. federal and state income taxes have been
provided thereon. Upon distribution of those earnings in the form of dividends
or otherwise, the Company would be subject to both U.S. income taxes (subject
to an adjustment for foreign tax credits) and withholding taxes payable to the
various countries.

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

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

67



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

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

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

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



|23. |  | WEIGHTED AVERAGE SHARES OUTSTANDING
|--- |  | -----------------------------------

68



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

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

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

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

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



|24. |  | EMPLOYEE BENEFIT PLANS
|--- |  | ----------------------

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

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

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

Under the 401(k), the Company matches employee deferrals at varying
percentages, set at the discretion of the Board of Directors. For the years
ended December 31, 2002, 2001 and 2000, the

69



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Company expensed $7.2 million, $9.5
million and $5.1 million, respectively, as matching contributions.

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

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

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

70



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Stock option activity during the periods indicated is as follows:

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

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

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

71



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|25. |  | OPERATIONS BY GEOGRAPHIC LOCATION
|--- |  | ---------------------------------

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

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

72



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|26. |  | SEGMENTS
|--- |  | --------

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

Year Ended December 31, 2002

|                                                                                                    |                          |                |           |             |           |            |         |             |         |             |        |              |        |              |         |   |         |   |         |         |         |   |           |           |           | 
|--------------------------------------------------------------------------------------------------- | ------------------------ | -------------- | --------- | ----------- | --------- | ---------- | ------- | ----------- | ------- | ----------- | ------ | ------------ | ------ | ------------ | ------- | - | ------- | - | ------- | ------- | ------- | - | --------- | --------- | --------- | 
|                                                                                                    |                          |                |           | Product     |           | Commercial |         |             |         |             |        | PharmaBio    |        |              |         |   |         |   |         |        
|                                                                                                    |                          |                |           | development |           | services   |         | Informatics |         | Development |        | Eliminations |        | Consolidated
|                                                                                                    |                          |                |           |             |           |            |         |             |         |             |        |              |        |             
|Service revenues:                                                                                   |                          |                |           |             |           |            |         |             |         |             |        |              |        |              |         |   |         |   |         |         |         |   |           |          
|                                                                                                    | External                 |                | $         | 944,861     |           |            | $       | 503,466     |         |             | $      | 20,347       |        |              | $       |  |         |   | $       |        |         |   | $         | 1,468,674 |          
|                                                                                                    | Intersegment             |                |           |            |           |            |         | 54,548      |         |             |        |             |        |              |         |  |         |   |         | (54,548 | )       |   |           |          |          
|                                                                                                    |                          |                |           |             |           |            |         |             |         |             |        |              |        |              |         |   |         |   |         |         |         |   |           |          
|                                                                                                    | Total net services       |                |           | 944,861     |           |            |         | 558,014     |         |             |        | 20,347       |        |              |         |  |         |   |         | (54,548 | )       |   |           | 1,468,674 |          
|                                                                                                    | Reimbursed service costs |                |           | 312,669     |           |            |         | 86,959      |         |             |        | 22           |        |              |         |  |         |   |         |        |         |   |           | 399,650   |          
|                                                                                                    |                          |                |           |             |           |            |         |             |         |             |        |              |        |              |         |   |         |   |         |         |         |   |           |          
|Gross service revenues                                                                              |                          |                | 1,257,530 |             |           |            | 644,973 |             |         |             | 20,369 |              |        |              |        |   |         |   | (54,548 | )       |         |   | 1,868,324 |          
|Commercial rights and royalties                                                                     |                          |                |          |             |           |            |        |             |         |             |       |              |        |              | 110,381 |   |         |   |        |         |         |   | 110,381   |          
|Investment                                                                                          |                          |                |          |             |           |            |        |             |         |             |       |              |        |              | 13,704  |   |         |   |        |         |         |   | 13,704    |          
|                                                                                                    |                          |                |           |             |           |            |         |             |         |             |        |              |        |              |         |   |         |   |         |         |         |   |           |          
|                                                                                                    |                          | Total revenues |           | $           | 1,257,530 |            |         | $           | 644,973 |             |        | $            | 20,369 |              |         | $ | 124,085 |   |         | $       | (54,548 | ) |           | $         | 1,992,409 | 
|                                                                                                    |                          |                |           |             |           |            |         |             |         |             |        |              |        |              |         |   |         |   |         |         |         |   |           |          
|Contribution (revenues less costs of revenues excluding depreciation and
amortization shown below): |                          |                |           |             |           |            |         |             |         |             |        |             
|                                                                                                    |                          | $              | 477,492   |             |           | $          | 207,711 |             |         | $           | 8,024  |              |        | $            | 17,620  |   |         | $ |        |         |         | $ | 710,847   |          
|                                                                                                    |                          |                |           |             |           |            |         |             |         |             |        |              |        |              |         |   |         |   |         |         |         |   |           |          

Year Ended December 31, 2001

|                                                                                                    |                          |                |           |             |           |            |         |             |         |             |        |              |        |              |        |   |        |   |         |         |         |   |           |           |           | 
|--------------------------------------------------------------------------------------------------- | ------------------------ | -------------- | --------- | ----------- | --------- | ---------- | ------- | ----------- | ------- | ----------- | ------ | ------------ | ------ | ------------ | ------ | - | ------ | - | ------- | ------- | ------- | - | --------- | --------- | --------- | 
|                                                                                                    |                          |                |           | Product     |           | Commercial |         |             |         |             |        | PharmaBio    |        |              |        |   |        |   |         |        
|                                                                                                    |                          |                |           | development |           | services   |         | Informatics |         | Development |        | Eliminations |        | Consolidated
|                                                                                                    |                          |                |           |             |           |            |         |             |         |             |        |              |        |             
|Service revenues:                                                                                   |                          |                |           |             |           |            |         |             |         |             |        |              |        |              |        |   |        |   |         |         |         |   |           |          
|                                                                                                    | External                 |                | $         | 913,947     |           |            | $       | 621,964     |         |             | $      | 58,169       |        |              | $      |  |        |   | $       |        |         |   | $         | 1,594,080 |          
|                                                                                                    | Intersegment             |                |           |            |           |            |         | 12,900      |         |             |        |             |        |              |        |  |        |   |         | (12,900 | )       |   |           |          |          
|                                                                                                    |                          |                |           |             |           |            |         |             |         |             |        |              |        |              |        |   |        |   |         |         |         |   |           |          
|                                                                                                    | Total net services       |                |           | 913,947     |           |            |         | 634,864     |         |             |        | 58,169       |        |              |        |  |        |   |         | (12,900 | )       |   |           | 1,594,080 |          
|                                                                                                    | Reimbursed service costs |                |           | 234,481     |           |            |         | 28,743      |         |             |        | 205          |        |              |        |  |        |   |         |        |         |   |           | 263,429   |          
|                                                                                                    |                          |                |           |             |           |            |         |             |         |             |        |              |        |              |        |   |        |   |         |         |         |   |           |          
|Gross service revenues                                                                              |                          |                | 1,148,428 |             |           |            | 663,607 |             |         |             | 58,374 |              |        |              |       |   |        |   | (12,900 | )       |         |   | 1,857,509 |          
|Commercial rights and royalties                                                                     |                          |                |          |             |           |            |        |             |         |             |       |              |        |              | 25,792 |   |        |   |        |         |         |   | 25,792    |          
|Investment                                                                                          |                          |                |          |             |           |            |        |             |         |             |       |              |        |              | 611    |   |        |   |        |         |         |   | 611       |          
|                                                                                                    |                          |                |           |             |           |            |         |             |         |             |        |              |        |              |        |   |        |   |         |         |         |   |           |          
|                                                                                                    |                          | Total revenues |           | $           | 1,148,428 |            |         | $           | 663,607 |             |        | $            | 58,374 |              |        | $ | 26,403 |   |         | $       | (12,900 | ) |           | $         | 1,883,912 | 
|                                                                                                    |                          |                |           |             |           |            |         |             |         |             |        |              |        |              |        |   |        |   |         |         |         |   |           |          
|Contribution (revenues less costs of revenues excluding depreciation and
amortization shown below): |                          |                |           |             |           |            |         |             |         |             |        |             
|                                                                                                    |                          | $              | 438,426   |             |           | $          | 197,452 |             |         | $           | 27,173 |              |        | $            | (2,311 | ) |        | $ |        |         |         | $ | 660,740   |          
|                                                                                                    |                          |                |           |             |           |            |         |             |         |             |        |              |        |              |        |   |        |   |         |         |         |   |           |          

73



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Year Ended December 31, 2000

|                                                                                                    |                    |                          |                |         |             |           |            |         |             |         |             |        |              |        |              |   |   |        |   |   |   |   |           |           |         |           | 
|--------------------------------------------------------------------------------------------------- | ------------------ | ------------------------ | -------------- | ------- | ----------- | --------- | ---------- | ------- | ----------- | ------- | ----------- | ------ | ------------ | ------ | ------------ | - | - | ------ | - | - | - | - | --------- | --------- | ------- | --------- | 
|                                                                                                    |                    |                          |                |         | Product     |           | Commercial |         |             |         |             |        | PharmaBio    |        |              |   |   |        |   |   |  
|                                                                                                    |                    |                          |                |         | development |           | services   |         | Informatics |         | Development |        | Eliminations |        | Consolidated
|                                                                                                    |                    |                          |                |         |             |           |            |         |             |         |             |        |              |        |             
|Service revenues:                                                                                   |                    |                          |                |         |             |           |            |         |             |         |             |        |              |        |              |   |   |        |   |   |   |   |           |          
|                                                                                                    | External           |                          | $              | 841,525 |             |           | $          | 748,494 |             |         | $           | 59,709 |              |        | $            |  |   |        | $ |  |   |   | $         | 1,649,728 |        
|                                                                                                    | Intersegment       |                          |                |        |             |           |            |        |             |         |             |       |              |        |              |  |   |        |   |  |   |   |           |          |        
|                                                                                                    |                    |                          |                |         |             |           |            |         |             |         |             |        |              |        |              |   |   |        |   |   |   |   |           |          
|                                                                                                    | Total net services |                          |                | 841,525 |             |           |            | 748,494 |             |         |             | 59,709 |              |        |              |  |   |        |   |  |   |   |           | 1,649,728 |        
|                                                                                                    |                    | Reimbursed service costs |                |         | 191,092     |           |            |         | 19,471      |         |             |        | 25           |        |              |   |  |        |   |   |  |   |           |           | 210,588 |          
|                                                                                                    |                    |                          |                |         |             |           |            |         |             |         |             |        |              |        |              |   |   |        |   |   |   |   |           |          
|Gross service revenues                                                                              |                    |                          | 1,032,617      |         |             |           | 767,965    |         |             |         | 59,734      |        |              |        |             |   |   |        |  |   |   |   | 1,860,316 |          
|Commercial rights and royalties                                                                     |                    |                          |               |         |             |           |           |         |             |         |            |        |              |        | 10,182       |   |   |        |  |   |   |   | 10,182    |          
|Investment                                                                                          |                    |                          |               |         |             |           |           |         |             |         |            |        |              |        | 579          |   |   |        |  |   |   |   | 579       |          
|                                                                                                    |                    |                          |                |         |             |           |            |         |             |         |             |        |              |        |              |   |   |        |   |   |   |   |           |          
|                                                                                                    |                    |                          | Total revenues |         | $           | 1,032,617 |            |         | $           | 767,965 |             |        | $            | 59,734 |              |   | $ | 10,761 |   |   | $ |  |           |           | $       | 1,871,077 | 
|                                                                                                    |                    |                          |                |         |             |           |            |         |             |         |             |        |              |        |              |   |   |        |   |   |   |   |           |          
|Contribution (revenues less costs of revenues excluding depreciation and amortization shown below): |                    |                          |                |         |             |           |            |         |             |         |             |        |              |        |              |  
|                                                                                                    |                    | $                        | 382,611        |         |             | $         | 247,535    |         |             | $       | 33,239      |        |              | $      | 1,320        |   |   | $      |  |   |   | $ | 664,705   |          
|                                                                                                    |                    |                          |                |         |             |           |            |         |             |         |             |        |              |        |              |   |   |        |   |   |   |   |           |          

|                                                         |                       |   |           |         |      |   |           |         |  |   |           |         | 
|-------------------------------------------------------- | --------------------- | - | --------- | ------- | ---- | - | --------- | ------- |  | - | --------- | ------- | 
|                                                         |                       |   | 2002      |         | 2001 |   | 2000     
|                                                         |                       |   |           |         |      |   |          
|Total Assets:                                            |                       |   |           |         |      |   |           |         |  |   |           |        
|                                                         | Product development   |   | $         | 716,033 |      |   | $         | 680,221 |  |   | $         | 651,347 | 
|                                                         | Commercial services   |   |           | 384,814 |      |   |           | 229,190 |  |   |           | 282,492 | 
|                                                         | PharmaBio Development |   |           | 315,633 |      |   |           | 164,111 |  |   |           | 131,498 | 
|                                                         | Informatics           |   |           |        |      |   |           | 124,057 |  |   |           | 141,420 | 
|                                                         | Corporate             |   |           | 637,715 |      |   |           | 656,215 |  |   |           | 660,665 | 
|                                                         |                       |   |           |         |      |   |           |         |  |   |           |        
|                                                         |                       | $ | 2,054,195 |         |      | $ | 1,853,794 |         |  | $ | 1,867,422 |        
|                                                         |                       |   |           |         |      |   |           |         |  |   |           |        
|Expenditures to acquire long-lived assets:               |                       |   |           |         |      |   |           |         |  |   |           |        
|                                                         | Product development   |   | $         | 34,402  |      |   | $         | 109,031 |  |   | $         | 72,146  | 
|                                                         | Commercial services   |   |           | 4,656   |      |   |           | 12,520  |  |   |           | 26,939  | 
|                                                         | PharmaBio Development |   |           | 247     |      |   |           |        |  |   |           |        | 
|                                                         | Informatics           |   |           | 666     |      |   |           | 9,962   |  |   |           | 6,964   | 
|                                                         | Corporate             |   |           | 186     |      |   |           | 2,470   |  |   |           | 2,733   | 
|                                                         |                       |   |           |         |      |   |           |         |  |   |           |        
|                                                         |                       | $ | 40,157    |         |      | $ | 133,983   |         |  | $ | 108,782   |        
|                                                         |                       |   |           |         |      |   |           |         |  |   |           |        
|Depreciation and amortization expense:                   |                       |   |           |         |      |   |           |         |  |   |           |        
|                                                         | Product development   |   | $         | 60,710  |      |   | $         | 60,255  |  |   | $         | 53,959  | 
|                                                         | Commercial services   |   |           | 21,926  |      |   |           | 23,823  |  |   |           | 27,782  | 
|                                                         | Informatics           |   |           | 2,559   |      |   |           | 10,031  |  |   |           | 8,464   | 
|                                                         | Corporate             |   |           | 953     |      |   |           | 986     |  |   |           | 1,037   | 
|                                                         |                       |   |           |         |      |   |           |         |  |   |           |        
|Depreciation and amortization excluded from contribution |                       |   | 86,148    |         |      |   | 95,095    |         |  |   | 91,242    |        
|                                                         | PharmaBio Development |   |           | 3,676   |      |   |           | 1,008   |  |   |           | 1,325   | 
|                                                         |                       |   |           |         |      |   |           |         |  |   |           |        
|Total depreciation and amortization                      |                       | $ | 89,824    |         |      | $ | 96,103    |         |  | $ | 92,567    |        
|                                                         |                       |   |           |         |      |   |           |         |  |   |           |        

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##### 





|27. |  | QUARTERLY FINANCIAL DATA (UNAUDITED)
|--- |  | ------------------------------------

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

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

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

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

75



---



##### 



Report of Independent Accountants

The Board of Directors and Shareholders of Quintiles Transnational Corp.

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

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

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

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

/s/PricewaterhouseCoopers LLP
Raleigh, North Carolina
January 29, 2003

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

76



---



##### 



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

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Quintiles Transnational Corp.:

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

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

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

Arthur Andersen LLP

Raleigh, North Carolina,
January 23, 2002, except with respect to
the matters discussed in Note 23, as to
which the date is March 22, 2002*

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

77



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##### 



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,
as amended.

|                                                                                                                           |  |                |    | 
|-------------------------------------------------------------------------------------------------------------------------- |  | -------------- | -- | 
|Financial Statements                                                                                                       |  | Form 10-K Page
|                                                                                                                           |  |               
|Consolidated Statements of Operations for the years ended
December 31, 2002, 2001 and 2000                                 |  |                | 33 | 
|Consolidated Balance Sheets as of December 31, 2002 and 2001                                                               |  |                | 34 | 
|Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2001 and 2000                                 |  |                | 36 | 
|Consolidated Statements of Shareholders Equity for the
years ended December 31, 2002, 2001 and 2000                       |  |                | 38 | 
|Notes to Consolidated Financial Statements                                                                                 |  |                | 39 | 
|Report of Independent Public Accountants,
PricewaterhouseCoopers LLP, dated January 29, 2003                               |  |                | 76 | 
|Report of Independent Public Accountants, Arthur Andersen
LLP, dated January 23, 2002 (previously issued and not
reissued) |  |                | 77 | 

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

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

|        |  |                                                                                                                                                                                                                                                                                                                                                                
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                
|3.01(1) |  | Amended and Restated Articles of Incorporation, as amended                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                
|3.02(2) |  | Amended and Restated Bylaws, as amended                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                
|4.01    |  | Amended and Restated Articles of Incorporation, as amended (see Exhibit 3.01)                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                
|4.02    |  | Amended and Restated Bylaws, as amended (see Exhibit 3.02)                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                
|4.03(3) |  | Specimen certificate for Common Stock, $0.01 par value per share                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                
|4.04(4) |  | Amended and Restated Rights Agreement, dated as of November 5, 1999 and
amended and restated as of May 4, 2000 between Quintiles Transnational Corp.
and First Union National Bank, including form of Articles of Amendment of
Amended and Restated Articles of Incorporation, form of Rights Certificate
and the Summary of Rights to Purchase Preferred Stock

78



---



##### 



|            |  |                                                                                                                                                                                
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit     |  | Description                                                                                                                                                                    
|            |  |                                                                                                                                                                                
|10.01(5)(6) |  | Employment Agreement, dated March 13, 2001, by and between Dr. Pamela J.
Kirby and Quintiles Transnational Corp.                                                               
|            |  |                                                                                                                                                                                
|10.02(5)(7) |  | Employment Agreement, dated February 22, 1994, by and between Dr. Dennis B.
Gillings and Quintiles Transnational Corp.                                                         
|            |  |                                                                                                                                                                                
|10.03(5)(8) |  | Amendment to Contract of Employment, dated October 26, 1999, by and between
Dr. Dennis B. Gillings and Quintiles Transnational Corp.                                           
|            |  |                                                                                                                                                                                
|10.04(5)(9) |  | Second Amendment to Contract of Employment, dated April 1, 2002, by and
between Dr. Dennis B. Gillings and Quintiles Transnational Corp.                                       
|            |  |                                                                                                                                                                                
|10.05(5)(8) |  | Executive Employment Agreement, dated June 16, 1998, by and between James L.
Bierman and Quintiles Transnational Corp.                                                         
|            |  |                                                                                                                                                                                
|10.06(5)(8) |  | Executive Employment Agreement, dated December 3, 1998, by and between John
S. Russell and Quintiles Transnational Corp.                                                       
|            |  |                                                                                                                                                                                
|10.07(5)(8) |  | Amendment to Executive Employment Agreement, dated October 26, 1999, by and
between John S. Russell and Quintiles Transnational Corp.                                          
|            |  |                                                                                                                                                                                
|10.08(5)(9) |  | Quintiles Transnational Corp. Equity Compensation Plan, as amended and
restated on January 1, 2001                                                                             
|            |  |                                                                                                                                                                                
|10.09(5)(8) |  | Quintiles Transnational Corp. Elective Deferred Compensation Plan, as
amended and restated                                                                                     
|            |  |                                                                                                                                                                                
|10.10(5)(9) |  | Quintiles Transnational Corp. Nonqualified Stock Option Plan, amended
January 1, 2001                                                                                          
|            |  |                                                                                                                                                                                
|10.11*      |  | Quintiles Transnational Corp. 2002 Stock Option Plan                                                                                                                           
|            |  |                                                                                                                                                                                
|10.12*      |  | Quintiles Transnational Corp. Special Bonus Plan                                                                                                                               
|            |  |                                                                                                                                                                                
|10.13(10)   |  | Underlease, dated November 28, 1997, by and between PDFM Limited and
Quintiles (UK) Limited and guaranteed by the Company                                                      
|            |  |                                                                                                                                                                                
|10.14(11)   |  | Agreement for the Provision of Research Services and Purchase of Business
Assets, dated as of January 1, 1999, between Hoescht Marion Roussel, Inc.
and Quintiles, Inc.        
|            |  |                                                                                                                                                                                
|10.15(12)   |  | Agreement and Plan of Merger, dated as of January 22, 2000, among Quintiles
Transnational Corp., Healtheon/WebMD Corporation, Pine Merger Corp., Envoy
Corp. and QFinance, Inc.
|            |  |                                                                                                                                                                                
|10.16(13)   |  | Settlement Agreement, dated October 12, 2001, between Quintiles
Transnational Corp. and WebMD Corporation.                                                                     

79



---



##### 



|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|--------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit   |  | Description                                                                                                                                                                                                                                                                                                                                                                                                      
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.17(9)  |  | Master Services Agreement dated as of January 1, 2001 between Quintiles
Transnational Corp. and A.M. Pappas & Associates, LLC. [Note: Certain
confidential portions of this exhibit have been omitted as indicated in the
exhibit with an asterisk (*), and filed with the Securities and Exchange
Commission.]                                                                                                  
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.18(5)  |  | Amendment to Executive Employment Agreement, dated March 31, 2003, by and
between James L. Bierman and Quintiles Transnational Corp.                                                                                                                                                                                                                                                                             
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|16.01(14) |  | Letter regarding change in the Companys certifying accountant dated May 17,
2002                                                                                                                                                                                                                                                                                                                                
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|18.01*    |  | Letter regarding change in accounting principle                                                                                                                                                                                                                                                                                                                                                                  
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|21*       |  | Subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                     
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|23.01*    |  | Consent of PricewaterhouseCoopers LLP, dated February 21, 2003                                                                                                                                                                                                                                                                                                                                                   
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|23.02*    |  | Information Regarding the Consent of Arthur Andersen LLP                                                                                                                                                                                                                                                                                                                                                         
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|23.03     |  | Consent of PricewaterhouseCoopers LLP                                                                                                                                                                                                                                                                                                                                                                            
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|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                                                                                                                                                                                                                                                                                           
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|99.01*    |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                           
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|99.02*    |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                           
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|99.03**   |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002 dated April 29, 2003.
Furnished in accordance with the Commissions guidance published in SEC Rel.
No. 34-47551. This exhibit shall not be deemed to be incorporated by
reference into any document or filed herewith for purposes of liability
under the Securities Exchange Act of 1934.
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|99.04**   |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002 dated April 29, 2003.
Furnished in accordance with the Commissions guidance published in SEC Rel.
No. 34-47551. This exhibit shall not be deemed to be incorporated by
reference into any document or filed herewith for purposes of liability
under the Securities Exchange Act of 1934.



---

80



---



##### 





| | *    |  | Previously filed with the Annual Report on Form 10-K for the
fiscal year ended December 31, 2002, filed with the Securities and
Exchange Commission on February 24, 2003.                              
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | **   |  | Previously filed with Amendment No. 1 to the Annual Report on
Form 10-K for the fiscal year ended December 31, 2002, filed with
the Securities and Exchange Commission on April 29, 2003.              
|
| | (1)  |  | Exhibit to our Quarterly Report on Form 10-Q for the period
ended September 30, 1999, as filed with the Securities and Exchange
Commission on November 15, 1999, and incorporated herein by
reference. 
|
| | (2)  |  | Exhibit to our Current Report on Form 8-K dated November 5,
1999, as filed with the Securities and Exchange Commission on
November 5, 1999 and incorporated herein by reference.                       
|
| | (3)  |  | Exhibit to our Registration Statement on Form S-8 as filed
with the Securities and Exchange Commission (File No. 333-92987)
effective December 17, 1999, and incorporated herein by reference.         
|
| | (4)  |  | Exhibit to our Registration Statement on Form 8-A/A,
Amendment No. 1 (File No. 000-23520), as filed with the Securities
and Exchange Commission on May 10, 2000, and incorporated herein by
reference. 
|
| | (5)  |  | Executive compensation plans and arrangements                                                                                                                                                          
|
| | (6)  |  | Exhibit to our Quarterly Report on Form 10-Q for the period
ended March 31, 2001, as filed with the Securities and Exchange
Commission on May 15, 2001, and incorporated herein by reference.          
|
| | (7)  |  | Exhibit to our Registration Statement on Form S-1, as
amended, as filed with the Securities and Exchange Commission (File
No. 33-75766) effective April 20, 1994, and incorporated herein by
reference.
|
| | (8)  |  | Exhibit to our Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, as filed with the Securities and Exchange
Commission on March 30, 2000, and incorporated herein by reference.   
|
| | (9)  |  | Exhibit to our Annual Report on Form 10-K for the fiscal year
ended December 31, 2001, as filed with the Securities and Exchange
Commission on March 22, 2002, and incorporated herein by reference.   
|
| | (10) |  | Exhibit to our Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, as filed with the Securities and Exchange
Commission on March 30, 1998, and incorporated herein by reference.   
|
| | (11) |  | Exhibit to our Current Report on Form 8-K dated March 3,
1999, as filed with the Securities and Exchange Commission on March
3, 1999, and incorporated herein by reference.                            
|
| | (12) |  | Exhibit to our Current Report on Form 8-K, dated January 25,
2000, as filed with the                                                                                                                   

81



---



##### 





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



|(b) |  | Reports on Form 8-K.
|--- |  | --------------------

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

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

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

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

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



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

See (a)(3) above.



|(d) |  | Financial Statements and Schedules.
|--- |  | -----------------------------------

See (a)(2) above.

82



---



##### 



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 26th day of August, 2003.

| |  |                               |  |                                   
| |  | ----------------------------- |  | ----------------------------------
| |  | QUINTILES TRANSNATIONAL CORP.
| |  |                               |  |                                   
| |  | By:                           |  | /s/ Dennis B.
Gillings            
| |  |                               |  |                                   
| |  |                               |  | Dennis B. Gillings, Ph.D.         
| |  |                               |  | Chairman of the Board of Directors

83



---



##### 



EXHIBIT INDEX

|            |  |                                                                                                                                                                                                                                                                                                                                                                
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit     |  | Description                                                                                                                                                                                                                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|3.01(1)     |  | Amended and Restated Articles of Incorporation, as amended                                                                                                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|3.02(2)     |  | Amended and Restated Bylaws, as amended                                                                                                                                                                                                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|4.01        |  | Amended and Restated Articles of Incorporation, as amended (see Exhibit 3.01)                                                                                                                                                                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|4.02        |  | Amended and Restated Bylaws, as amended (see Exhibit 3.02)                                                                                                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|4.03(3)     |  | Specimen certificate for Common Stock, $0.01 par value per share                                                                                                                                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|4.04(4)     |  | Amended and Restated Rights Agreement, dated as of November 5, 1999 and
amended and restated as of May 4, 2000 between Quintiles Transnational Corp.
and First Union National Bank, including form of Articles of Amendment of
Amended and Restated Articles of Incorporation, form of Rights Certificate
and the Summary of Rights to Purchase Preferred Stock
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.01(5)(6) |  | Employment Agreement, dated March 13, 2001, by and between Dr. Pamela J.
Kirby and Quintiles Transnational Corp.                                                                                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.02(5)(7) |  | Employment Agreement, dated February 22, 1994, by and between Dr. Dennis B.
Gillings and Quintiles Transnational Corp.                                                                                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.03(5)(8) |  | Amendment to Contract of Employment, dated October 26, 1999, by and between
Dr. Dennis B. Gillings and Quintiles Transnational Corp.                                                                                                                                                                                                                           
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.04(5)(9) |  | Second Amendment to Contract of Employment, dated April 1, 2002, by and
between Dr. Dennis B. Gillings and Quintiles Transnational Corp.                                                                                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.05(5)(8) |  | Executive Employment Agreement, dated June 16, 1998, by and between James L.
Bierman and Quintiles Transnational Corp.                                                                                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.06(5)(8) |  | Executive Employment Agreement, dated December 3, 1998, by and between John
S. Russell and Quintiles Transnational Corp.                                                                                                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.07(5)(8) |  | Amendment to Executive Employment Agreement, dated October 26, 1999, by and
between John S. Russell and Quintiles Transnational Corp.                                                                                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.08(5)(9) |  | Quintiles Transnational Corp. Equity Compensation Plan, as amended and
restated on January 1, 2001                                                                                                                                                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.09(5)(8) |  | Quintiles Transnational Corp. Elective Deferred Compensation Plan, as
amended and restated                                                                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.10(5)(9) |  | Quintiles Transnational Corp. Nonqualified Stock Option Plan, amended
January 1, 2001                                                                                                                                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                                                                                
|10.11*      |  | Quintiles Transnational Corp. 2002 Stock Option Plan                                                                                                                                                                                                                                                                                                           

84



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##### 



|          |  |                                                                                                                                                                                                                                                                                                                
|--------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit   |  | Description                                                                                                                                                                                                                                                                                                    
|          |  |                                                                                                                                                                                                                                                                                                                
|10.12*    |  | Quintiles Transnational Corp. Special Bonus Plan                                                                                                                                                                                                                                                               
|          |  |                                                                                                                                                                                                                                                                                                                
|10.13(10) |  | Underlease, dated November 28, 1997, by and between PDFM Limited and
Quintiles (UK) Limited and guaranteed by the Company                                                                                                                                                                                      
|          |  |                                                                                                                                                                                                                                                                                                                
|10.14(11) |  | Agreement for the Provision of Research Services and Purchase of Business
Assets, dated as of January 1, 1999, between Hoescht Marion Roussel, Inc.
and Quintiles, Inc.                                                                                                                                        
|          |  |                                                                                                                                                                                                                                                                                                                
|10.15(12) |  | Agreement and Plan of Merger, dated as of January 22, 2000, among Quintiles
Transnational Corp., Healtheon/WebMD Corporation, Pine Merger Corp., Envoy
Corp. and QFinance, Inc.                                                                                                                                
|          |  |                                                                                                                                                                                                                                                                                                                
|10.16(13) |  | Settlement Agreement, dated October 12, 2001, between Quintiles
Transnational Corp. and WebMD Corporation.                                                                                                                                                                                                     
|          |  |                                                                                                                                                                                                                                                                                                                
|10.17(9)  |  | Master Services Agreement dated as of January 1, 2001 between Quintiles
Transnational Corp. and A.M. Pappas & Associates, LLC. [Note: Certain
confidential portions of this exhibit have been omitted as indicated in the
exhibit with an asterisk (*), and filed with the Securities and Exchange
Commission.]
|          |  |                                                                                                                                                                                                                                                                                                                
|10.18(5)  |  | Amendment to Executive Employment Agreement, dated March 31, 2003, by and
between James L. Bierman and Quintiles Transnational Corp.                                                                                                                                                                           
|          |  |                                                                                                                                                                                                                                                                                                                
|16.01(14) |  | Letter regarding change in the Companys certifying accountant dated May 17,
2002                                                                                                                                                                                                                              
|          |  |                                                                                                                                                                                                                                                                                                                
|18.01*    |  | Letter regarding change in accounting principle                                                                                                                                                                                                                                                                
|          |  |                                                                                                                                                                                                                                                                                                                
|21*       |  | Subsidiaries                                                                                                                                                                                                                                                                                                   
|          |  |                                                                                                                                                                                                                                                                                                                
|23.01*    |  | Consent of PricewaterhouseCoopers LLP, dated February 21, 2003                                                                                                                                                                                                                                                 
|          |  |                                                                                                                                                                                                                                                                                                                
|23.02*    |  | Information Regarding the Consent of Arthur Andersen LLP                                                                                                                                                                                                                                                       
|          |  |                                                                                                                                                                                                                                                                                                                
|23.03     |  | Consent of PricewaterhouseCoopers LLP                                                                                                                                                                                                                                                                          
|          |  |                                                                                                                                                                                                                                                                                                                
|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                                                                                                                                                                                         
|          |  |                                                                                                                                                                                                                                                                                                                
|99.01*    |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002                                                                                                                                                                                         

85



---



##### 



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|99.02*  |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|99.03** |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002 dated April 29, 2003.
Furnished in accordance with the Commissions guidance published in SEC Rel.
No. 34-47551. This exhibit shall not be deemed to be incorporated by
reference into any document or filed herewith for purposes of liability
under the Securities Exchange Act of 1934.
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|99.04** |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002 dated April 29, 2003.
Furnished in accordance with the Commissions guidance published in SEC Rel.
No. 34-47551. This exhibit shall not be deemed to be incorporated by
reference into any document or filed herewith for purposes of liability
under the Securities Exchange Act of 1934.



---



| | *   |  | Previously filed with the Annual Report on Form 10-K for the
fiscal year ended December 31, 2002, filed with the Securities and
Exchange Commission on February 24, 2003.                             
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | **  |  | Previously filed with Amendment No. 1 to the Annual Report on
Form 10-K for the fiscal year ended December 31, 2002, filed with
the Securities and Exchange Commission on April 29, 2003.             
|
| | (1) |  | Exhibit to our Quarterly Report on Form 10-Q for the period
ended September 30, 1999, as filed with the Securities and Exchange
Commission on November 15, 1999, and incorporated herein by
reference.
|
| | (2) |  | Exhibit to our Current Report on Form 8-K dated November 5,
1999, as filed with the Securities and Exchange Commission on
November 5, 1999 and incorporated herein by reference.                      
|
| | (3) |  | Exhibit to our Registration Statement on Form S-8 as filed
with the Securities and Exchange Commission (File No. 333-92987)
effective December 17, 1999, and incorporated herein by reference.        
|
| | (4) |  | Exhibit to our Registration Statement on Form 8-A/A,
Amendment No. 1 (File No. 000-23520), as filed with the Securities
and Exchange Commission on May 10, 2000, and incorporated herein by
reference.
|
| | (5) |  | Executive compensation plans and arrangements                                                                                                                                                         
|
| | (6) |  | Exhibit to our Quarterly Report on Form 10-Q for the period
ended March 31, 2001, as filed with the Securities and Exchange
Commission on May 15, 2001, and incorporated herein by reference.         

86



---



##### 





| | (7)  |  | Exhibit to our Registration Statement on Form S-1, as
amended, as filed with the Securities and Exchange Commission (File
No. 33-75766) effective April 20, 1994, and incorporated herein by
reference.
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (8)  |  | Exhibit to our Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, as filed with the Securities and Exchange
Commission on March 30, 2000, and incorporated herein by reference.   
|
| | (9)  |  | Exhibit to our Annual Report on Form 10-K for the fiscal year
ended December 31, 2001, as filed with the Securities and Exchange
Commission on March 22, 2002, and incorporated herein by reference.   
|
| | (10) |  | Exhibit to our Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, as filed with the Securities and Exchange
Commission on March 30, 1998, and incorporated herein by reference.   
|
| | (11) |  | Exhibit to our Current Report on Form 8-K dated March 3,
1999, as filed with the Securities and Exchange Commission on March
3, 1999, and incorporated herein by reference.                            
|
| | (12) |  | Exhibit to our Current Report on Form 8-K, dated January 25,
2000, as filed with the Securities and Exchange Commission on
January 25, 2000, and incorporated herein by reference.                     
|
| | (13) |  | Exhibit to our Quarterly Report on Form 10-Q for the period
ended September 30, 2001, as filed with the Securities and Exchange
Commission on November 1, 2001, and incorporated herein by
reference.  
|
| | (14) |  | Exhibit to our Current Report on Form 8-K dated May 17, 2002,
as filed with the Securities and Exchange Commission on May 22,
2002, and incorporated herein by reference.                              

87