Item 8. Financial Statements and Supplementary Data

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Quintiles IMS Holdings, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016. In making this assessment, management used the framework established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). As a result of this assessment and based on the criteria in the COSO framework, management has concluded that, as of December 31, 2016, the Company’s internal control over financial reporting was effective.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2016 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

/s/ Ari Bousbib				/s/ Michael R. McDonnell
Ari Bousbib Chairman, Chief Executive Officer and President (Principal Executive Officer_)_				Michael R. McDonnell Executive Vice President and Chief Financial Officer (Principal Financial Officer)

February 16, 2017

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Quintiles IMS Holdings, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, cash flows and stockholders’ equity (deficit), present fairly, in all material respects, the financial position of Quintiles IMS Holdings, Inc. and its subsidiaries at December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 15(a)(2) present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedules, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedules, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included 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. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Raleigh, North Carolina

February 16, 2017

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

		Year Ended December 31,
(in millions, except per share data)		2016				2015				2014
Revenues		$	5,364			$	4,326			$	4,165
Reimbursed expenses			1,514				1,411				1,295
Total revenues			6,878				5,737				5,460
Costs of revenue, exclusive of depreciation and amortization			3,236				2,705				2,664
Costs of revenue, reimbursed expenses			1,514				1,411				1,295
Selling, general and administrative expenses			1,011				815				781
Depreciation and amortization			289				128				121
Restructuring costs			71				30				9
Merger related costs			87				—				—
Impairment charges			28				2				—
Income from operations			642				646				590
Interest income			(4	)			(4	)			(4	)
Interest expense			144				101				101
Loss on extinguishment of debt			31				8				—
Other (income), expense net			(8	)			2				(8	)
Income before income taxes and equity in (losses) earnings of unconsolidated affiliates			479				539				501
Income tax expense			345				159				149
Income before equity in (losses) earnings of unconsolidated affiliates			134				380				352
Equity in (losses) earnings of unconsolidated affiliates			(4	)			8				5
Net income			130				388				357
Net (income) loss attributable to non-controlling interests			(15	)			(1	)			—
Net income attributable to Quintiles IMS Holdings, Inc.		$	115			$	387			$	357
Earnings per share attributable to common stockholders:
Basic		$	0.77			$	3.15			$	2.78
Diluted		$	0.76			$	3.08			$	2.72
Weighted average common shares outstanding:
Basic			149.1				123.0				128.0
Diluted			152.0				125.6				131.1

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

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

		Year Ended December 31,
(in millions)		2016				2015				2014
Net income		$	130			$	388			$	357
Comprehensive income adjustments:
Unrealized (losses) gains on available-for-sale securities			—				—				(1	)
Unrealized (losses) gains on derivative instruments, net of income taxes of $3, ($4) and ($2)			(7	)			(9	)			(5	)
Defined benefit plan adjustments, net of income taxes of $11, $— and ($3)			23				—				(7	)
Foreign currency translation, net of income taxes of $(9), ($5) and ($2)			(513	)			(60	)			(48	)
Reclassification adjustments:
Gains on marketable securities included in net income, net of income taxes of $—, $— and ($2)			—				—				(3	)
Losses on derivative instruments included in net income, net of income taxes of $7, $6 and $4			21				12				5
Amortization of actuarial losses and prior service costs included in net income			1				1				—
Comprehensive (loss) income			(345	)			332				298
Comprehensive loss (income) attributable to non-controlling interests			1				3				—
Comprehensive (loss) income attributable to Quintiles IMS Holdings, Inc.		$	(344	)		$	335			$	298

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

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		December 31,
(in millions, except per share data)		2016				2015
ASSETS
Current assets:
Cash and cash equivalents		$	1,198			$	977
Trade accounts receivable and unbilled services, net			1,707				1,166
Prepaid expenses			123				51
Deferred income taxes			—				101
Income taxes receivable			34				34
Investments in debt, equity and other securities			40				—
Other current assets and receivables			235				83
Total current assets			3,337				2,412
Property and equipment, net			406				188
Investments in debt, equity and other securities			13				33
Investments in unconsolidated affiliates			69				52
Goodwill			10,727				720
Other identifiable intangibles, net			6,390				368
Deferred income taxes			89				43
Deposits and other assets			177				110
Total assets		$	21,208			$	3,926
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable		$	250			$	145
Accrued expenses			1,493				761
Unearned income			774				585
Income taxes payable			76				35
Current portion of long-term debt and obligations held under capital leases			92				49
Other current liabilities			20				19
Total current liabilities			2,705				1,594
Long-term debt and obligations held under capital leases, less current portion			7,108				2,419
Deferred income taxes			2,133				66
Other liabilities			402				183
Total liabilities			12,348				4,262
Commitments and contingencies (Note 1)
Stockholders’ equity (deficit):
Common stock and additional paid-in capital, 400.0 and 300.0 shares authorized at December 31, 2016 and 2015, respectively, $0.01 par value, 248.3 and 119.4 shares issued and outstanding at December 31, 2016 and 2015, respectively			10,602				9
Accumulated deficit			(399	)			(462	)
Treasury stock, at cost, 12.9 shares at December 31, 2016			(1,000	)			—
Accumulated other comprehensive loss			(570	)			(111	)
Equity (deficit) attributable to Quintiles IMS Holdings, Inc.’s stockholders			8,633				(564	)
Non-controlling interests			227				228
Total stockholders’ equity (deficit)			8,860				(336	)
Total liabilities and stockholders’ equity (deficit)		$	21,208			$	3,926

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

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year Ended December 31,
(in millions)		2016				2015				2014
Operating activities:
Net income		$	130			$	388			$	357
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization			289				128				121
Amortization of debt issuance costs and discount			30				9				7
Amortization of accumulated other comprehensive loss on terminated interest rate swaps			3				8				—
Stock-based compensation			80				38				30
Impairment of goodwill, identifiable intangible and long-lived assets			28				2				—
Gain on disposals of property and equipment, net			(1	)			(1	)			(1	)
Loss (Earnings) from unconsolidated affiliates			8				(8	)			(4	)
(Gain) Loss on investments, net			(13	)			1				(5	)
Provision for (benefit from) deferred income taxes			135				18				(6	)
Excess income tax benefits from stock-based award activities			(41	)			(39	)			(20	)
Changes in operating assets and liabilities:
Accounts receivable and unbilled services			(62	)			(246	)			(79	)
Prepaid expenses and other assets			(8	)			15				(41	)
Accounts payable and accrued expenses			160				104				46
Unearned income			52				54				20
Income taxes payable and other liabilities			70				5				8
Net cash provided by operating activities			860				476				433
Investing activities:
Acquisition of property, equipment and software			(164	)			(78	)			(83	)
Net cash assumed from (paid for) acquisition of businesses			1,887				32				(92	)
Purchase of trading securities			(40	)			—				—
Proceeds from corporate owned life insurance policies			21				—				—
Proceeds from sale of equity securities			41				—				6
Investments in unconsolidated affiliates, net of payments received			(17	)			(12	)			(4	)
Termination of interest rate swaps			—				(11	)			—
Other			3				2				—
Net cash provided by (used in) investing activities			1,731				(67	)			(173	)
Financing activities:
Proceeds from issuance of debt			466				2,249				275
Payment of debt issuance costs			(7	)			(22	)			(1	)
Repayment of debt			(1,949	)			(2,057	)			(30	)
Proceeds from revolving credit facility			172				—				150
Repayment of revolving credit facility			—				—				(150	)
Principal payments on capital lease obligations			(2	)			(4	)			(3	)
Payment of contingent consideration			(5	)			(3	)			(3	)
Stock issued under employee stock purchase and option plans			97				64				35
Repurchase of common stock			(1,097	)			(515	)			(415	)
Repurchase of stock options			—				—				(8	)
Excess income tax benefits from stock-based award activities			41				39				20
Net cash used in financing activities			(2,284	)			(249	)			(130	)
Effect of foreign currency exchange rate changes on cash			(86	)			(50	)			(40	)
Increase in cash and cash equivalents			221				110				90
Cash and cash equivalents at beginning of period			977				867				777
Cash and cash equivalents at end of period		$	1,198			$	977			$	867

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

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in millions)		Common Stock Shares				Treasury Stock Shares				Common Stock				Additional Paid-In Capital				Accumulated Deficit				Treasury Stock				Accumulated Other Comprehensive (Loss) Income				Non- controlling Interests				Total
Balance, December 31, 2013			129.6				—			$	1			$	477			$	(1,145	)		$	—			$	—			$	—			$	(667	)
Issuance of common stock			2.1				—				—				35				—				—				—				—				35
Repurchase of common stock			(7.6	)			—				—				(415	)			—				—				—				—				(415	)
Stock-based compensation			—				—				—				26				—				—				—				—				26
Income tax benefits from stock-based award activities			—				—				—				20				—				—				—				—				20
Net income			—				—				—				—				357				—				—				—				357
Unrealized loss on marketable securities, net of tax			—				—				—				—				—				—				(1	)			—				(1	)
Unrealized loss on derivative instruments, net of tax			—				—				—				—				—				—				(5	)			—				(5	)
Defined benefit plan adjustments, net of tax			—				—				—				—				—				—				(7	)			—				(7	)
Foreign currency translation, net of tax			—				—				—				—				—				—				(48	)			—				(48	)
Reclassification adjustments, net of tax			—				—				—				—				—				—				2				—				2
Balance, December 31, 2014			124.1				—				1				143				(788	)			—				(59	)			—				(703	)
Issuance of common stock			3.1				—				—				65				—				—				—				—				65
Repurchase of common stock			(7.8	)			—				—				(455	)			(61	)			—				—				—				(516	)
Stock-based compensation			—				—				—				31				—				—				—				—				31
Income tax benefits from stock-based award activities			—				—				—				39				—				—				—				—				39
Q2 Solutions business combination			—				—				—				423				—				—				—				—				423
Non-controlling interest related to Q2 Solutions transaction			—				—				—				(231	)			—				—				—				231				—
Deferred tax impact of the Q2 Solutions transaction			—				—				—				(7	)			—				—				—				—				(7	)
Net income			—				—				—				—				387				—				—				1				388
Unrealized loss on derivative instruments, net of tax			—				—				—				—				—				—				(9	)			—				(9	)
Foreign currency translation, net of tax			—				—				—				—				—				—				(56	)			(4	)			(60	)
Reclassification adjustments, net of tax			—				—				—				—				—				—				13				—				13
Balance, December 31, 2015			119.4				—				1				8				(462	)			—				(111	)			228				(336	)
Issuance of common stock			130.4				—				1				10,522				—				—				—				—				10,523
Repurchase of common stock before October 3, 2016			(1.5	)			—				—				(46	)			(52	)			—				—				—				(98	)
Repurchase of common stock on or after October 3, 2016			—				(12.9	)			—				—				—				(1,000	)			—				—				(1,000	)
Stock-based compensation			—				—				—				76				—				—				—				—				76
Income tax benefits from stock-based award activities			—				—				—				41				—				—				—				—				41
Investment by non-controlling interest			—				—				—				(1	)			—				—				—				—				(1	)
Net income			—				—				—				—				115				—				—				15				130
Unrealized gain on derivative instruments, net of tax			—				—				—				—				—				—				(7	)			—				(7	)
Defined benefit plan adjustments, net of tax			—				—				—				—				—				—				23				—				23
Foreign currency translation, net of tax			—				—				—				—				—				—				(497	)			(16	)			(513	)
Reclassification adjustments, net of tax			—				—				—				—				—				—				22				—				22
Balance, December 31, 2016			248.3				(12.9	)		$	2			$	10,600			$	(399	)		$	(1,000	)		$	(570	)		$	227			$	8,860

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

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

The Company

Conducting business in more than 100 countries with over 50,000 employees, Quintiles IMS Holdings, Inc. (together with its subsidiaries, the “Company” or “QuintilesIMS”) is a leading integrated information and technology-enabled healthcare service provider worldwide, dedicated to helping its clients improve their clinical, scientific and commercial results.

On October 3, 2016, Quintiles Transnational Holdings Inc. (“Quintiles”) completed its previously announced merger of equals transaction (the “Merger”) with IMS Health Holdings, Inc. (“IMS Health”). Pursuant to the terms of the merger agreement dated as of May 3, 2016 between Quintiles and IMS Health (the “Merger Agreement”), IMS Health was merged with and into Quintiles, and the separate corporate existence of IMS Health ceased, with Quintiles continuing as the surviving corporation (the “Surviving Corporation”). Immediately prior to the completion of the Merger, Quintiles reincorporated as a Delaware corporation. The Surviving Corporation changed its name to Quintiles IMS Holdings, Inc. At the effective time of the Merger, each issued and outstanding share of IMS Health common stock, par value $0.01 per share (“IMS Health common stock”), was automatically converted into 0.3840 of a share of the Company’s common stock, par value $0.01 per share. In addition, immediately following the effective time of the Merger, Quintiles Transnational Corp (“Quintiles Corp.”), a direct subsidiary of Quintiles, was merged with and into IMS Health Incorporated, following which IMS Health Incorporated will continue as a direct, wholly-owned subsidiary of the Surviving Corporation. See Note 15 for additional information regarding the Merger.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current presentation, including the reclassification of depreciation and amortization from costs of revenue and selling, general and administrative expenses to a separate caption on the accompanying consolidated statements of income. These changes had no effect on previously reported total revenues, net income, comprehensive income, stockholders’ deficit or cash flows.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts and operations of the Company, its subsidiaries and investments in which the Company has control. Amounts pertaining to the non-controlling ownership interests held by third parties in the operating results and financial position of the Company’s majority-owned subsidiaries are reported as non-controlling interests. Intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities, at the date of the financial statements, as well as the reported amounts of revenues and expenses during the period. These estimates are based on historical experience and various other assumptions believed reasonable under the circumstances. The Company evaluates its estimates on an ongoing basis and makes changes to the estimates and related disclosures as experience develops or new information becomes known. Actual results may differ from those estimates.

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

Foreign Currencies

The Company’s financial statements are reported in United States dollars and, accordingly, the Company’s results of operations are impacted by fluctuations in exchange rates that affect the translation of its revenues and expenses denominated in foreign currencies into United States dollars for purposes of reporting its consolidated financial results. 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 translated at average rates of exchange during the year. Translation adjustments resulting from this process are charged or credited to the accumulated other comprehensive income (loss) (“AOCI”) component of stockholders’ equity (deficit). The Company is subject to foreign currency transaction risk for fluctuations in exchange rates during the period of time between the consummation and cash settlement of a transaction. The Company earns revenue from its service contracts over a period of several months and, in some cases, over a period of several years. Accordingly, exchange rate fluctuations during this period may affect the Company’s profitability with respect to such contracts.

For operations in countries that are considered to be highly inflationary or where the United States Dollar is designated as the functional currency, monetary assets and liabilities are remeasured using end-of-period exchange rates, whereas non-monetary accounts are remeasured using historical exchange rates, and all remeasurement and transaction adjustments are recognized in other expense (income), net. Other expense (income), net, includes foreign currency net losses (gains) for 2016, 2015 and 2014 of approximately $6 million, ($5) million and $5 million, respectively.

Cash Equivalents

The Company considers all highly liquid investments with an initial maturity of three months or less when purchased to be cash equivalents.

Investments in Marketable Securities

Investments in marketable securities are classified as either trading or available-for-sale and measured at fair market value. Realized and unrealized gains and losses on trading securities are included in other expense (income), net, on the accompanying consolidated statements of income. Realized gains and losses on available-for-sale securities are included in other expense (income), net, on the accompanying consolidated statements of income. Unrealized gains and losses, net of deferred income taxes, on available-for-sale securities are included in the AOCI component of stockholders’ equity (deficit) until realized. Any gains or losses from the sales of investments or other-than-temporary declines in fair value are computed by specific identification.

Equity Method Investments

The Company’s investments in and advances to unconsolidated affiliates are accounted for under the equity method if the Company exercises significant influence or has an investment in a limited partnership that is considered to be greater than minor. These investments and advances are classified as investments in and advances to unconsolidated affiliates on the accompanying consolidated balance sheets. The Company records its pro rata share of the earnings, adjusted for accretion of basis difference, of these investments in equity in earnings of unconsolidated affiliates on the accompanying consolidated statements of income. The Company reviews its investments in and advances to unconsolidated affiliates for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

Derivatives

The Company uses derivative instruments to manage exposures to interest rates and foreign currencies. Derivatives are recorded on the balance sheet at fair value at each balance sheet date utilizing pricing models for non-exchange-traded contracts. At inception, 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 AOCI until realized. The Company includes the impact from these hedges in the same line item as the hedged item on the consolidated statements of cash flows. 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 hedged item. Hedge ineffectiveness, if any, is immediately recognized in earnings. Changes in the fair values of derivative instruments that are not an effective hedge are recognized in earnings. When it is probable that a hedged forecasted transaction will not occur, the Company discontinues hedge accounting for the affected portion of the forecasted transaction, and reclassifies gains or losses that were accumulated in AOCI to earnings in other expense (income), net for foreign exchange derivatives and interest expense for interest rate derivatives on the consolidated statements of income. Cash flows are classified consistent with the underlying hedged item. The Company has entered, and may in the future enter, into derivative contracts (caps, swaps, forwards, calls or puts, warrants, for example) related to its debt, investments in marketable equity securities and forecasted foreign currency transactions.

Billed and Unbilled Services and Unearned Income

In general, prerequisites for billings and payments are established by contractual provisions including predetermined payment schedules, which may or may not correspond to the timing of the performance of services under the contract. Unbilled services arise when services have been rendered for which revenue has been recognized but the clients have not been billed.

In some cases, payments received are in excess of revenue recognized. Payments received in advance of services being provided are deferred as unearned income on the consolidated balance sheet. As the contracted services are subsequently performed and the associated revenue is recognized, the unearned income balance is reduced by the amount of the revenue recognized during the period.

Allowance for Doubtful Accounts

The Company’s allowance for doubtful accounts is determined based on a variety of factors that affect the potential collectability of the related receivables, including length of time the receivables are past due, client credit ratings, financial stability of the client, specific one-time events and past client history. In addition, in circumstances where the Company is made aware of a specific client’s inability to meet its financial obligations, a specific allowance is established. The accounts are individually evaluated on a regular basis and reserves are established as deemed appropriate based on the above criteria.

Receivables Financing Facility

Advances received under the Company’s receivables financing facility are accounted for as borrowings secured by the receivables and included in net cash provided by financing activities. The Company services the collateralized accounts receivable and the cash flows for the underlying receivables are included in cash provided by operating activities. The collateralized accounts receivable are included in trade accounts receivable and unbilled services, net.

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

Business Combinations

Business combinations are accounted for using the acquisition method of accounting. The identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree are recorded at their estimated fair values on the date of the acquisition. Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired, including the amount assigned to identifiable intangible assets. When a business combination involves contingent consideration, the Company recognizes a liability equal to the estimated fair value of the contingent consideration obligation at the date of the acquisition. Subsequent changes in the estimated fair value of the contingent consideration are recognized in earnings in the period of the change. Acquisition-related costs are expensed as incurred. The consolidated financial statements include the results of operations of business combinations since the acquisition date.

Long-Lived Assets

Property and equipment are stated at cost and are depreciated using the straight-line method over the shorter of the asset’s estimated useful life or the lease term, if related to leased property, as follows:

Buildings and leasehold improvements		3 - 40 years
Equipment		3 - 10 years
Furniture and fixtures		5 - 10 years
Motor vehicles		3 - 5 years

Definite-lived identifiable intangible assets are amortized primarily using an accelerated method that reflects the pattern in which the Company expects to benefit from the use of the asset over its estimated remaining useful life as follows:

Trademarks and trade names		2 - 10 years
Contract backlog and client relationships		3 - 25 years
Software and related assets		2 - 9 years
Databases		1 - 5 years
Non-compete agreements and other		1 - 5 years

Goodwill and indefinite-lived identifiable intangible assets, which consist of certain trade names, are not amortized but evaluated for impairment annually, or more frequently if events or changes in circumstances indicate an impairment.

Included in software and related items is the capitalized cost of internal-use software used in supporting the Company’s business. Qualifying costs incurred during the application development stage are capitalized and amortized over their estimated useful lives. Costs are capitalized from completion of the preliminary project stage and when it is considered probable that the software will be used to perform its intended function, up until the time the software is placed into service. The Company recognized $44 million, $38 million and $33 million of amortization expense in 2016, 2015 and 2014, respectively, related to software and related assets.

The carrying values of property, equipment and intangible and other long-lived assets are reviewed for recoverability 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 flow

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projections, the Company will record an impairment charge to reduce carrying values to estimated fair value. See Note 17 for information regarding the impairment charge recognized in 2016. During 2015, the Company recognized a $2 million impairment charge for long-lived assets related to a facility closure in Japan. There were no events, facts or circumstances in 2014 that resulted in any impairment charges to the Company’s property, equipment, intangible or other long-lived assets.

Revenue Recognition

The Company recognizes revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service offering has been delivered to the client; (3) the collection of the fees is probable; and (4) the arrangement consideration is fixed or determinable. The Company’s arrangements are primarily service contracts that range in duration from a few months to several years.

In some cases, contracts provide for consideration that is contingent upon the occurrence of uncertain future events. The Company recognizes contingent revenue when the contingency has been resolved and all other criteria for revenue recognition have been met. The Company treats cash payments to clients as incentives to induce the clients to enter into such a service agreement with the Company. The related asset is amortized as a reduction of revenue over the period the services are performed. The Company records revenues net of any tax assessments by governmental authorities, such as value added taxes, that are imposed on and concurrent with specific revenue generating transactions. The Company does not recognize revenue with respect to start-up activities including contract and scope negotiation, feasibility analysis and conflict of interest review associated with contracts. The costs for these activities are expensed as incurred.

For the arrangements that include multiple elements, arrangement consideration is allocated to units of accounting based on the relative selling price. The best evidence of selling price of a unit of accounting is vendor-specific objective evidence (“VSOE”), which is the price the Company charges when the deliverable is sold separately. When VSOE is not available to determine selling price, management uses relevant third-party evidence (“TPE”) of selling price, if available. When neither VSOE nor TPE of selling price exists, management uses its best estimate of selling price considering all relevant information that is available without undue cost and effort.

The Company derives the majority of its revenues in the Commercial Solutions segment from various information and technology service offerings. A typical information offerings arrangement (primarily under fixed-price contracts) may include an ongoing subscription-based deliverable for which revenue is recognized ratably as earned over the contract period, and/or a one-time delivery of data offerings for which revenue is recognized upon delivery, assuming all other criteria are met. The Company’s subscription arrangements typically have terms ranging from one to three years and are generally non-cancelable and do not contain refund-type provisions. Technology services offerings consist of a mix of small and large-scale services and consulting projects, multi-year outsourcing contracts and Software-as-a-Service (“SaaS”) licenses. These arrangements typically have terms ranging from several weeks to three years, with a majority having terms of one year or less. Revenues for services engagements where deliverables occur ratably over time are recognized on a straight-line basis over the term of the arrangement. Revenues from time and material contracts are recognized as the services are provided. Revenues from fixed price ad hoc services and consulting contracts are recognized either over the contract term based on the ratio of the number of hours incurred for services provided during the period compared to the total estimated hours to be incurred over the entire arrangement (efforts based), or upon delivery (completed contract).

The majority of the Company’s contracts within the Research & Development Solutions segment are service contracts for clinical research that represent a single unit of accounting. The Company recognizes

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Notes to Consolidated Financial Statements - Continued

revenue on its clinical research services contracts as services are performed primarily on a proportional performance basis, generally using output measures that are specific to the service provided. Examples of output measures include among others, number of investigators enrolled, number of site initiation visits and number of monitoring visits completed. Revenue is determined by dividing the actual units of work completed by the total units of work required under the contract and multiplying that ratio by the total contract value. The total contract value, or total contractual payments, represents the aggregate contracted price for each of the agreed upon services to be provided. Changes in the scope of work are common, especially under long-term contracts, and generally result in a change in contract value. Once the client has agreed to the changes in scope and renegotiated pricing terms, the contract value is amended and revenue is recognized, as described above. To the extent that contracts involve multiple elements, the Company follows the allocation methodology described above and recognizes revenue for each unit of accounting on a proportional performance basis. Most contracts may be terminated upon 30 to 90 days notice by the client, however, in the event of termination, contract provisions typically require payment for services rendered through the date of termination, as well as for subsequent services rendered to close out the contract.

The Company derives the majority of its revenues in its Integrated Engagement Services segment on a fee-for-service basis to clients within the biopharmaceutical industry. Fees on these arrangements are billed based on a contractual per-diem or hourly rate basis and revenue is recognized primarily on a time and materials basis. Some of the Company’s Integrated Engagement Services contracts are multiple element arrangements, with elements including recruiting, training and deployment of sales representatives. The nature of the terms of these multiple element arrangements will vary based on the customized needs of the Company’s clients. For contracts that have multiple elements, the Company follows the allocation methodology described above and recognizes revenue for each unit of accounting on a time and materials basis. The Company’s Integrated Engagement Services contracts sometimes include variable fees that are based on a percentage of service sales (royalty payments). The Company recognizes revenue on royalty payments when the variable components become fixed or determinable and all other revenue recognition criteria have been met, which generally only occurs upon the sale of the underlying service(s) and upon the Company’s receipt of information necessary to make a reasonable estimate.

Reimbursed Expenses

The Company includes reimbursed expenses in total revenues and costs of revenue as the Company is deemed to be the primary obligor in the applicable arrangements. These costs include such items as payments to investigators and travel expenses for the Company’s clinical monitors and sales representatives.

The Company has collection risk on contractually reimbursable expenses, and, from time to time, is unable to obtain reimbursement from the client for costs incurred. When such an expense is not reimbursed, it is classified as costs of revenue on the consolidated statements of income.

Expenses

Our costs and expenses are comprised primarily of our costs of revenue, reimbursed expenses and selling, general and administrative expenses. Costs of revenue include compensation and benefits for billable employees and personnel involved in production, data management and delivery, and the costs of acquiring and processing data for our information offerings; costs of staff directly involved with delivering technology-related services offerings and engagements, related accommodations and the costs of data purchased specifically for technology services engagements; and other expenses directly related to service contracts such as courier fees, laboratory supplies, professional services and travel expenses. As noted above, reimbursed expenses are comprised principally of payments to investigators who oversee clinical trials and travel expenses for our clinical monitors

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

and sales representatives. Selling, general and administrative expenses include costs related to sales, marketing, and administrative functions (including human resources, legal, finance and general management) for compensation and benefits, travel, professional services, training and expenses for information technology (“IT”), facilities and depreciation and amortization.

Concentration of Credit Risk

Financial instruments that subject the Company to credit risk primarily consist of cash and cash equivalents, marketable securities and accounts receivable. The Company maintains its cash and cash equivalent balances with high-quality financial institutions and, consequently, the Company believes that such funds are subject to minimal credit risk. Investment policies have been implemented that limit purchases of marketable securities to investment grade securities. Substantially all revenues for Commercial Solutions, Research & Development Solutions and Integrated Engagement Services 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 clients. The Company does not require collateral or other securities to support client receivables. Credit losses have been immaterial and reasonably within management’s expectations. No client accounted for 10.0% or more of consolidated revenues in 2016, 2015 or 2014.

Restructuring Costs

Restructuring costs, which primarily include termination benefits and facility closure costs, are recorded at estimated fair value. Key assumptions in determining the restructuring costs include the terms and payments that may be negotiated to terminate certain contractual obligations and the timing of employees leaving the Company.

Merger Related Costs

Merger related costs include the direct and incremental costs associated with business combinations including (i) acquisition related costs such as investment banking, legal, accounting and consulting fees (see Footnote 15), (ii) incremental compensation costs triggered under change in control provisions in executive employment agreements, (iii) compensation and related costs of employees 100% dedicated to merger-related integration activities and (iv) severance and other termination costs associated with redundant employees. During 2016, the Company recognized $87 million of merger related costs, which includes $36 million of acquisition related costs. All of these costs are related to the merger with IMS Health. Merger related costs for all other business combinations have been immaterial and are included within selling, general and administrative expenses on the consolidated statements of income.

Legal Costs

Legal costs are expensed as incurred.

Debt Fees

Fees incurred to issue debt are generally deferred and amortized as a component of interest expense over the estimated term of the related debt using the effective interest rate method.

Contingencies

The Company records accruals for claims, suits, investigations and proceedings when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company reviews claims,

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Notes to Consolidated Financial Statements - Continued

suits, investigations and proceedings at least quarterly and records or adjusts accruals related to such matters to reflect the impact and status of any settlements, rulings, advice of counsel or other information pertinent to a particular matter. Legal costs associated with contingencies are charged to expense as incurred.

The Company is party to legal proceedings incidental to its business. While the outcome of these matters could differ from management’s expectations, the Company does not believe the resolution of these matters has a reasonable possibility of having a material adverse effect to the Company’s financial statements.

Income Taxes

Income tax expense includes United States federal, state and international income taxes. Certain items of income and expense are not reported in income tax returns and GAAP financial statements in the same year. The income tax effects of these differences are reported as deferred income taxes. Valuation allowances are provided to reduce the related deferred income tax assets to an amount which will, more likely than not, be realized. In addition, the Company does not consider the undistributed foreign earnings of most of its foreign subsidiaries to be permanently reinvested. To the extent undistributed foreign earnings are not permanently reinvested, the Company records deferred income taxes on these earnings. Interest and penalties related to unrecognized income tax benefits are recognized as a component of income tax expense as discussed further in Note 18.

Pensions and Other Postretirement Benefits

The Company provides retirement benefits to certain employees, including defined benefit pension plans and postretirement medical plans. The determination of benefit obligations and expense is based on actuarial models. In order to measure benefit costs and obligations using these models, critical assumptions are made with regard to the discount rate, expected return on plan assets, cash balance crediting rate, lump sum conversion rate and the assumed rate of compensation increases. In addition, retiree medical care cost trend rates are a key assumption used exclusively in determining costs for the Company’s postretirement health care and life insurance benefit plans. Management reviews these critical assumptions at least annually. Other assumptions involve demographic factors such as the turnover, retirement and mortality rates. Management reviews these assumptions periodically and updates them when their experience deems it appropriate to do so.

The discount rate is the rate at which the benefit obligations could be effectively settled and is determined annually by management. For United States plans, the discount rate is based on results of a modeling process in which the plans’ expected cash flow (determined on a projected benefit obligation basis) is matched with spot rates developed from a yield curve comprised of high-grade (Moody’s Aa and above, or Standard and Poor’s AA and above) non-callable corporate bonds to develop the present value of the expected cash flow, and then determining the single rate (discount rate) which when applied to the expected cash flow derives that same present value. In the United Kingdom specifically, the discount rate is set based on the yields on a universe of high quality non-callable corporate bonds denominated in the British Pound, appropriate to the duration of plan liabilities. For the non-United States plans, the discount rate is based on the current yield of an index of high quality corporate bonds.

The Company estimates the service and interest cost components of net periodic benefit cost for our United States and United Kingdom pension benefit plans by utilizing a full yield curve approach in the estimation of these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to each of the underlying projected cash flows based on time until payment.

Under the United States qualified retirement plan, participants have a notional retirement account that increases with pay and investment credits. The rate used to determine the investment credit (cash balance crediting rate) varies monthly. At retirement, the account is converted to a monthly retirement benefit.

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Notes to Consolidated Financial Statements - Continued

In selecting an expected return on plan asset assumption, the Company considers the returns being earned by each plan investment category in the fund, the rates of return expected to be available for reinvestment and long-term economic forecasts for the type of investments held by the plan. The actual return on plan assets will vary from year to year versus this assumption. The Company believes it is appropriate to use long-term expected forecasts in selecting the expected return on plan assets. As such, there can be no assurance that the Company’s actual return on plan assets will approximate the long-term expected forecasts. While the Company believes that the assumptions used are reasonable, differences in actual experience or changes in assumptions may materially affect its pension and postretirement benefit obligations and future expense.

The Company’s estimated long-term rate of return on plan assets is based on the principles of capital market theory which maintain that over the long run, prudent investment risk taking is rewarded with incremental returns and that combining non-correlated assets can maximize risk adjusted portfolio returns. Long-term return estimates are developed by asset category based on actual class return data, historical relationships between asset classes and risk factors and peer plan data. Long-term return estimates for the Company’s United Kingdom pension plans are developed by asset category based on actual class return data, historical relationships between asset classes and risk factors.

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

Employee Stock Compensation

The Company accounts for stock-based compensation for stock options and stock appreciation rights under the fair value method and uses the Black-Scholes-Merton model to estimate the value of such stock-based awards granted to its employees and non-executive directors. Expected volatility is based upon the historical volatility of a peer group for a period equal to the expected term, as the Company does not have adequate history to calculate its own volatility and believes the expected volatility will approximate the historical volatility of the peer group. The Company does not currently anticipate paying dividends. The expected term represents the period of time the grants are expected to be outstanding. The risk-free interest rate is based on the United States Treasury yield curve in effect at the time of the grant.

The Company accounts for its stock-based compensation for restricted stock awards, restricted stock units and performance awards based on the closing market price of the Company’s common stock on the date of grant.

Earnings Per Share

The calculation of earnings per share is based on the weighted average number of common shares or common stock equivalents outstanding during the applicable period. The dilutive effect of common stock equivalents is excluded from basic earnings per share and is included in the calculation of diluted earnings per share. Potentially dilutive securities include outstanding stock options and unvested restricted stock units, restricted stock and performance shares.

Employee equity share options, restricted stock units, restricted stock, performance shares and similar equity instruments granted by the Company are treated as potential common shares outstanding in computing diluted earnings per share. Diluted shares outstanding are calculated based on the average share price for each

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Notes to Consolidated Financial Statements - Continued

fiscal period using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of benefits that would be recorded in additional paid-in capital when the award becomes deductible for tax purposes are assumed to be used to repurchase shares.

Treasury Stock

The Company records treasury stock purchases under the cost method. Upon reissuance of treasury stock, amounts in excess of the acquisition cost are credited to additional paid in capital. If the Company reissues treasury stock at an amount below its acquisition cost and additional paid in capital associated with prior treasury stock transactions is insufficient to cover the difference between the acquisition cost and the reissue price, this difference is recorded in retained earnings.

Recently Issued Accounting Standards

Accounting pronouncement adopted

In November 2015, the United States Financial Accounting Standards Board (“FASB”) issued new accounting guidance which removed the requirement that deferred income tax assets and liabilities be classified as either current or non-current in a classified statement of financial position and instead requires deferred income tax assets and liabilities to be classified as non-current. The Company adopted this new accounting guidance prospectively on January 1, 2016.

Accounting pronouncements being evaluated

In August 2016, the FASB issued new accounting guidance which eliminates the diversity in practice related to the cash flow classification of certain cash receipts and payments, including debt prepayment or extinguishment payments, payments upon maturity of a zero coupon bond, payment of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions received from certain equity method investees, and cash flows related to beneficial interests obtained in a financial asset securitization. The new guidance designates the appropriate cash flow statement classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities. This new accounting guidance will be effective for the Company on January 1, 2018. Early adoption is permitted. The Company is currently evaluating the impact of this new accounting guidance on its consolidated financial statements.

In March 2016, the FASB issued new accounting guidance which simplifies several aspects of the accounting for employee stock-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding requirements, and the classification of excess income tax benefits on the statement of cash flows. The Company will adopt this new accounting guidance as required on January 1, 2017. Under the new accounting guidance, excess income tax benefits related to stock-based awards will be reflected as a reduction of income tax expense on the statements of income and as cash provided from operating activities on the statements of cash flows. Under existing guidance, these tax benefits are reflected directly in additional paid-in capital and as cash provided from financing activities. The Company recognized $41 million of such income tax benefits in 2016. The Company does not expect the adoption of this new accounting guidance to impact the recognition of its stock-based compensation expense or its presentation of cash flows related to employee taxes paid for withheld shares.

In February 2016, the FASB issued new accounting guidance which requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. The income statement will reflect lease

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

expense for operating leases, and amortization and interest expense for financing leases. The new accounting guidance will be effective for annual reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of this new accounting guidance on its consolidated financial statements.

In January 2016, the FASB issued new accounting guidance which modifies how entities measure equity investments and present changes in the fair value of financial liabilities. The new accounting guidance will be effective for annual reporting periods beginning after December 15, 2017. Early adoption of the presentation guidance is permitted; however, early adoption of the recognition and measurement guidance is not permitted. The adoption of this new accounting guidance is not expected to have a material effect on the Company’s consolidated financial statements.

In May 2014, the FASB and the International Accounting Standards Board issued a converged standard on the recognition of revenue from contracts with clients. The objective of the new standard is to establish a single comprehensive revenue recognition model that is designed to create greater comparability of financial statements across industries and jurisdictions. Under the new standard, companies will recognize revenue to depict the transfer of goods or services to clients in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard also will require expanded disclosures on revenue recognition, including information about changes in assets and liabilities that result from contracts with clients. The new standard allows for either a retrospective or prospective approach to transition upon adoption. The new standard will be effective for annual reporting periods beginning after December 15, 2017. Early adoption is permitted for annual reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact of this new accounting guidance on its consolidated financial statements, the date of adoption and the transition approach to implement the new standard.

2. Accounts Receivable and Unbilled Services

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

		December 31,
		2016				2015
Trade:
Billed		$	998			$	554
Unbilled services			723				614
			1,721				1,168
Allowance for doubtful accounts			(14	)			(2	)
		$	1,707			$	1,166

3. Investments – Debt, Equity and Other Securities

Current

The Company’s short-term investments in debt, equity and other securities consist primarily of trading investments in mutual funds that are measured at fair value with realized and unrealized gains and losses recorded in other expense (income), net, on the accompanying consolidated statements of income. Net realized and unrealized gains were approximately $3 million during the year ended December 31, 2016.

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Long-term

The Company’s long-term investments in debt, equity and other securities consist primarily of cost method investments.

The Company is party to a joint venture with the Samsung Group to provide biopharmaceutical contract manufacturing services in South Korea. The Company’s investment in the joint venture totaled $27 million at December 31, 2015. During the second quarter of 2016, the Company exercised its right to sell a portion of its ownership interest in the joint venture to the Samsung Group in exchange for approximately $26 million. As of December 31, 2016, the Company’s investment in the joint venture totaled approximately $1 million (representing an ownership interest of less than 1%).

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 the following: (i) the review of financial statements, including assessments of liquidity, (ii) the review of valuations available to the Company prepared by independent third parties used in raising capital, (iii) the review of publicly available information including press releases and (iv) direct communications with the 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.

4. Investments in and Advances to Unconsolidated Affiliates

The Company accounts for its investments in and advances to unconsolidated affiliates under the equity method of accounting and records its pro rata share of its losses or earnings from these investments in equity in earnings (losses) of unconsolidated affiliates. The following is a summary of the Company’s investments in and advances to unconsolidated affiliates (in millions):

		December 31,
		2016				2015
NovaQuest Pharma Opportunities Fund III, L.P.		$	43			$	40
NovaQuest Pharma Opportunities Fund IV, L.P.			6				2
CenduitTM			11				9
Other			9				1
		$	69			$	52

NovaQuest Pharma Opportunities Funds

The Company has committed to invest up to $50 million as a limited partner in NovaQuest Pharma Opportunities Fund III, L.P. (“Fund III”). As of December 31, 2016, the Company has funded approximately $43 million and has approximately $7 million of remaining funding commitments. As of December 31, 2016 and 2015, the Company had a 10.9% ownership interest in Fund III.

The Company has committed to invest up to $20 million as a limited partner in NovaQuest Pharma Opportunities Fund IV, L.P. (“Fund IV”). As of December 31, 2016, the Company has funded approximately $8 million and has approximately $12 million of remaining funding commitments. As of December 31, 2016 and 2015, the Company had a 2.3% ownership interest in Fund IV.

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Notes to Consolidated Financial Statements - Continued

Cenduit™

In May 2007, the Company and Thermo Fisher Scientific Inc. (“Thermo Fisher”) completed the formation of a joint venture, Cenduit™. The Company contributed its Interactive Response Technology operations in India and the United States. Thermo Fisher contributed its Fisher Clinical Services Interactive Response Technology operations in three locations — the United Kingdom, the United States and Switzerland. Additionally, each company contributed $4 million in initial capital. The Company and Thermo Fisher each own 50% of Cenduit™.

See Note 20 for information regarding related party transactions.

5. Variable Interest Entities

As of December 31, 2016, the Company’s investments in unconsolidated variable interest entities (“VIEs”) and its estimated maximum exposure to loss were as follows (in millions):

		Investments in Unconsolidated VIEs				Maximum Exposure to Loss
NovaQuest Pharma Opportunities Fund III, L.P.		$	43			$	51
NovaQuest Pharma Opportunities Fund IV, L.P.			6				18
		$	49			$	69

The Company’s maximum exposure to loss on Fund III and Fund IV (collectively “the Funds”) is limited to its investments and remaining funding commitments.

The Company has determined that the Funds are VIEs but that the Company is not the primary beneficiary as it does not have a controlling financial interest in either of the Funds. However, because the Company has determined that it has the ability to exercise significant influence, it accounts for its investments in the Funds under the equity method of accounting and records its pro rata share of the Funds’ earnings and losses in equity in (losses) earnings of unconsolidated affiliates on the accompanying consolidated statements of income. The investment assets of unconsolidated VIEs are included in investments in and advances to unconsolidated affiliates on the accompanying consolidated balance sheets.

6. Derivatives

Foreign Exchange Risk Management

The Company transacts business in more than 100 countries and is subject to risks associated with fluctuating foreign exchange rates. The Company’s objective is to reduce earnings and cash flow volatility associated with foreign exchange rate movements. Accordingly, the Company enters into foreign currency forward contracts to minimize the impact of foreign exchange movements on non-functional currency assets and liabilities (“Balance Sheet Hedging”) to (i) hedge certain forecasted foreign exchange cash flows arising from service contracts (“Service Contract Hedging”) and (ii) hedge non-United States Dollar anticipated intercompany royalties (“Royalty Hedging”). It is the Company’s policy to enter into foreign currency transactions only to the extent necessary to meet its objectives as stated above. The Company does not enter into foreign currency transactions for investment or speculative purposes. The principal currencies hedged are the Euro, the British Pound, the Japanese Yen, the Swiss Franc and the Canadian Dollar.

Balance Sheet Hedging contracts entered into for balance sheet risk management purposes are not designated as hedges and are carried at fair value, with changes in the fair value recorded to other expense (income), net in the accompanying consolidated statements of income. These contracts do not subject the Company to material balance sheet risk because gains and losses on these derivatives are intended to offset gains and losses on the assets and liabilities being hedged.

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Notes to Consolidated Financial Statements - Continued

Service Contract Hedging and Royalty Hedging contracts are designated as hedges and are carried at fair value, with changes in the fair value recorded to AOCI. The change in fair value is reclassified from AOCI to earnings in the period in which the hedged transaction occurs. These contracts have various expiration dates through November 2017.

As of December 31, 2016, the Company had 62 open Service Contract Hedging and Royalty Hedging contracts to hedge certain forecasted foreign currency cash flow transactions occurring in 2017 with notional amounts totaling $300 million. As of December 31, 2015, the Company had 15 open Service Contract Hedging contracts to hedge certain forecasted foreign currency cash flow transactions occurring in 2016. For accounting purposes these hedges are deemed to be highly effective. As of December 31, 2016 and 2015, the Company had recorded gross unrealized gains (losses) of $1 million and ($5 million), respectively, related to these contracts. Upon expiration of the hedge instruments in 2017, the Company will reclassify the unrealized gains and losses on the derivative instruments included in AOCI into earnings. The unrealized gains (losses) are included in other current assets and liabilities on the accompanying consolidated balance sheets as of December 31, 2016 and 2015.

Interest Rate Risk Management

The Company purchases interest rate caps and has entered into interest rate swap agreements for purposes of managing its risk in interest rate fluctuations.

On June 9, 2011, the Company entered into six interest rate swaps which expired between September 30, 2013 and March 31, 2016, in an effort to limit its exposure to changes in the variable interest rate on its senior secured credit facilities. During May 2015, in conjunction with the debt refinancing described in Note 11, the Company terminated the remaining open interest rate swaps for a cash payment to the counterparty of $12 million, which included $1 million of accrued interest. Since the hedged forecasted cash transactions continued to be probable of occurring, the accumulated loss ($3 million at December 31, 2015) related to the terminated interest rate swaps in AOCI was reclassified to earnings as a component of interest expense in the same periods as the hedged forecasted transactions occurred over the first three months of 2016.

In April 2014, the IMS Health purchased United States Dollar denominated interest rate caps (“2014 Caps”) with a total notional value of $1 billion at strike rates ranging between 2% and 3%. These caps were effective at various times between April 2014 and April 2016, and expire at various times between April 2017 and April 2019. The total premiums paid were $21 million. The 2014 Caps are designated as cash flow hedges.

IMS Health also entered into United States Dollar and Euro denominated interest rate swap agreements in April 2014 (“2014 Swaps”) to hedge interest rate exposure on notional amounts of approximately $600 million of its borrowings. The 2014 Swaps were effective between April and June 2014, and expire at various times from March 2017 through March 2021. On these agreements, the Company pays a fixed rate ranging from 1.4% to 2.1% and receives a variable rate of interest equal to the greater of three-month United States Dollar London Interbank Offered Rate (“LIBOR”) or three-month Euro Interbank Offered Rate (“EURIBOR”), and 1%. The 2014 Swaps are designated as cash flow hedges.

On June 3, 2015, the Company entered into seven forward starting interest rate swaps (“2015 Swaps”) in an effort to limit its exposure to changes in the variable interest rate on its senior secured credit facilities. Interest on the swaps began accruing on June 30, 2016 and the interest rate swaps expire between March 31, 2017 and March 31, 2020. Payments on the 2015 Swaps, together with the variable rate of interest incurred on the underlying debt, result in a fixed rate of interest of 2.1% plus the applicable margin on the affected borrowings.

The critical terms of the 2014 Swaps and 2015 Swaps are substantially the same as the underlying borrowings. These interest rate swaps are being accounted for as cash flow hedges as these transactions were

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Notes to Consolidated Financial Statements - Continued

executed to hedge the Company’s interest payments, and for accounting purposes these hedges are deemed to be highly effective. As such, changes in the fair value of these derivative instruments are recorded as unrealized gains (losses) on derivatives included in AOCI. The fair value of these interest rate swaps represents the present value of the anticipated net payments the Company will make to the counterparty, which, when they occur, are reflected as interest expense on the consolidated statements of income. These interest rate swaps will result in a total debt mix of approximately 52% fixed rate debt and 48% variable rate debt, before the additional protection arising from the interest rate caps.

Net Investment Risk Management

Beginning in the 2016, the Company designated its foreign currency denominated debt as a hedge of its net investment in foreign subsidiaries to reduce the volatility in stockholders’ equity caused by changes in the Euro exchange rate with respect to the United States Dollar. As of December 31, 2016, these borrowings (net of original issue discount) were €2,025 million ($2,131 million). The effective portion of foreign exchange gains or losses on the remeasurement of the debt is recognized in the cumulative translation adjustment component of AOCI with the related offset in long-term debt. Those amounts would be reclassified from AOCI to earnings upon the sale or substantial liquidation of these net investments. The amount of foreign exchange gains (losses) related to the net investment hedge included in cumulative translation adjustment for the year ended December 31, 2016 was $131 million.

The fair values of the Company’s derivative instruments and the line items on the accompanying consolidated balance sheets to which they were recorded are summarized in the following table (in millions):

						December 31, 2016												December 31, 2015
		Balance Sheet Classification				Assets				Liabilities				Notional				Assets				Liabilities				Notional
Derivatives designated as hedging instruments:
Foreign exchange forward contracts			Other current assets and liabilities			$	11			$	9			$	300			$	—			$	5			$	118
Interest rate swaps			Other current liabilities				—				15				945				—				6				440
Interest rate caps			Deposits and other assets				1				—				1,000				—				—				—
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts			Other current liabilities				—				1				189				—				—				—
Total derivatives						$	12			$	25							$	—			$	11

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The effect of the Company’s cash flow hedging instruments on other comprehensive income (loss) is summarized in the following table (in millions):

		Year Ended December 31,
		2016				2015				2014
Foreign exchange forward contracts		$	16			$	(1	)		$	(8	)
Interest rate derivatives			8				6				10
Total		$	24			$	5			$	2

The Company expects $2 million of pre-tax unrealized losses related to its foreign exchange contracts and interest rate derivatives included in AOCI at December 31, 2016 to be reclassified into earnings within the next twelve months.

7. Fair Value Measurements

The Company records certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy that prioritizes the inputs used to measure fair value is described below. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

	•		Level 1—Quoted prices in active markets for identical assets or liabilities.

	•		Level 2—Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

	•		Level 3—Unobservable inputs that are supported by little or no market activity. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The carrying values of cash, cash equivalents, accounts receivable and accounts payable approximated their fair values at December 31, 2016 and 2015 due to their short-term nature. At December 31, 2016 and 2015, the fair value of total debt approximated $7,298 million and $2,499 million, respectively, as determined under Level 2 measurements based on quoted prices for these financial instruments.

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Recurring Fair Value Measurements

The following table summarizes the fair value of the Company’s financial assets and liabilities that are measured on a recurring basis as of December 31, 2016 (in millions):

		Level 1				Level 2				Level 3				Total
Assets:
Trading securities		$	40			$	—			$	—			$	40
Derivatives			—				12				—				12
Total		$	40			$	12			$	—			$	52
Liabilities:
Derivatives		$	—			$	25			$	—			$	25
Contingent consideration			—				—				18				18
Total		$	—			$	25			$	18			$	43

The following table summarizes the fair value of the Company’s financial assets and liabilities that are measured on a recurring basis as of December 31, 2015 (in millions):

		Level 1				Level 2				Level 3				Total
Liabilities:
Derivatives		$	—			$	11			$	—			$	11
Contingent consideration			—				—				4				4
Total		$	—			$	11			$	4			$	15

Below is a summary of the valuation techniques used in determining fair value:

Marketable securities—The Company values trading and available-for-sale securities using the quoted market value of the securities held.

Derivatives—Derivatives consist of foreign exchange contracts and interest rate caps and swaps. The fair value of foreign exchange contracts is based on observable market inputs of spot and forward rates or using other observable inputs. The fair value of the interest rate caps and swaps is the estimated amount that the Company would receive or pay to terminate such agreements, taking into account market interest rates and the remaining time to maturities or using market inputs with mid-market pricing as a practical expedient for bid-ask spread.

Contingent consideration—The Company values contingent consideration related to business combinations using a weighted probability calculation of potential payment scenarios discounted at rates reflective of the risks associated with the expected future cash flows. Key assumptions used to estimate the fair value of contingent consideration include revenue, net new business and operating forecasts and the probability of achieving the specific targets.

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The following table summarizes the changes in Level 3 financial assets and liabilities measured on a recurring basis for the year ended December 31 (in millions):

		Contingent Consideration – Accrued Expenses
		2016				2015				2014
Balance as of January 1		$	4			$	1			$	13
Business combinations			19				—				—
Contingent consideration paid			(4	)			(3	)			(3	)
Revaluations included in earnings and foreign currency translation adjustments			(1	)			6				(9	)
Balance as of December 31		$	18			$	4			$	1

The revaluation for the contingent consideration is recognized in other expense (income), net on the accompanying consolidated statements of income.

Non-recurring Fair Value Measurements

Certain assets are carried on the accompanying consolidated balance sheets at cost and are not remeasured to fair value on a recurring basis. These assets include cost and equity method investments and loans that are written down to fair value for declines which are deemed to be other-than-temporary, and goodwill and identifiable intangible assets which are tested for impairment annually and when a triggering event occurs. See Note 17 for additional information.

As of December 31, 2016, assets carried on the balance sheet and not remeasured to fair value on a recurring basis totaled approximately $17,199 million and were identified as Level 3. These assets are comprised of cost and equity method investments of $82 million, goodwill of $10,727 million and other identifiable intangibles, net of $6,390 million.

Cost and Equity Method Investments—The inputs available for valuing investments in non-public portfolio companies are generally not easily observable. The valuation of non-public investments requires significant judgment by the Company due to the absence of quoted market values, inherent lack of liquidity and the long-term nature of such assets. When a triggering event occurs, the Company considers a wide range of available market data when assessing the estimated fair value. Such market data includes observations of the trading multiples of public companies considered comparable to the private companies being valued as well as publicly disclosed merger transactions involving comparable private companies. In addition, valuations are adjusted to account for company-specific issues, the lack of liquidity inherent in a non-public investment and the fact that comparable public companies are not identical to the companies being valued. Such valuation adjustments are necessary because in the absence of a committed buyer and completion of due diligence similar to that performed in an actual negotiated sale process, there may be company-specific issues that are not fully known that may affect value. Further, a variety of additional factors are reviewed by the Company, including, but not limited to, financing and sales transactions with third parties, current operating performance and future expectations of the particular investment, changes in market outlook and the third party financing environment. Because of the inherent uncertainty of valuations, estimated valuations may differ significantly from the values that would have been used had a ready market for the securities existed, and the differences could be material.

Goodwill—Goodwill represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets resulting from business combinations. The Company performs a

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qualitative analysis to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than its book value. This includes a qualitative analysis of macroeconomic conditions, industry and market considerations, internal cost factors, financial performance, fair value history and other company specific events. If this qualitative analysis indicates that it is more likely than not that the estimated fair value is less than the book value for the respective reporting unit, the Company applies a two-step impairment test in which the Company determines whether the estimated fair value of the reporting unit is in excess of its carrying value. If the carrying value of the net assets assigned to the reporting unit exceeds the estimated fair value of the reporting unit, the Company performs the second step of the impairment test to determine the implied estimated fair value of the reporting unit’s goodwill. The Company determines the implied estimated fair value of goodwill by determining the present value of the estimated future cash flows for each reporting unit and comparing the reporting unit’s risk profile and growth prospects to selected, reasonably similar publicly traded companies. See Note 17 for additional information.

Definite-lived Intangible Assets—If a triggering event occurs, the Company determines the estimated fair value of definite-lived intangible assets by determining the present value of the expected cash flows. See Note 17 for additional information.

Indefinite-lived Intangible Asset—If a qualitative analysis indicates that it is more likely than not that the estimated fair value is less than the carrying value of an indefinite-lived intangible asset, the Company determines the estimated fair value of the indefinite-lived intangible asset (trade name) by determining the present value of the estimated royalty payments on an after-tax basis that it would be required to pay the owner for the right to use such trade name. If the carrying amount exceeds the estimated fair value, an impairment loss is recognized in an amount equal to the excess.

8. Property and Equipment

The major classes of property and equipment were as follows (in millions):

		December 31,
		2016				2015
Land, buildings and leasehold improvements		$	333			$	187
Equipment			338				257
Furniture and fixtures			72				53
Motor vehicles			26				13
Property and equipment, gross			769				510
Less accumulated depreciation			(363	)			(322	)
Property and equipment, net		$	406			$	188

9. Goodwill and Identifiable Intangible Assets

As of December 31, 2016, the Company has approximately $6,390 million of identifiable intangible assets, of which approximately $127 million, relating to trade names, is deemed to be indefinite-lived and, accordingly,

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is not being amortized. Amortization expense associated with identifiable definite-lived intangible assets was as follows (in millions):

		Year Ended December 31,
		2016				2015				2014
Amortization expense		$	210			$	67			$	58

Estimated amortization expense for existing identifiable intangible assets is expected to be approximately $837 million, $858 million, $844 million, $788 million and $567 million for the years ending December 31, 2017, 2018, 2019, 2020 and 2021, respectively. Estimated amortization expense can be affected by various factors, including future acquisitions or divestitures of service and/or licensing and distribution rights or impairments.

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

		As of December 31, 2016												As of December 31, 2015
		Gross Amount				Accumulated Amortization				Net Amount				Gross Amount				Accumulated Amortization				Net Amount
Definite-lived identifiable intangible assets:
Client relationships and backlog		$	3,983			$	(125	)		$	3,858			$	224			$	(76	)		$	148
Trademarks, trade names and other			384				(15	)			369				15				(6	)			9
Databases			1,742				(87	)			1,655				—				—				—
Software and related assets			619				(247	)			372				279				(196	)			83
Non-compete agreements			9				—				9				—				—				—
		$	6,737			$	(474	)		$	6,263			$	518			$	(278	)		$	240
Indefinite-lived identifiable intangible assets:
Trade names		$	127			$	—			$	127			$	128			$	—			$	128

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Notes to Consolidated Financial Statements - Continued

The following is a summary of goodwill by segment for the years ended December 31, 2016 and 2015 (in millions):

		Commercial Solutions				Research & Development Solutions				Integrated Engagement Services				Consolidated
Balance as of December 31, 2014		$	70			$	346			$	48			$	464
Business combinations			—				262				—				262
Impact of foreign currency fluctuations and other			—				(6	)			—				(6	)
Balance as of December 31, 2015			70				602				48				720
Business combinations			9,698				611				67				10,376
Impairment			(23	)			—				—				(23	)
Impact of foreign currency fluctuations and other			(330	)			(17	)			1				(346	)
Balance as of December 31, 2016		$	9,415			$	1,196			$	116			$	10,727

During the year ended December 31, 2016, the Company recorded impairment losses of $23 million. See Note 17 for additional information.

10. Accrued Expenses

		December 31,
		2016				2015
Compensation, including bonuses, fringe benefits and payroll taxes		$	610			$	401
Restructuring			102				14
Interest			42				5
Client contract related			502				271
Professional fees			69				10
Other			168				60
		$	1,493			$	761

11. Credit Arrangements

The following is a summary of the Company’s revolving credit facilities at December 31, 2016:

Facility		Interest Rates
$1,000 million (revolving credit facility)		LIBOR in the relevant currency borrowed plus a margin (Margin of 2.00% at December 31, 2016)
$25 million (receivables financing facility)		LIBOR Market Index Rate (0.77% at December 31, 2016) plus 0.85% to 1.35% depending upon the Company’s debt rating
£10 million (approximately $12 million) general banking facility with a European headquartered bank		Bank’s base rate (0.25% at December 31, 2016) plus 1%

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At December 31, 2016, there were bank guarantees totaling approximately £5 million (approximately $6 million) issued against the availability of the general banking facility with a European headquartered bank through their operations in the United Kingdom.

The following table summarizes the Company’s debt at the dates indicated (dollars in millions):

		December 31,
		2016				2015
Senior Secured Credit Facilities:
Senior Secured Term A Loan due 2021—U.S. Dollar LIBOR at average floating rates of 3.00%		$	888			$	—
Senior Secured Term A Loan due 2021—Euro LIBOR at average floating rates of 2.00%			419				—
Senior Secured Term B Loan due 2021—U.S. Dollar LIBOR at average floating rates of 3.50%			1,700				—
Senior Secured Term B Loan due 2021—Euro LIBOR at average floating rates of 3.75%			765				—
Term Loan A due 2020—LIBOR plus 1.75%, or 2.36%			—				829
Term Loan B due 2022—the greater of LIBOR or 0.75% plus 2.50%, or 3.25%			—				597
Revolving Credit Facility due 2021:
U.S. Dollar denominated borrowings—U.S. Dollar LIBOR at average floating rates of 2.73%			375				—
5.0% Senior Notes due 2026—U.S. Dollar denominated			1,050				—
3.5% Senior Notes due 2024—Euro denominated			658				—
4.125% Senior Notes due 2023—Euro denominated			289				—
4.875% Senior Notes due 2023			800				800
Receivables financing facility due 2018—LIBOR plus 0.85%, or 1.62%			275				275
Principal amount of debt			7,219				2,501
Less: unamortized discount			(12	)			(24	)
Less: unamortized debt issuance costs			(7	)			(9	)
Less: current portion			(92	)			(49	)
Long-term debt		$	7,108			$	2,419

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Notes to Consolidated Financial Statements - Continued

Contractual maturities of long-term debt at December 31, 2016 are as follows (in millions):

2017		$	92
2018			367
2019			92
2020			92
2021			3,781
Thereafter			2,795
		$	7,219

Senior Secured Credit Agreement and Senior Notes

2016 Financing Transactions

At December 31, 2016, the Company’s senior secured credit facility provides financing of up to approximately $4,772 million, which consisted of $4,147 million principal amount of debt outstanding (as detailed in the table above) and $625 million of commitments that expire in 2021. The revolving credit facility is comprised of a $450 million senior secured revolving facility available in U.S. Dollars, a $400 million senior secured revolving facility available in U.S. Dollars, Euros, Swiss Francs and other foreign currencies and a $150 million senior secured revolving facility available in U.S. Dollars and Yen. The term A loans and revolving credit facility mature in October 2021, while the term B loans mature in March 2021. Under certain circumstances, the maturity date of the term A loans and the senior secured revolving facility may be accelerated to 2020. The Company is required to make scheduled quarterly payments on the term A loans equal to 1.25% of the original principal amount, with the remaining balance paid at maturity. The Company is required to make scheduled quarterly payments on the term B loans equal to approximately 0.25% of the original principal amount, with the remaining balance paid at maturity. In addition, beginning with fiscal year ending December 31, 2017, the Company is required to apply 50% of excess cash flow (as defined in the Company’s senior secured credit facility), subject to a reduction to 25% or 0% depending upon the Company’s senior secured first lien net leverage ratio, for prepayment of the Term Loans, with any such prepayment to be applied toward principal payments due in subsequent quarters. The Company is also required to pay an annual commitment fee that ranges from 0.30% to 0.40% in respect of any unused commitments under the revolving credit facility. The senior secured credit facility is collateralized by substantially all of the assets of the Company and the assets of the Company’s material domestic subsidiaries including 100% of the equity interests of substantially all of the Company’s material domestic subsidiaries and 66% of the equity interests of substantially all of the first-tier material foreign subsidiaries of the Company and its domestic subsidiaries.

On October 3, 2016, the Company refinanced the term A loans due 2019 (approximately $884 million) assumed in the Merger with a term A loan facility due in 2021 for an aggregate principal amount of approximately $1,350 million comprised of both U.S. Dollar denominated term A loans and Euro denominated term A loans. Additionally, the revolving credit facility was refinanced to an aggregate principal amount equal to $1,000 million. The additional proceeds were used, in part, to fund the redemption on November 1, 2016 of $500 million of 6% Senior Notes due 2020 assumed in the Merger, at a redemption price equal to 101.5% of the aggregate outstanding principal amount plus accrued interest to the redemption date. The Company incurred a loss on extinguishment of debt of approximately $8 million related to the aggregate payments for make-whole premiums.

On September 28, 2016, IMS Health issued senior unsecured notes totaling principal amount of $1,750 million, which consisted of (i) $1,050 million of 5% senior notes due October 2026 (the “5% Dollar Notes”) and

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(ii) €625 million of 3.5% senior notes due October 2024 (the “3.5% Euro Notes” and, together with the 5% Dollar Notes, the “2016 Notes”). The proceeds of the 2016 Notes, which were assumed by the Company upon closing of the Merger, were used on October 3, 2016 to repay in full ($1,389 million) the term loans outstanding under the Quintiles Transnational senior secured credit facilities. Interest on the 2016 Notes is payable semi-annually, beginning on April 15, 2017. The notes are guaranteed on a senior unsecured basis by the Company’s wholly-owned domestic restricted subsidiaries (excluding IMS Japan K.K.) and, subject to certain exceptions, each of the Company’s future domestic subsidiaries that guarantees its other indebtedness or indebtedness of any of the guarantors. The 5% Dollar Notes and the 3.5% Euro Notes may be redeemed, either together or separately, prior to their final stated maturity, subject to a customary make-whole premium, at any time prior to October 15, 2021 with respect to the 5% Dollar Notes and October 15, 2019 with respect to the 3.5% Euro Notes (in each case subject to a customary “equity claw” redemption right) and thereafter subject to annually declining redemption premiums at any time prior to October 15, 2024 with respect to the 5% Dollar Notes and October 15, 2021 with respect to the 3.5% Euro Notes.

The Company also assumed in the Merger €275 million aggregate principal amount of 4.125% Senior Notes due in April 2023 (the “4.125% Senior Notes”). Interest on the 4.125% Senior Notes is payable semi-annually each year and commenced on October 1, 2015. The 4.125% Senior Notes are guaranteed on a senior unsecured basis by IMS Health’s wholly-owned domestic subsidiaries that are guarantors under the senior secured credit facilities. The Company may redeem the 4.125% Senior Notes, in whole or in part, at any time prior to April 1, 2018 at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, plus a “make-whole” premium. On or after April 1, 2018, the Company may redeem all or a portion of the 4.125% Senior Notes at predetermined redemption prices set forth in the indenture governing the 4.125% Senior Notes plus accrued and unpaid interest to the date of redemption.

2015 Financing Transactions

On May 12, 2015, the Company through its wholly-owned subsidiary, Quintiles Transnational, entered into new senior secured credit facilities, which consisted of a $500 million revolving credit facility and $1.45 billion of term loans. In addition, Quintiles Transnational issued $800 million of 4.875% senior unsecured notes due 2023 (the “4.875% Senior Notes”) in a private placement. The term loans, in the amount of $1,389 million, were repaid in full on October 3, 2016 as discussed above. Interest on the 4.875% Senior Notes is paid semiannually on May 15 and November 15 of each year until maturity. The Senior Notes are unsecured senior obligations of QuintilesIMS and are effectively subordinated in right of payment to all secured obligations of QuintilesIMS, to the extent of the value of any collateral. Also on May 12, 2015, an outstanding term loan was repaid with proceeds from the new credit facilities entered into that day and the Company recognized an $8 million loss on extinguishment of debt, which included $1 million of unamortized debt issuance costs, $1 million of unamortized discount and $6 million of related fees and expenses.

Receivables Financing Facility

On December 5, 2014, the Company entered into a four-year arrangement to securitize certain of its accounts receivable. Under the receivables financing facility, certain of the Company’s accounts receivable are sold on a non-recourse basis by certain of its consolidated subsidiaries to another of its consolidated subsidiaries, a bankruptcy-remote special purpose entity (“SPE”). The SPE obtained a term loan and revolving loan commitment from a third party lender, secured by liens on the assets of the SPE, to finance the purchase of the accounts receivable, which included a $275 million term loan and a $25 million revolving loan commitment. The revolving loan commitment may be increased by an additional $35 million as amounts are repaid under the term loan. QuintilesIMS has guaranteed the performance of the obligations of existing and future subsidiaries that sell and service the accounts receivable under the receivables financing facility. The assets of the SPE are not

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Notes to Consolidated Financial Statements - Continued

available to satisfy any of the Company’s obligations or any obligations of its subsidiaries. As of December 31, 2016, $25 million of revolving loans were available under the receivables financing facility.

The Company used the proceeds from the term loan under the receivables financing facility to repay in full the amount outstanding on the then outstanding revolving credit facility ($150 million), to repay $25 million of the then outstanding Term Loan B-3, to pay related fees and expenses and the remainder was used for general working capital purposes.

Restrictive Covenants

The Company’s debt agreements provide for certain covenants and events of default customary for similar instruments, including a covenant not to exceed a specified ratio of consolidated senior secured net indebtedness to Consolidated EBITDA, as defined in the Company’s senior secured credit facility and a covenant to maintain a specified minimum interest coverage ratio. If an event of default occurs under any of the Company’s or the Company’s subsidiaries’ financing arrangements, the creditors under such financing arrangements will be entitled to take various actions, including the acceleration of amounts due under such arrangements, and in the case of the lenders under the revolving credit facility and New Term Loans, other actions permitted to be taken by a secured creditor. Our long-term debt arrangements contain usual and customary restrictive covenants that, among other things, place limitations on our ability to declare dividends. For additional information regarding these restrictive covenants, see Part II, Item 5 “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Dividend Policy” and Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” included elsewhere in this Annual Report on Form 10-K. At December 31, 2016, the Company was in compliance with the financial covenants under the Company’s financing arrangements.

12. Leases

The Company leases facilities under operating leases, many of which contain renewal and escalation clauses. The Company also leases certain equipment under operating leases. The leases expire at various dates through 2029 with options to cancel certain leases at various intervals. Rental expenses under these agreements were $127 million, $109 million and $115 million in 2016, 2015 and 2014, respectively.

The following is a summary of future minimum payments under operating leases that have initial or remaining non-cancelable lease terms in excess of one year at December 31, 2016 (in millions):

		Operating Leases
2017		$	171
2018			123
2019			94
2020			75
2021			56
Thereafter			159
Total minimum lease payments		$	678

13. Contingencies

The Company and its subsidiaries are involved in legal and tax proceedings, claims and litigation arising in the ordinary course of business. Management periodically assesses the Company’s liabilities and contingencies in

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connection with these matters based upon the latest information available. For those matters where management currently believes it is probable that the Company will incur a loss and that the probable loss or range of loss can be reasonably estimated, the Company has recorded reserves in the consolidated financial statements based on its best estimates of such loss. In other instances, because of the uncertainties related to either the probable outcome or the amount or range of loss, management is unable to make a reasonable estimate of a liability, if any. However, even in many instances where the Company has recorded an estimated liability, the Company is unable to predict with certainty the final outcome of the matter or whether resolution of the matter will materially affect the Company’s results of operations, financial position or cash flows. As additional information becomes available, the Company adjusts its assessments and estimates of such liabilities accordingly.

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

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

The Company’s wholly-owned subsidiary, IMS Government Solutions Inc. (“IMS Government Solutions”), is primarily engaged in providing services under contracts with the United States government. United States government contracts are subject to extensive legal and regulatory requirements and, from time to time, agencies of the United States government have the ability to investigate whether contractors’ operations are being conducted in accordance with such requirements. IMS Government Solutions discovered potential noncompliance with various contract clauses and requirements under its General Services Administration Contract (the “GSA Contract”) which was awarded in 2002 to its predecessor company, Synchronous Knowledge Inc. (Synchronous Knowledge Inc. was acquired by IMS Health in May 2005). The potential noncompliance arose from two primary areas: first, at the direction of the government, work performed under one task order was invoiced under another task order without the appropriate modifications to the orders being made; and second, personnel who did not meet strict compliance with the labor categories component of the qualification requirements of the GSA Contract were assigned to contracts. The Company is currently unable to determine the outcome of all of these matters pending the resolution of the Voluntary Disclosure Program process and the ultimate liability arising from these matters could exceed the Company’s current reserves.

On February 13, 2014, a group of approximately 1,200 medical doctors and 900 private individuals filed a civil lawsuit with the Seoul Central District Court against IMS Korea and two other defendants, KPA and the Korean Pharmaceutical Information Center (“KPIC”). The civil lawsuit alleges KPA and KPIC collected their personal information in violation of applicable privacy laws without the necessary consent through a software system installed on pharmacy computer systems in Korea, and that personal information was transferred to IMS Korea and sold to pharmaceutical companies. The plaintiffs are claiming damages in the aggregate amount of approximately $6 million plus interest. The Company believes the lawsuit is without merit, rejects plaintiffs’ claims and intends to vigorously defend its position.

On July 23, 2015, indictments were issued by the Seoul Central District Prosecutors’ Office in South Korea against 24 individuals and companies alleging improper handling of sensitive health information in violation of, among others, South Korea’s Personal Information Protection Act. IMS Korea and two of its employees were among the individuals and organizations indicted. Although there is no assertion that IMS Korea used patient identified health information in any of its offerings, prosecutors allege that certain of IMS Korea’s data suppliers

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should have obtained patient consent when they converted sensitive patient information into non-identified data and that IMS Korea had not taken adequate precautions to reduce the risk of re-identification. The Company believes the indictment is without merit, that it acted in compliance with all applicable laws at all times and intends to vigorously defend its position.

14. Stockholders’ Equity (Deficit)

Preferred Stock

The Company is authorized to issue 1.0 million shares of preferred stock, $0.01 per share par value. No shares of preferred stock were issued and outstanding as of December 31, 2016 or 2015.

Equity Repurchases

Equity Repurchase Program

On October 30, 2013, the Company’s Board of Directors (the “Board”) approved an equity repurchase program (the “Repurchase Program”) authorizing the repurchase of up to $125 million of either the Company’s common stock or vested in-the-money employee stock options, or a combination thereof. During 2015, the Board increased the stock repurchase authorization under the Repurchase Program by $600 million, which increased the total amount that has been authorized under the Repurchase Program to $725 million. On November 1, 2016, the Board increased the stock repurchase authorization under the Repurchase Program by $1.5 billion, which increased the total amount that has been authorized under the Repurchase Program to $2.225 billion. The Repurchase Program does not obligate the Company to repurchase any particular amount of common stock or vested in-the-money employee stock options, and it could be modified, extended, suspended or discontinued at any time. The timing and amount of repurchases are determined by the Company’s management based on a variety of factors such as the market price of the Company’s common stock, the Company’s corporate requirements, and overall market conditions. Purchases of the Company’s common stock may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or in privately negotiated transactions. The Company may also repurchase shares of its common stock pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Exchange Act, which would permit shares of the Company’s common stock to be repurchased when the Company might otherwise be precluded from doing so by law. Repurchases of vested in-the-money employee stock options were made through transactions between the Company and its employees (other than its executive officers, who were not eligible to participate in the program), and this aspect of the Repurchase Program expired in November 2013. The Repurchase Program for common stock does not have an end date.

Below is a summary of the share repurchases made under the Repurchase Program (in millions, except per share data):

		Year Ended December 31,
		2016				2015				2014
Number of shares of common stock repurchased			14.3				7.8				—
Aggregate purchase price		$	1,098			$	516			$	—
Average price per share		$	76.57			$	65.56			$	47.51

From the plan’s inception in October 2013 through December 31, 2016, the Company has repurchased a total of $1,678 million of its securities under the Repurchase Program, consisting of $59 million of stock options and $1,619 million of common stock. As of December 31, 2016, the Company has remaining authorization to repurchase up to $547 million of its common stock under the Repurchase Program. In addition, from time to time, the Company has repurchased and may continue to repurchase common stock through private or other transactions outside of the Repurchase Program.

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Other Equity Repurchases

On May 28, 2014, the Company completed the repurchase of 3.3 million shares of its common stock for $50.23 per share from TPG Quintiles Holdco, L.P., one of its existing stockholders, in a private transaction for an aggregate purchase price of approximately $165 million. The repurchase price per share of common stock was equal to 98% of the closing market price of the Company’s common stock on the New York Stock Exchange (“NYSE”) on May 27, 2014 (which was $51.26). This repurchase of shares from its existing stockholder was authorized in compliance with the Company’s related party transactions approval policy. The Company funded this private repurchase transaction with cash on hand. This private repurchase transaction was separate from and in addition to the Repurchase Program.

On November 10, 2014, the Company completed the repurchase of 4.3 million shares of its common stock for $58.09 per share, which was the price per share the underwriter paid to selling stockholders, for an aggregate purchase price of approximately $250 million. The Company funded this repurchase transaction with a combination of cash on hand and a $150 million draw on its revolving credit facility. This repurchase transaction was separate from and in addition to the Repurchase Program.

Non-controlling Interests

As discussed further in Note 15, the Company contributed businesses to a joint venture with Quest Diagnostics Incorporated (“Quest”) that was recorded at book value (carryover basis) because the Company owns 60% of the joint venture and maintains control of these businesses. As a result, Quest’s non-controlling interest in the joint venture, referred to as Q2 Solutions, is equal to 40%. Quest’s non-controlling interest was $227 million at December 31, 2016.

15. Business Combinations

IMS Health

On October 3, 2016, pursuant to the terms of the Merger Agreement, IMS Health merged with and into Quintiles, with Quintiles continuing as the Surviving Corporation. The combination of Quintiles and IMS Health capabilities and resources creates an information and technology enabled healthcare service provider with a full suite of end-to-end clinical and commercial offerings. The Merger was accounted for as a business combination with Quintiles considered the accounting and the legal acquirer. Immediately prior to the completion of the Merger, Quintiles reincorporated as a Delaware corporation. The Surviving Corporation changed its name to Quintiles IMS Holdings, Inc. At the effective time of the Merger, IMS Health common stock was automatically converted into 0.3840 of a share of the Company’s common stock. In addition, IMS Health equity awards held by current employees and certain members of the former IMS Health board of directors were converted into the Company’s equity awards after giving effect to the exchange ratio. The terms of these awards, including vesting provisions, are substantially consistent to those of the historical IMS Health equity awards. All of the Company’s and IMS Health’s performance units outstanding at the date of the Merger were converted into restricted stock units with service based vesting requirements. The merger consideration was approximately $10.4 billion (based on the closing price of the Company’s common stock on October 3, 2016), and consisted of the fair value of the Company’s common stock issued (approximately 126.6 million shares) in exchange for the IMS Health common stock as well as the fair value of the vested portion of the converted IMS Health equity awards. The Merger-date value of former IMS Health stock-based awards was valued using the Black-Scholes model and apportioned between Merger consideration (purchase price) and unearned compensation to be recognized in expense as earned in future periods based on remaining service periods. In connection with the IMS Health acquisition, the Company recorded goodwill, primarily attributable to the assembled workforce of IMS Health and the expected synergies, which was assigned to the Commercial Solutions segment ($9,688 million), the Research & Development Solutions segment ($533 million) and the Integrated Engagement Services segment ($67 million). The goodwill is not deductible for

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income tax purposes. The Company’s assessment of fair value and the purchase price accounting are preliminary and subject to change upon completion. Further adjustments may be necessary as additional information related to the fair values of assets acquired and liabilities assumed is assessed during the measurement period (up to one year from the acquisition date).

Quest

On July 1, 2015, the Company and Quest closed on a joint venture transaction that resulted in the combination of their respective global clinical trials laboratory operations. The joint venture transaction was effected through the creation of two primary new legal entities that the Company controls. Both the Company’s and Quest’s clinical trials laboratory operations were contributed to these new legal entities. The Company accounted for the contribution of the Quest businesses as a business combination. Quest was issued a 40% equity interest in the legal entities, the fair value of which was $423 million on July 1, 2015 (40% of the fair value of all operations contributed by both parties) and represents the purchase price paid by the Company for the clinical trials laboratory operations that Quest contributed to the joint venture transaction. The resulting combined capabilities are designed to provide its clients with globally scaled end-to-end clinical trials laboratory services and the combined business is referred to and marketed as Q2 Solutions. The Company accounted for the contribution of the Quest businesses as a business combination and consolidated the related new legal entities in its financial statements with a non-controlling interest for the portion owned by Quest. The Company recorded goodwill, primarily attributable to assembled workforce and expected synergies. This business combination is part of the Research & Development Solutions segment and the resulting goodwill is not deductible for income tax purposes.

The following table summarizes the estimated fair value of the net assets acquired at the date of the acquisitions (in millions):

		IMS Health				Quest
Assets acquired:
Cash and cash equivalents		$	2,031			$	32
Accounts receivable and unbilled services			528				6
Prepaid expenses			85				1
Other current assets			145				4
Property and equipment			247				16
Goodwill			10,288				262
Other identifiable intangibles			6,435				126
Deferred income tax asset – long-term			25				—
Other long-term assets			71				—
Liabilities assumed:
Accounts payable and accrued expenses			(700	)			(13	)
Unearned income			(175	)			—
Current portion of long-term debt			(88	)			—
Other current liabilities			(45	)			—
Long-term debt, less current portion			(6,070	)			—
Deferred income tax liability – long-term			(2,104	)			(10	)
Other long-term liabilities			(248	)			(1	)
Net assets acquired		$	10,425			$	423

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Notes to Consolidated Financial Statements - Continued

The other identifiable intangible assets consisted of the following (in millions):

		IMS Health				Quest
Client relationships		$	3,960			$	74
Backlog			—				33
Trade names			385				19
Databases			1,820				—
Software			270				—
Total other identifiable intangibles		$	6,435			$	126
Amortized over a weighted average useful life (in years)			18				9

The acquired Quest trade name is an indefinite-lived intangible asset that is not amortized.

Acquisition Related Costs

Acquisition related costs include the direct and incremental costs associated with mergers and acquisitions such as investment banking, legal, accounting and consulting fees. The Company recognized approximately $36 million of acquisition related costs associated with the IMS Health merger during the year ended December 31, 2016, which are included with merger related costs on the consolidated statement of income. Acquisition related costs for all other acquisitions were immaterial and are not presented.

Unaudited Pro Forma Information

The following unaudited pro forma information presents the financial results as if the acquisition of IMS Health had occurred on January 1, 2015 with pro forma adjustments to give effect to (i) an increase in depreciation and amortization expense for fair value adjustments of property, plant and equipment and intangible assets, (ii) an increase in stock-based compensation expense resulting from the exchange of the vested IMS Health equity awards for the Company’s equity awards, (iii) to present transaction costs in the 2015 period, (iv) to reflect the effect on revenue from the deferred revenue fair value adjustment in the 2015 period, and (v) the related income tax effects. The pro forma results do not include any anticipated cost synergies, costs or other effects of the planned integration of IMS Health. Accordingly, such pro forma amounts are not necessarily indicative of the results that actually would have occurred for the periods presented below had the IMS Health acquisition been completed on January 1, 2015, nor are they indicative of the future operating results of the Company.

The following table summarizes the pro forma results (in millions, except earnings per share):

		Year Ended December 31,
		2016				2015
Revenues		$	7,784			$	7,180
Reimbursed expenses			1,514				1,411
Total revenues		$	9,298			$	8,591
Net income attributable to Quintiles IMS Holdings, Inc.		$	42			$	450
Earnings per share attributable to common stockholders:
Basic		$	0.17			$	1.80
Diluted		$	0.17			$	1.76

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Notes to Consolidated Financial Statements - Continued

Pro forma information is not presented for any other acquisitions as the aggregate operations of the acquired businesses were not significant to the overall operations of the Company.

The Company’s consolidated statements of income for the year ended December 31, 2016 included $806 million of revenues related to the IMS Health acquisition. Following the closing of the IMS Health acquisition, the Company began integrating IMS Health’s operations. As a result, computing a separate measure of IMS Health’s stand-alone profitability for periods after the acquisition date is impracticable.

Other Acquisitions

In addition to the merger with IMS Health, the Company also completed three unrelated individually immaterial acquisitions during 2016, all of which occurred during December 2016. The purchase price allocations for some of these acquisitions will be finalized after the completion of the valuation of certain intangible assets and any adjustments to the preliminary purchase price allocation are not expected to have a material impact on the Company’s results of operations or financial position. During 2014, the Company completed one immaterial acquisition (Encore). In connection with the Encore acquisition in 2014, the Company recorded goodwill, primarily attributable to the assembled workforce of Encore and expected synergies, which was assigned to the Commercial Solutions segment and is deductible for income tax purposes. The accompanying consolidating financial statements include the results of the acquisitions subsequent to each respective closing date.

The following table provides certain financial information for these acquisitions, including the preliminary allocation of the purchase price to certain tangible and intangible assets acquired and goodwill (in millions):

		Amortization Period				2016				2014
Total purchase price, net of cash acquired(1)						$	136			$	92
Acquisition-related costs							1				1
Amounts recorded in the Consolidated Balance Sheets:
Goodwill						$	88			$	63
Portion of goodwill deductible for income tax purposes							—				63
Intangible assets:
Client relationships			6-10 years			$	31			$	9
Non-compete agreements			2-5 years				9				—
Backlog			1-2 years				7				1
Databases			2 years				1				—
Trade names			2-4 years				—				1
Software			3 years				—				3
Total intangible assets						$	48			$	14

(1)	Total purchase price, net of cash acquired, includes contingent consideration and deferred purchase payments.

16. Restructuring

From time to time, the Company takes restructuring actions to adapt to changing market conditions. These actions include closing facilities, consolidating functional activities, eliminating redundant positions, aligning

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resources with customer requirements and taking actions to improve process efficiencies. In 2016, the Company also acquired certain restructuring liabilities previously recorded by IMS Health.

During 2016, management approved restructuring plans to align its resources and reduce overcapacity. Also, in connection with the Merger, management approved a restructuring plan to reduce facility overcapacity and eliminate redundant roles. These actions are expected to continue throughout 2017 and are expected to consist of severance, facility closure and other exit-related costs. During 2016, the Company has recognized approximately $33 million of restructuring costs related to these restructuring plans.

During 2015, management approved a restructuring plan to align the Company’s resources and reduce overcapacity. These actions are expected to continue throughout 2017 and consist of severance, facility closure and other exit-related costs. Since the start of this plan in 2015, the Company has recognized approximately $23 million of restructuring costs related to this plan. Also during 2015, in connection with consummating the joint venture transaction with Quest, a restructuring plan was approved to reduce facility overcapacity and eliminate redundant roles. These actions are expected to continue throughout 2017, and since the start of this plan in 2015, the Company has recognized approximately $10 million of restructuring costs related to this plan.

In 2014, management approved restructuring plans to better align resources with the Company’s strategic direction. Since the start of these plans in 2014, the Company recognized approximately $11 million of restructuring costs related to these plans. All of the restructuring costs are related to severance and facility closure costs.

The following amounts were recorded for the restructuring plans (in millions):

		Severance and Related Costs				Exit Costs				Total
Balance at December 31, 2014		$	5			$	1			$	6
Expense, net of reversals			30				1				31
Payments			(23	)			(1	)			(24	)
Foreign currency translation			—				1				1
Balance at December 31, 2015			12				2				14
Expense, net of reversals			60				3				63
Acquisitions			80				—				80
Payments			(48	)			(2	)			(50	)
Foreign currency translation and other			(5	)			—				(5	)
Balance at December 31, 2016		$	99			$	3			$	102

The reversals were due to changes in estimates primarily resulting from the redeployment of staff and higher than expected voluntary terminations. Restructuring costs are not allocated to the Company’s reportable segments as they are not part of the segment performance measures regularly reviewed by management. The Company expects the majority of the restructuring accruals at December 31, 2016 will be paid in 2017 and 2018.

17. Impairment Charges

During the third quarter of 2016 as part of its annual impairment review, the Company determined that it was more likely than not that the fair value of its Encore reporting unit was less than its carrying amount due to certain strategic initiatives not performing as expected, resulting in a decline in revenues. The Company

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performed a quantitative analysis using the present value of the estimated future cash flows, which confirmed that the Encore reporting unit’s goodwill was impaired. The Company proceeded to perform step two of its goodwill impairment assessment which resulted in the recognition of impairment losses of $23 million and $5 million for other-than-temporary declines in the fair value of goodwill and identifiable intangible assets, respectively.

18. Income Taxes

The components of income before income taxes and equity in earnings of unconsolidated affiliates are as follows (in millions):

		Year Ended December 31,
		2016				2015				2014
Domestic		$	(85	)		$	68			$	96
Foreign			564				471				405
		$	479			$	539			$	501

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

		Year Ended December 31,
		2016				2015				2014
Current expense:
Federal and state		$	64			$	51			$	62
Foreign			129				109				95
			193				160				157
Deferred (benefit) expense:
Federal and state			166				5				(5	)
Foreign			(14	)			(6	)			(3	)
			152				(1	)			(8	)
		$	345			$	159			$	149

The differences between the Company’s consolidated income tax expense attributable to continuing operations and the expense computed at the 35% United States statutory income tax rate were as follows (in millions):

		Year Ended December 31,
		2016				2015				2014
Federal income tax expense at statutory rate		$	167			$	189			$	175
Research and development			(11	)			(13	)			(17	)
Foreign nontaxable interest income			(8	)			(9	)			(10	)
United States taxes recorded on foreign earnings			252				38				19
Foreign rate differential			(60	)			(49	)			(31	)
Other			5				3				13
		$	345			$	159			$	149

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Due to the Merger, the Company reevaluated its indefinite reinvestment assertion based on the need for cash in the United States, including funding the Repurchase Program and potential acquisitions. Accordingly, the Company changed its assertion with respect to $2,801 million of foreign earnings, including $1,865 million of IMS Health’s previously undistributed historical foreign earnings. The Company intends to use these acquired foreign earnings to fund cash needs in the United States. Deferred income taxes of $625 million were recorded in 2016 related to non-indefinitely reinvested foreign earnings. Of that amount, $373 million was recorded through purchase accounting related to IMS Health’s historical foreign earnings and the remainder of $252 million was recorded through deferred income tax expense.

Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $3,564 million at December 31, 2016. Approximately $2,894 million of this total is not considered to be indefinitely reinvested and would be taxable upon repatriation. The Company has recorded a deferred income tax liability, net of foreign tax credits that would be generated upon repatriation, of $590 million as of December 31, 2016, associated with those earnings based upon the United States federal income tax rate. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both United States income taxes (subject to an adjustment for foreign tax credits, if available) and withholding taxes payable to the various countries in which the Company’s foreign subsidiaries are located. If the approximately $670 million of indefinitely reinvested earnings were repatriated to the United States, it would generate an estimated $176 million of additional tax liability for the Company.

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 millions):

		December 31,
		2016				2015
Deferred income tax assets:
Net operating loss and capital loss carryforwards		$	242			$	26
Tax credit carryforwards			267				16
Accrued expenses and unearned income			75				23
Employee benefits			273				124
Other			32				13
			889				202
Valuation allowance for deferred income tax assets			(153	)			(22	)
Total deferred income tax assets			736				180
Deferred income tax liabilities:
Undistributed foreign earnings			(590	)			(37	)
Amortization and depreciation			(2,026	)			(53	)
Other			(164	)			(12	)
Total deferred income tax liabilities			(2,780	)			(102	)
Net deferred income tax (liabilities) assets		$	(2,044	)		$	78

Due to the Merger, the Company recorded deferred tax liabilities related to intangible amortization recorded through purchase accounting in the amount of $2,308 million.

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Additionally, due to the Merger, the Company had federal, state and local, and foreign tax credit and tax loss carryforwards, the tax effect of which was $528 million as of December 31, 2016. Of this amount, $29 million has an indefinite carryforward period, and the remaining $499 million expires at various times beginning in 2017. Some of these losses are subject to limitations under the Internal Revenue Code, however, management expects all losses to be utilized during the carryforward periods.

In 2016, the Company increased its valuation allowance by $131 million to $153 million at December 31, 2016 from $22 million at December 31, 2015. This increase is a result of the Merger as IMS Health had $129 million of valuation allowances recorded as of the date of the Merger. The valuation allowance is primarily related to loss carryforwards in various foreign and state jurisdictions.

A reconciliation of the beginning and ending amount of gross unrecognized income tax benefits is presented below (in millions):

		Year Ended December 31,
		2016				2015				2014
Balance at January 1		$	30			$	41			$	55
IMS Health balance as of Merger			37				—				—
Additions based on tax positions related to the current year			3				2				3
Additions for income tax positions of prior years			7				9				1
Impact of changes in exchange rates			(3	)			(1	)			—
Reductions for income tax positions of prior years			(1	)			(2	)			(6	)
Reductions due to the lapse of the applicable statute of limitations			(9	)			(19	)			(12	)
Balance at December 31		$	64			$	30			$	41

As of December 31, 2016, the Company had total gross unrecognized income tax benefits of $64 million associated with over 100 jurisdictions in which the Company conducts business that, if recognized, would reduce the Company’s effective income tax rate.

The Company’s policy for recording interest and penalties relating to uncertain income tax positions is to record them as a component of income tax expense in the accompanying consolidated statements of income. In 2016, 2015 and 2014, the amount of interest and penalties recorded as an addition/(reduction) to income tax expense in the accompanying consolidated statements of income was $2 million, ($2) million and $1 million, respectively. As of December 31, 2016 and 2015, the Company had accrued approximately $11 million and $3 million, respectively, of interest and penalties.

The Company believes that it is reasonably possible that a decrease of up to $6 million in gross unrecognized income tax benefits for federal, state and foreign exposure items may be necessary within the next 12 months due to lapse of statutes of limitations or uncertain tax positions being effectively settled. The Company believes that it is reasonably possible that a decrease of up to $2 million in gross unrecognized income tax benefits for foreign items may be necessary within the next 12 months due to payments. For the remaining uncertain income tax positions, it is difficult at this time to estimate the timing of the resolution.

The Company conducts business globally and, as a result, files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The following table summarizes the tax years

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that remain open for examination by tax authorities in the most significant jurisdictions in which the Company operates:

United States		2013-2015
India		2006-2016
Japan		2011-2015
United Kingdom		2015
Switzerland		2012-2015

In certain of the jurisdictions noted above, the Company operates through more than one legal entity, each of which has different open years subject to examination. The table above presents the open years subject to examination for the most material of the legal entities in each jurisdiction. Additionally, it is important to note that tax years are technically not closed until the statute of limitations in each jurisdiction expires. In the jurisdictions noted above, the statute of limitations can extend beyond the open years subject to examination.

Due to the geographic breadth of the Company’s operations, numerous tax audits may be ongoing throughout the world at any point in time. Income tax liabilities are recorded based on estimates of additional income taxes which may be due upon the conclusion of these audits. Estimates of these income tax liabilities are made based upon prior experience and are updated in light of changes in facts and circumstances. However, due to the uncertain and complex application of income tax regulations, it is possible that the ultimate resolution of audits may result in liabilities which could be materially different from these estimates. In such an event, the Company will record additional income tax expense or income tax benefit in the period in which such resolution occurs.

The Company had a tax holiday for Quintiles East Asia Pte. Ltd. in Singapore through June 2015. The income tax benefit of this holiday was approximately $2 million in both 2015 and 2014. The tax holiday increased earnings per share by approximately $0.02 in both 2015 and 2014.

19. Employee Benefit Plans

Pension and Postretirement Benefit Plans

The Company sponsors both funded and unfunded defined benefit pension plans. These plans provide benefits based on various criteria, including, but not limited to, years of service and salary. The Company also sponsors an unfunded postretirement benefit plan in the United States that provides health and prescription drug benefits to retirees who meet the eligibility requirements. The information presented herein includes the United States and Non-United States pension and postretirement benefit plans assumed in the merger with IMS Health on October 3, 2016. The Company uses a December 31 measurement date for all pension and postretirement benefit plans.

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The following table summarizes changes in the benefit obligation, the plan assets and the funded status of the pension benefit plans (in millions):

		Pension Benefits
		United States Plans				Non-United States Plans
		December 31
		2016				2016				2015
Obligation and funded status:
Change in benefit obligation
Projected benefit obligation at beginning of year		$	—			$	154			$	147
Service costs			4				18				15
Interest cost			3				5				3
Expected return on plan assets			—				—				(3	)
Actuarial gains			(30	)			(8	)			(2	)
Business combinations			333				377				2
Benefits paid			(2	)			(9	)			(6	)
Foreign currency fluctuations and other			—				(29	)			(2	)
Projected benefit obligation at end of year			308				508				154
Change in plan assets
Fair value of plan assets at beginning of year			—				87				88
Actual return on plan assets			5				4				1
Contributions			1				9				6
Business combinations			308				284				2
Benefits paid			(2	)			(9	)			(6	)
Foreign currency fluctuations and other			—				(27	)			(4	)
Fair value of plan assets at end of year			312				348				87
Funded status		$	4			$	(160	)		$	(67	)

The following table summarizes the amounts recognized in the consolidated balance sheets related to the pension benefit plans (in millions):

		Pension Benefits
		United States Plans				Non-United States Plans
		December 31
		2016				2016				2015
Deposits and other assets		$	45			$	13			$	19
Accrued expenses			1				9				5
Other long-term liabilities			40				164				81
AOCI			29				(8	)			(14	)

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

The following table summarizes the accumulated benefit obligation for all pension benefit plans (in millions):

		Pension Benefits
		United States Plans				Non-United States Plans
		December 31
		2016				2016				2015
Accumulated benefit obligation		$	303			$	469			$	139

The Company recorded $4 million of benefit obligation for other postretirement benefits in connection with the Merger. At December 31, 2016, the liability remained $4 million, with $1 million recorded in accrued expenses and $3 million included with other long-term liabilities.

The following table provides the information for pension plans with an accumulated benefit obligation in excess of plan assets and projected benefit obligations in excess of plan assets (in millions):

		Pension Benefits
		United States Plans				Non-United States Plans
		December 31
		2016				2016				2015
Plans with accumulated benefit obligation in excess of plan assets:
Accumulated benefit obligation		$	43			$	409			$	83
Fair value of plan assets			2				271				8
Plans with projected benefit obligation in excess of plan assets:
Projected benefit obligation			44				444				95
Fair value of plan assets			2				271				8

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

The components of net periodic benefit cost changes in plan assets and benefit obligations recognized in other comprehensive loss were as follows (in millions):

		Pension Benefits
		United States Plans				Non-United States Plans
		Year Ended December 31,
		2016				2016				2015				2014
Service cost		$	4			$	18			$	15			$	13
Interest cost			3				5				3				4
Expected return on plan assets			(6	)			(6	)			(3	)			(4	)
Amortization of actuarial losses			—				1				1				—
Amortization of prior service costs			—				—				—				—
Net periodic benefit cost			1				18				16				13
Other changes in plan assets and benefit obligations recognized in other comprehensive loss:
Actuarial loss (gain) – current years			(29	)			(5	)			—				—
Prior service (cost) credit – current years			—				0				—				—
Amortization of actuarial losses			—				(1	)			(1	)			—
Amortization of prior service costs			—				—				—				—
Total recognized in other comprehensive loss			(29	)			(6	)			(1	)			—
Total recognized in net periodic benefit cost and other comprehensive loss		$	(28	)		$	12			$	15			$	13

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

The components of other changes in plan assets and benefit obligations recognized in other comprehensive loss related to the other postretirement benefits plan are de minimis. In addition, the amounts in AOCI that are expected to be recognized as components of net periodic benefit cost (credit) during 2017 for pension and other postretirement benefit plans are de minimis.

Assumptions

The weighted average assumptions used to determine net periodic benefit cost were as follows for the years ended December 31:

		Pension Benefits																Other Postretirement Benefits
		United States Plans				Non-United States Plans
		2016				2016				2015				2014				2016
Discount rate			3.62	%			1.88	%			2.46	%			3.01	%			2.40	%
Rate of compensation increases			3.00	%			5.27	%			4.32	%			4.36	%			—
Expected return on plan assets			7.94	%			4.26	%			4.05	%			5.21	%			—

The weighted average assumptions used to determine benefit obligations were as follows at December 31:

		Pension Benefits												Other Postretirement Benefits
		United States Plans				Non-United States Plans
		2016				2016				2015				2016
Discount rate			4.17	%			1.68	%			2.50	%			2.90	%
Rate of compensation increases			3.00	%			5.17	%			4.37	%			—

The discount rate represents the interest rate used to determine the present value of the future cash flows currently expected to be required to settle the Company’s defined benefit plan obligations. The discount rates are derived using weighted average yield curves on AA-rated corporate bonds. The cash flows from the Company’s expected benefit obligation payments are then matched to the yield curve to derive the discount rates. At December 31, 2016, the discount rate ranged from 2.90% to 4.23% for our United States pension plan and postretirement benefit plan. The discount rate for our United Kingdom pension plans decreased to 2.35% to 2.60% at December 31, 2016 from 3.80% at December 31, 2015. The United States and United Kingdom plans represent approximately 76% of the consolidated benefit obligation as of December 31, 2016. The discount rates in other non-U.S. countries ranged from 0.30% to 11.60% at December 31, 2016, compared to 0.75% to 10.80% at December 31, 2015.

The Company’s assumption for the expected return on plan assets was determined by the weighted average of the long-term expected rate of return on each of the asset classes invested as of the balance sheet date. For plan assets invested in government bonds, the expected return was based on the yields on the relevant indices as of the balance sheet date. There is considerable uncertainty for the expected return on plan assets invested in equity and diversified growth funds. The expected rate of return on plan assets for the United States pension plans was 8.0%

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

at January 1, 2017. Outside the United States, the range of applicable expected rates of return was 0.8% to 9.0% as of January 1, 2017, compared to 4.2% to 9.0% as of January 1, 2016. The expected return on assets (“EROA”) was $13 million and $4 million and the actual return on assets was $10 million and $1 million for the years ended December 31, 2016 and 2015, respectively.

Under the Company’s United States qualified retirement plan, participants have a notional retirement account that increases with pay and investment credits. The rate used to determine the investment credit (cash balance crediting rate) varies monthly and is equal to 1/12th of the yield on 30-year U.S. Government Treasury Bonds, with a minimum of 0.25%. At retirement, the account is converted to a monthly retirement benefit.

At December 31, 2016, the Company’s health care cost trend rate for the next seven years was assumed to be 7.0% and the assumed ultimate cost trend rate was 5%. The Company assumed that ultimate cost trend rate is reached in 2021.

Assumed health care cost trend rates could have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates at December 31, 2016 would have a de minimis effect on the total of service and interest cost and on the accumulated postretirement benefit obligation.

Plan Assets

The Company’s pension plan weighted average asset allocations, by asset category, were as follows:

		Plan Assets at December 31,
		United States Plans				Non-United States Plans								Total
Asset Category		2016				2016				2015				2016				2015
Equity securities			70.09	%			46.09	%			25.22	%			57.43	%			25.22	%
Debt securities			24.94				14.42				56.64				19.39				56.64
Real estate			4.97				—				—				2.35				—
Other			—				39.49				18.14				20.83				18.14
Total			100.00	%			100.00	%			100.00	%			100.00	%			100.00	%

The target asset allocation for the Company’s pension plans were as follows

Asset Category		United States Plans				Non-United States Plans				Total
Equity securities			60-80	%			35-50	%			45-65	%
Debt securities			20-30	%			10-20	%			10-30	%
Real estate			0-10	%			—	%			0-5	%
Other			—	%			30-45	%			10-30	%

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

The following table summarizes United States plan assets measured at fair value (in millions):

		December 31, 2016												December 31, 2015
Asset Category		Level 1				Level 2				Total				Level 1				Level 2				Total
Domestic equities		$	32			$	—			$	32			$	—			$	—			$	—
International equities			20				—				20				—				—				—
Corporate bonds			46				—				46				—				—				—
Real estate			15				—				15				—				—				—
Total assets in the fair value heirarchy			113				—				113				—				—				—
Common/collective trusts measured at net asset value (“NAV”)(1)			—				—				199				—				—				—
Total		$	113			$	—			$	312			$	—			$	—			$	—

The following table summarizes non-United States plan assets measured at fair value (in millions):

		December 31, 2016												December 31, 2015
Asset Category		Level 1				Level 2				Total				Level 1				Level 2				Total
International equities		$	—			$	57			$	57			$	—			$	22			$	22
Debt issued by national, state or local government			2				48				50				—				49				49
Diversified growth fund			—				14				14				—				15				15
Investments funds			—				7				7				—				—				—
Insurance contracts			—				133				133				—				—				—
Other			—				6				6				—				1				1
Total assets in the fair value heirarchy			2				265				267				—				87				87
Assets measured at NAV (1)			—				—				81				—				—				—
Total		$	2			$	265			$	348			$	—			$	87			$	87

(1)

Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the above plan asset tables are intended to permit reconciliation of the fair value of plan assets in the fair value hierarchy to the plan asset amounts presented in the above funded status table as of December 31, 2016 and 2015.

Investments in mutual funds are valued at quoted market prices. Investments in common/collective trusts and pooled funds are valued at the NAV as reported by the trust. The NAV is based on the fair value of the underlying investments held by the fund less its liabilities. Insurance contracts are valued at the amount of the benefit liability. The Company has no Level 3 assets that rely on unobservable inputs to measure fair value.

Investment Policies and Strategies

The Company invests primarily in a diversified portfolio of equity and debt securities that provide for long-term growth within reasonable and prudent levels of risk. The asset allocation targets established by the Company are strategic and applicable to the plan’s long-term investing horizon. The portfolio is constructed and maintained to provide adequate liquidity to meet associated liabilities and minimize long-term expense and

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

provide prudent diversification among asset classes in accordance with the principles of modern portfolio theory. The plan employs a diversified mix of actively managed investments around a core of passively managed index exposures in each asset class. Within each asset class, rapid market shifts, changes in economic conditions or an individual fund manager’s outlook may cause the asset allocation to fall outside the prescribed targets. The majority of the Company’s plan assets are measured quarterly against benchmarks established by the Company’s investment advisors and the Company’s Asset Management Committee, who reviews actual plan performance and has the authority to recommend changes as deemed appropriate. Assets are rebalanced periodically to their strategic targets to maintain the plan’s strategic risk/reward characteristics. The Company periodically conducts asset liability modeling studies to ensure that the investment strategy is aligned with the obligations of the plans and that the assets will generate income and capital growth to meet the cost of current and future benefits that the plans provide. The pension plans do not have investments in Company stock at December 31, 2016 or 2015.

The portfolio for the Company’s United Kingdom pension plans seek to invest in a range of suitable assets of appropriate liquidity which will generate in the most effective manner possible, income and capital growth to ensure that there are sufficient assets to meet benefit payments when they fall due, while controlling the long-term costs of the plans and avoiding short-term volatility of investment returns. The plans seek to achieve these objectives by investing in a mixture of real (equities) and monetary (fixed interest) assets. It recognizes that the returns on real assets, while expected to be greater over the long-term than those on monetary assets, are likely to be more volatile. A mixture across asset classes should nevertheless provide the level of returns required by the plans. The trustee periodically conducts asset liability modeling exercises to ensure the investments are aligned with the appropriate benchmark to better reflect the plans’ liabilities. The trustee also undertakes to review this benchmark on a regular basis.

Cash Flows

Contributions

The Company expects to contribute approximately $23 million in required contributions to its pension and postretirement benefit plans during fiscal 2017. The Company may make additional contributions into its pension plans in fiscal 2017 depending on, among other factors, how the funded status of those plans changes and in order to meet minimum funding requirements as set forth in employee benefit and tax laws, plus additional amounts the Company may deem to be appropriate.

Estimated future benefit payments and subsidy receipts

The following benefit payments (net of expected participant contributions) for pension benefits are expected to be paid as follows (in millions):

		Pension Benefits
2017		$	29
2018			31
2019			34
2020			38
2021			42
Years 2022 through 2026			210
		$	384

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

Benefit payments (net of expected participant contributions) for other postretirement benefits are expected to be de minimis over the periods presented.

Defined Contribution Plans

Defined contribution or profit sharing style plans are offered in Australia, Austria, Belgium, Bulgaria, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary, India, Ireland, Israel, Japan, Malaysia, the Netherlands, New Zealand, Poland, Slovakia, South Africa, Sweden, Switzerland, Taiwan, Thailand, the United States and the United Kingdom. In some cases these plans are required by local laws or regulations.

In the United States, the Company has 401(k) plans under which the Company matches employee deferrals at varying percentages and specified limits of the employee’s salary. In 2016, 2015 and 2014, the Company expensed $39 million, $36 million and $31 million, respectively, related to matching contributions.

Certain key executives of the Company participate in an unfunded defined contribution executive retirement plan, assumed in the Merger, which was frozen to additional accruals for future service contributions in 2012. Participants continue to receive an annual investment credit based on the average of the annual yields at the end of each month on the AA-AAA rated 10 plus year maturity component of the Merrill Lynch United States Corporate Bond Master Index.

Other Plans

Plans accounted for as deferred compensation contracts

The Company provides certain executives with supplemental pension benefits in accordance with their individual employment arrangements. The above tables do not include the Company’s expense or obligation associate with providing these benefits. The obligation related to these benefits was approximately $1 million for the year ended December 31, 2016, and the Company’s expense for the year then ended was de minimis.

Plans accounted for as postretirement benefits

The Company provides certain executives with postretirement medical, dental and life insurance benefits. These benefits are individually negotiated arrangements in accordance with their individual employment arrangements. The above tables do not include the Company’s expense or obligation associate with providing these benefits. The obligation related to these benefits was approximately $12 million for the year ended December 31, 2016, and the Company’s expense for the year then ended was de minimis.

Stock Incentive Plans

Stock incentive plans provide incentives to eligible employees, officers and directors in the form of non-qualified stock options, incentive stock options, stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance shares, performance units, covered annual incentive awards, cash-based awards and other stock-based awards, in each case subject to the terms of the stock incentive plans.

In addition, the Company assumed the equity incentive plans formerly related to IMS Health, the Quintiles IMS Holdings, Inc. 2014 Incentive and Stock Award Plan (the “2014 Equity Plan”) and the Quintiles IMS Holdings, Inc. 2010 Equity Plan (the “2010 Equity Plan”). The 2014 Equity Plan provides for the grant of stock options, SARs, restricted and deferred stock (including RSUs), dividend equivalents, other stock-based awards

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

and performance awards. The 2010 Equity Plan expired on April 4, 2014 and no new awards were granted under the 2010 Equity Plan.

As provided for in the Merger agreement, (i) each option to purchase IMS Health common stock outstanding immediately prior to the effective time of the Merger was converted into an option to acquire shares of the Company’s common stock, on substantially the same terms and conditions, adjusted by the 0.384 exchange ratio; and (ii) each stock-settled stock appreciation right of IMS Health outstanding immediately prior to the effective time of the Merger was converted into a stock-settled stock appreciation right corresponding to shares of Company common stock, on substantially the same terms and conditions, adjusted by the 0.384 exchange ratio. The fair value of those options and stock-settled stock appreciation rights was measured using the Black-Scholes model with the following assumptions: risk-free rate (0.87% – 1.49%); expected life (2.6 years – 7.6 years); dividend yield of zero; expected volatility (26% – 31%). Similarly, each IMS Health stock option, performance unit (assuming 100% of performance target), restricted stock award and restricted stock unit outstanding immediately prior to the effective time of the Merger was converted into a similar Company award, as appropriate, on substantially the same terms and conditions, at the 0.384 exchange ratio. The fair value of these awards was allocated to purchase price and unearned compensation, based on the past and future service conditions. The assumed awards related to the Merger have been identified as applicable, in the tables that follow.

The Company recognized stock-based compensation expense of $80 million, $38 million and $30 million in 2016, 2015 and 2014, respectively. Stock-based compensation expense is included in selling, general and administrative expenses on the accompanying consolidated statements of income. The associated future income tax benefit recognized was $24 million, $9 million and $8 million in 2016, 2015 and 2014, respectively. As of December 31, 2016, there was approximately $117 million of total unrecognized stock-based compensation expense related to outstanding non-vested stock-based compensation arrangements, which the Company expects to recognize over a weighted average period of 1.3 years.

As of December 31, 2016, there were 15.2 million shares available for future grants under all of the Company’s stock incentive plans.

The Company used the following assumptions when estimating the value of the stock-based compensation for stock options and SARs issued as follows:

		Year Ended December 31,
		2016		2015		2014
Expected volatility		20 – 30%		26 – 41%		26 – 43%
Weighted average expected volatility		28%		34%		36%
Expected dividends		0.0%		0.0%		0.0%
Expected term (in years)		0.3 – 6.6		3.7 – 6.7		1.5 – 6.7
Risk-free interest rate		0.32 – 2.19%		1.06 – 2.04%		0.28 – 2.21%

Stock Options

The option price is determined by the Board at the date of grant and the options expire 10 years from the date of grant. The vesting schedule for options granted to employees is either (i) 20% per year beginning on the first anniversary of the date of grant; (ii) 25% per year beginning on the first anniversary of the date of grant; or (iii) 33% on the third anniversary of the date of grant and 67% on the fourth anniversary of the date of grant. Options granted

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

to our non-employee directors vest either (i) 100% on the first anniversary of the date of grant; or (ii) 34% on the anniversary of the date of grant and 33% on the second and third anniversaries of the date of grant.

The Company’s stock option activity in 2016 is as follows (in millions, except number of options and exercise price):

		Number of Options				Weighted Average Exercise Price				Aggregate Intrinsic Value
Outstanding at December 31, 2015			6,647,999			$	38.04			$	204
Granted			783,700			$	64.66
Assumed – Merger			3,563,037			$	19.05
Exercised			(3,385,720	)		$	29.69
Canceled			(357,677	)		$	51.21
Outstanding at December 31, 2016			7,251,339			$	34.83			$	299

The weighted average fair value per share of the options granted in 2016, 2015 and 2014 was $17.91, $21.96 and $18.72, respectively. The total intrinsic value of options exercised was approximately $155 million, $144 million and $77 million in 2016, 2015 and 2014, respectively. The Company received cash of approximately $101 million, $59 million and $33 million in 2016, 2015 and 2014, respectively, from options exercised.

Selected information regarding the Company’s stock options as of December 31, 2016 is as follows:

Options Outstanding																						Options Exercisable
Number of Options		Exercise Price Range												Weighted Average Exercise Price				Weighted Average Remaining Life (in Years)				Number of Options				Weighted Average Exercise Price
1,160,999		$	8.34				—			$	14.63			$	9.19				3.55				1,160,999			$	9.19
1,167,220		$	15.11				—			$	23.70			$	18.18				3.86				1,128,911			$	18.16
1,216,960		$	24.59				—			$	26.05			$	25.65				4.13				1,216,960			$	25.65
1,299,632		$	28.13				—			$	40.00			$	34.47				5.88				831,112			$	33.84
1,620,603		$	42.74				—			$	64.67			$	57.71				8.06				648,436			$	57.64
785,925		$	64.86				—			$	77.11			$	65.10				8.07				364,350			$	65.02

The weighted average remaining contractual life of the options outstanding and exercisable as of December 31, 2016 is 5.6 years and 4.9 years, respectively. The total aggregate intrinsic value of the exercisable stock options and the stock options expected to vest as of December 31, 2016 was approximately $298 million.

Stock Appreciation Rights – Stock Settled

The exercise price of the stock-settled SARs (“SSRs”) is equal to the closing market price of the Company’s common stock as of the grant date and expire on the tenth anniversary of the date of grant. The SSRs are eligible to vest in equal increments of 25% on each of the first four anniversaries of the date of grant.

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

The Company’s SSR activity in 2016 is as follows (in millions, except number of SSRs and exercise price):

		Number of Options				Weighted Average Exercise Price				Aggregate Intrinsic Value
Outstanding at December 31, 2015			—			$	—			$	—
Assumed – Merger			1,351,647			$	62.13
Exercised			(3,205	)		$	65.16
Canceled			(35,120	)		$	61.72
Outstanding at December 31, 2016			1,313,322			$	62.13			$	18

Prior to 2016, the Company did not have SSRs. The total intrinsic value of SSRs exercised was approximately $0.04 million in 2016.

The weighted average remaining contractual life of the SSRs outstanding and exercisable as of December 31, 2016 is 8.6 years and 7.9 years, respectively. The total aggregate intrinsic value of the exercisable SSRs and the SSRs expected to vest as of December 31, 2016 was approximately $18 million.

Stock Appreciation Rights – Cash Settled

The Company’s cash settled SARs (“CSRs”) require the Company to settle in cash an amount equal to the difference between the fair value of the Company’s common stock on the date of exercise and the grant price, multiplied by the number of CSRs being exercised. These awards either (i) vest 25% per year or (ii) vest 33% on the third anniversary of the date of grant and 67% on the fourth anniversary of the date of grant; or (iii) one-third per year beginning on the first anniversary of the date of grant.

The Company’s CSR activity in 2016 is as follows (in millions, except number of CSRs and grant price):

		Number of CSRs				Weighted Average Grant Price				Aggregate Intrinsic Value
Outstanding at December 31, 2015			530,701			$	50.46			$	10
Granted			40,400			$	70.34
Exercised			(55,600	)		$	44.49
Canceled			(36,325	)		$	55.78
Outstanding at December 31, 2016			479,176			$	52.42			$	11

As of December 31, 2016, 2015 and 2014, the weighted average fair value per share of the CSRs granted was $34.25, $29.79 and $27.17, respectively. The Company paid approximately $2 million, $1 million and $0.4 million to settle exercised CSRs in 2016, 2015 and 2014, respectively.

The weighted average remaining contractual life of the CSRs outstanding and exercisable as of December 31, 2016 is 7.2 years and 6.6 years, respectively. The total aggregate intrinsic value of the exercisable CSRs and the CSRs expected to vest as of December 31, 2016 was approximately $11 million.

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

Restricted Stock Units

The Company’s RSUs will settle in shares of the Company’s common stock within 45 days of the applicable vesting date. RSUs granted to employees vest either (i) 25% per year beginning on the first anniversary of the date of grant; (ii) one-third per year beginning on the first anniversary of the grant date; or (iii) 33% on the third anniversary of the date of grant and 67% on the fourth anniversary of the date of grant.

The Company’s RSU activity in 2016 is as follows:

		Number of RSUs				Weighted Average Grant- Date Fair Value
Outstanding at December 31, 2015			359,553			$	60.60
Granted			494,681			$	68.65
Assumed – Merger			1,054,567			$	80.20
Performance units converted to RSUs			144,239			$	64.77
Vested			(252,462	)		$	64.93
Canceled			(79,761	)		$	65.80
Outstanding at December 31, 2016			1,720,817			$	74.40

As of December 31, 2016, there are 1.7 million RSUs outstanding with an intrinsic value of approximately $131 million.

Performance Units

The Company awarded performance units that contain both service and performance based vesting criteria. Vesting occurs if the recipient remains employed and depends on the degree to which the Company achieves certain cumulative adjusted diluted earnings per share goals during a three-year performance period (as defined in the award agreements). The fair value of these awards is equal to the closing price of the Company’s common stock on the grant date. All performance units outstanding at the date of the Merger were converted into time-based RSUs at 187% of target for performance units granted in 2015 and at 100% of target for performance units granted in 2016. Accordingly, as of December 31, 2016, there are no performance units outstanding.

The Company’s performance units activity in 2016 is as follows:

		Number of Performance Units				Weighted Average Grant- Date Fair Value
Non-vested at December 31, 2015			49,667			$	64.93
Granted			119,839			$	64.67
Additional goal achievement shares			12,727			$	64.93
Vested			(59,830	)		$	64.79
Canceled performance units converted to RSUs			(122,403	)		$	64.74
Non-vested at December 31, 2016			—			$	—

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

Restricted Stock Awards

The restricted stock awards (“RSAs”) issued during 2016 vest either (i) in equal increments of 50% on each of the second and fourth anniversaries of the grant date; or (ii) one-third per year beginning on the first anniversary of the date of grant.

The Company’s RSA activity in 2016 is as follows:

		Number of RSAs				Weighted Average Grant-Date Fair Value
Outstanding at December 31, 2015			—			$	—
Granted			86,356			$	81.06
Assumed – Merger			367,053			$	80.20
Canceled			(86,356	)		$	81.06
Outstanding at December 31, 2016			367,053			$	80.20

As of December 31, 2016, there are 0.4 million RSAs outstanding with an intrinsic value of approximately $28 million.

Employee Stock Purchase Plan

The Company sponsors an Employee Stock Purchase Plan (“ESPP”) which allows eligible employees to authorize payroll deductions of up to 10% of their base salary to be applied toward the purchase of full shares of the Company’s common stock on the last day of the offering period. Offering periods under the ESPP are six months in duration. Beginning April 1 and October 1 of each year. Participating employees purchase shares on the last day of each offering period at a discount of 15% of the closing price of the common stock on such date as reported on the NYSE. The aggregate number of shares of the Company’s common stock that may be issued under the ESPP may not exceed 2.5 million shares and no one employee may purchase any shares under the ESPP having a collective fair market value greater than $25,000 in any one calendar year. During 2016, 2015 and 2014, the Company issued 0.1 million shares, 0.1 million shares and 0.05 million shares, respectively, of common stock for purchases under the ESPP. Effective as of December 31, 2016, the ESPP was discontinued and participant contributions under the ESPP ceased. The final purchase of shares under the ESPP occurred on December 31, 2016.

Other

The Company sponsors a supplemental non-qualified deferred compensation plan, covering certain management employees, and maintains other statutory indemnity plans as required by local laws or regulations.

20. Related Party Transactions

The Company reimbursed its former Executive Chairman, who retired effective December 31, 2015 but remains a director of the Company, for business-related travel services he provided for himself and other Company employees with the use of his own airplane. In 2015 and 2014, the Company expensed approximately $1 million and $2 million, respectively, for such business-related travel expenses. The Company’s reimbursement obligations terminated effective December 31, 2015 in connection with its former Executive Chairman’s retirement.

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

In January 2010, the Company entered into a collaboration agreement with a related party, HUYA Bioscience International, LLC (“HUYA”), to fund up to $2 million of its research and development activity for a specific compound. Under the agreement, the Company had the potential to receive additional consideration which contractually would not exceed $17 million excluding interest if certain events had occurred. In February 2015, the Company and HUYA agreed to terminate the collaboration agreement. In connection with the termination, HUYA paid the Company $5 million to satisfy all of HUYA’s various payment obligations under the collaboration agreement.

During 2016, 2015 and 2014, the Company entered into a number of contracts with HUYA, primarily in Asia, in which the Company will provide up to approximately $(8 million) net cancellations, $32 million and $0.4 million, respectively, of services on a fee for services basis at arm’s length and at market rates. In 2016, 2015 and 2014, the Company provided approximately $6 million, $7 million and $2 million, respectively, of services under these agreements.

The Company has entered into other transactions with related parties including investments in and advances to unconsolidated affiliates which are discussed in Note 4.

21. Operations by Geographic Location

The table below presents the Company’s operations by geographical location. The Company attributes revenues to geographical locations based upon where the services are performed. 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 millions):

		Year Ended December 31,
		2016				2015				2014
Revenues:
Americas:
United States		$	2,145			$	1,788			$	1,589
Other			233				185				195
Americas			2,378				1,973				1,784
Europe and Africa:
United Kingdom			461				410				402
Other			1,594				1,237				1,275
Europe and Africa			2,055				1,647				1,677
Asia-Pacific:
Japan			587				443				472
Other			344				263				232
Asia-Pacific			931				706				704
Revenues			5,364				4,326				4,165
Reimbursed expenses			1,514				1,411				1,295
Total revenues		$	6,878			$	5,737			$	5,460

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

		As of December 31,
		2016				2015
Property, equipment and software, net:
Americas:
United States		$	430			$	170
Other			25				1
Americas			455				171
Europe and Africa:
United Kingdom			40				46
Other			214				32
Europe and Africa			254				78
Asia-Pacific:
Japan			36				13
Other			34				9
Asia-Pacific			70				22
Total property, equipment and software, net		$	779			$	271

22. Segments

The following table presents the Company’s operations by reportable segment. The Company is managed through three reportable segments, Commercial Solutions, Research & Development Solutions and Integrated Engagement Services. Commercial Solutions provides mission critical information, technology solutions and real-world insights and services to our life science clients. Research & Development Solutions, which primarily serves biopharmaceutical clients, is engaged in research and development and provides clinical research and clinical trial services. Integrated Engagement Services provides contract sales to both biopharmaceutical clients and the broader healthcare market.

Certain costs are not allocated to the Company’s segments and are reported as general corporate and unallocated expenses. These costs primarily consist of stock-based compensation and expenses for corporate overhead functions such as senior leadership, finance, human resources, information technology, facilities and legal. The Company does not allocate depreciation and amortization, restructuring costs, merger related costs or impairment charges to its segments. Revenues and costs for reimbursed expenses are not allocated to the Company’s segments. Asset

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

information by segment is not presented, as this measure is not used by the chief operating decision maker to assess the performance of the Company. Information presented below is in millions:

		Year Ended December 31,
		2016				2015				2014
Revenues
Commercial Solutions		$	1,096			$	323			$	230
Research & Development Solutions			3,472				3,159				3,050
Integrated Engagement Services			796				844				885
Total revenues			5,364				4,326				4,165
Costs of revenue
Commercial Solutions			644				239				174
Research & Development Solutions			1,953				1,779				1,764
Integrated Engagement Services			639				687				726
Total costs of revenue			3,236				2,705				2,664
Selling, general and administrative expenses
Commercial Solutions			216				65				52
Research & Development Solutions			577				556				542
Integrated Engagement Services			82				79				81
General corporate and unallocated			136				115				106
Total selling, general and administrative expenses			1,011				815				781
Segment profit
Commercial Solutions			236				19				4
Research & Development Solutions			942				824				744
Integrated Engagement Services			75				78				78
Total segment profit			1,253				921				826
General corporate and unallocated			(136	)			(115	)			(106	)
Depreciation and amortization			(289	)			(128	)			(121	)
Restructuring costs			(71	)			(30	)			(9	)
Merger related costs			(87	)			—				—
Impairment charges			(28	)			(2	)			—
Total income from operations		$	642			$	646			$	590

23. Earnings Per Share

The following table reconciles the basic to diluted weighted average shares outstanding (in millions):

		Year Ended December 31,
		2016				2015				2014
Basic weighted average common shares outstanding			149.1				123.0				128.0
Effect of dilutive stock options and share awards			2.9				2.6				3.1
Diluted weighted average common shares outstanding			152.0				125.6				131.1

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

The following table presents the weighted average number of outstanding stock-based awards not included in the computation of diluted earnings per share if they are subject to performance conditions or if the effect of including such stock-based awards in the computation would be anti-dilutive (in millions):

		Year Ended December 31,
		2016				2015				2014
Shares subject to performance conditions			0.1				0.1				—
Shares subject to anti-dilutive stock-based awards			1.1				1.0				1.2
Total shares excluded from diluted earnings per share			1.2				1.1				1.2

The vesting of performance units is contingent upon the achievement of certain performance targets. The performance units are not included in diluted earnings per share until the performance targets have been met.

Stock-based awards will have a dilutive effect under the treasury method when the respective period’s average market value of the Company’s common stock exceeds the exercise proceeds.

24. Comprehensive Income

Below is a summary of the components of AOCI (in millions):

		Foreign Currency Translation				Marketable Securities				Derivative Instruments				Defined Benefit Plans				Income Taxes				Total
Balance at December 31, 2013		$	(6	)		$	6			$	(21	)		$	(5	)		$	26			$	—
Other comprehensive (loss) income before reclassifications			(50	)			(1	)			(7	)			(10	)			7				(61	)
Reclassification adjustments			—				(5	)			9				—				(2	)			2
Balance at December 31, 2014			(56	)			—				(19	)			(15	)			31				(59	)
Other comprehensive (loss) income before reclassifications			(61	)			—				(13	)			—				9				(65	)
Reclassification adjustments			—				—				18				1				(6	)			13
Balance at December 31, 2015			(117	)			—				(14	)			(14	)			34				(111	)
Other comprehensive (loss) income before reclassifications			(506	)			—				(4	)			34				(5	)			(481	)
Reclassification adjustments			—				—				28				1				(7	)			22
Balance at December 31, 2016		$	(623	)		$	—			$	10			$	21			$	22			$	(570	)

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

Below is a summary of the (gains) losses reclassified from AOCI into the consolidated statements of income and the affected financial statement line item (in millions):

		Affected Financial Statement Line Item		Year Ended December 31,
Reclassification Adjustments			2016				2015				2014
Marketable securities		Other expense (income), net		$	—			$	—			$	(5	)
Income tax expense					—				—				(2	)
Total net of income taxes				$	—			$	—			$	(3	)
Derivative instruments:
Interest rate swaps and caps		Interest expense			6			$	12			$	12
Foreign exchange forward contracts		Revenues			19				6				(3	)
Foreign exchange forward contracts		Other expense (income), net			3				—				—
Total before income taxes					28				18				9
Income tax benefit					7				6				4
Total net of income taxes				$	21			$	12			$	5
Defined benefit plans:
Amortization of actuarial losses		See Note 19		$	1			$	1			$	—
Income tax benefit					—				—				—
Total net of income taxes				$	1			$	1				—

25. Supplemental Cash Flow Information

The following table presents the Company’s supplemental cash flow information (in millions):

		Year Ended December 31,
		2016				2015				2014
Supplemental Cash Flow Information:
Interest paid		$	124			$	82			$	94
Income taxes paid, net of refunds			106				121				139
Non-cash Investing Activities:
Fair value of consideration transferred in connection with business combinations		$	10,425			$	423			$	—

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QUINTILES IMS HOLDINGS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - Continued

26. Quarterly Financial Data (Unaudited)

The following table summarizes the Company’s unaudited quarterly results of operations (in millions, except per share data):

		2016
		First Quarter				Second Quarter				Third Quarter				Fourth Quarter(2)
Revenues		$	1,108			$	1,167			$	1,136			$	1,953
Income from operations			179				151				168				144
Net income			109				92				104				(175	)
Net (income) loss attributable to non-controlling interests			(2	)			(5	)			(5	)			(3	)
Net income attributable to Quintiles IMS Holdings, Inc.		$	107			$	87			$	99			$	(178	)
Basic earnings per share(1)		$	0.89			$	0.73			$	0.83			$	0.74
Diluted earnings per share(1)		$	0.88			$	0.71			$	0.82			$	0.74
		2015
		First Quarter				Second Quarter				Third Quarter				Fourth Quarter
Revenues		$	1,030			$	1,074			$	1,093			$	1,129
Income from operations			143				159				166				178
Net income			87				85				108				108
Net (income) loss attributable to non-controlling interests			—				—				2				(3	)
Net income attributable to Quintiles IMS Holdings, Inc.		$	87			$	85			$	110			$	105
Basic earnings per share(1)		$	0.69			$	0.69			$	0.91			$	0.86
Diluted earnings per share(1)		$	0.68			$	0.67			$	0.89			$	0.85

(1)	The sum of the quarterly per share amounts may not equal per share amounts reported for year-to-date periods. This is due to changes in the number of weighted average shares outstanding and the effects of rounding for each period.

(2)	The fourth quarter of 2016 includes the results of operations of IMS Health since the date of the Merger on October 3, 2016.

27. Subsequent Event

On February 12, 2017, the Board increased the stock repurchase authorization under the Repurchase Program by $1.0 billion with approximately $1.5 billion remaining available for repurchases under the program. See Note 14 for additional information regarding the Repurchase Program.

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