Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should read the “Risk Factors” section of this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a leading global provider of information, innovative technology solutions and contract research services focused on helping healthcare clients find better solutions for patients. Formed through the Merger of IMS Health and Quintiles, we apply human data science – leveraging the analytic rigor and clarity of data science to the ever-expanding scope of human science – to enable companies to reimagine and develop new approaches to clinical development and commercialization, speed innovation, and accelerate improvements in healthcare outcomes. Powered by the IQVIA CORE™, we deliver unique and actionable insights at the intersection of large scale analytics, transformative technology and extensive domain expertise, as well as execution capabilities to help biotech, medical device, and pharmaceutical companies, medical researchers, government agencies, payers and other healthcare stakeholders tap into a deeper understanding of diseases, human behaviors and scientific advances, in an effort to advance their path toward cures. With more than 55,000 employees, we conduct operations in more than 100 countries.

The Company is managed through three reportable segments, Commercial Solutions, Research & Development Solutions and Integrated Engagement Services. Commercial Solutions provides 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.

For a description of our service offerings within our segments, refer to “Business” within Part I, Item 1, of this Annual Report on Form 10-K.

Industry Outlook

For information about the industry outlook and markets that we operate in, refer to “Our Market Outlook” within Part I, Item I of this Annual Report on Form 10-K.

Business Combinations

We have completed and will continue to consider strategic business combinations to enhance our capabilities and offerings in certain areas, including several individually immaterial acquisitions during the years ended December 31, 2017 and 2016. In October 2016, we completed the Merger to better serve our clients across their entire product lifecycle by (i) increasing the efficiency of healthcare companies’ commercial organizations through enhanced analytics and outsourcing services; (ii) improving clinical trial design, recruitment, and execution; and (iii) creating real-world information solutions based on the use of medicines by actual patients in normal situations. In July 2015, we combined our global clinical trials laboratory operations in our Research & Development Solutions segment with the clinical trials laboratory operations of Quest with the resulting combined business referred to as Q2 Solutions. We own 60% of Q2 Solutions and Quest owns the remaining 40%.

These transactions were accounted for as business combinations and the acquired results of operations are included in our consolidated financial information since the acquisition date with a non-controlling interest for the portion that we do not own. See Note 15 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information with respect to these business combinations.

Sources of Revenue

Total revenues are comprised of revenues from the provision of our services and revenues from reimbursed expenses that are incurred while providing our services. We do not have any material product revenues. Our segment revenues expressed as a percent of 2017 revenues (excluding reimbursed expense revenue) are as follows:

Commercial Solutions			45.0	%
Research & Development Solutions			45.3	%
Integrated Engagement Services			9.7	%

Reimbursed expenses are comprised primarily of payments to physicians (investigators) who oversee clinical trials and travel expenses for our clinical monitors principally within our Research & Development Solutions segment and travel expenses for our sales representatives within our Integrated Engagement Services segment. Reimbursed expenses may fluctuate from period-to-period due, in part, to where we are in the lifecycle of the many contracts that are in progress at a particular point in time. As reimbursed expenses are pass-through costs to our clients with little to no profit and we believe that the fluctuations from period-to-period are not meaningful to our underlying performance, we do not provide any analysis of the fluctuations in these items or their impact on our financial results. We have collection risk on contractually reimbursable expenses, and, from time to time, are 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.

See Note 1 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for details regarding the new revenue recognition standard, which will be effective January 1, 2018.

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

Foreign Currency Translation

In 2017, approximately 41% of our revenues were denominated in currencies other than the United States dollar, which represents approximately 55 currencies. Because a large portion of our revenues and expenses are denominated in currencies other than the United States dollar and our financial statements are reported in United States dollars, changes in foreign currency exchange rates can significantly affect our results of operations. The revenue and expenses of our foreign operations are generally denominated in local currencies and translated into United States dollars for financial reporting purposes. Accordingly, exchange rate fluctuations will affect the translation of foreign results into United States dollars for purposes of reporting our consolidated results. As a result, we believe that providing the impact of fluctuations in foreign currency rates on certain financial results can facilitate the analysis of period-to-period comparisons of business performance that excludes the effects of foreign currency rate fluctuations. The constant currency information assumes the same foreign currency exchange rates that were in effect for the comparable prior-year period were used in translation of the current period results.

Consolidated Results of Operations

For information regarding our results of operations for Commercial Solutions, Research & Development Solutions and Integrated Engagement Services, refer to “Segment Results of Operations” later in this section.

Revenues

														Change
		Year Ended December 31,												2017 vs. 2016								2016 vs. 2015
(dollars in millions)		2017				2016				2015				$				%				$				%
Revenues		$	8,060			$	5,364			$	4,326			$	2,696				50.3	%		$	1,038				24.0	%

2017 compared to 2016

In 2017, our revenues increased $2,696 million, or 50.3%, as compared to the same period in 2016. This increase was comprised of constant currency revenue growth of approximately $2,678 million, or 49.9%, and a positive impact of approximately $18 million from the effects of foreign currency fluctuations. The constant currency revenue growth was comprised of a $2,515 million increase in Commercial Solutions, which includes $2,557 million from the Merger, partially offset by lower revenue from Encore during the first half of 2017 and the sale of Encore at the beginning of the third quarter of 2017, a $172 million increase in Research & Development Solutions and a $9 million decrease in Integrated Engagement Services.

2016 compared to 2015

In 2016, our revenues increased $1,038 million, or 24.0%, as compared to the same period in 2015. This increase was comprised of constant currency revenue growth of approximately $1,044 million, or 24.1%, and a negative impact of approximately $6 million from the effects of foreign currency fluctuations. The constant currency revenue growth was comprised of a $769 million increase in Commercial Solutions, which includes $799 million from the Merger, partially offset by a decline in the legacy service offerings, a $341 million increase in Research & Development Solutions, which includes the incremental impact from the businesses that Quest contributed to Q2 Solutions, and a $66 million decrease in Integrated Engagement Services. The revenue contributed by the Merger in 2016 was negatively impacted by approximately $55 million as a result of adjusting the acquired IMS Health unearned income to fair value as required by purchase accounting.

Costs of Revenue, exclusive of Depreciation and Amortization

		Year Ended December 31,
(dollars in millions)		2017				2016				2015
Costs of revenue, exclusive of depreciation and amortization		$	4,622			$	3,236			$	2,705
% of revenues			57.3	%			60.3	%			62.5	%

2017 compared to 2016

When compared to 2016, costs of revenue, exclusive of depreciation and amortization, in 2017 increased $1,386 million. This increase includes a constant currency increase of approximately $1,388 million, or 42.9%, partially offset by a positive impact of approximately $2 million from the effects of foreign currency fluctuations. The constant currency growth was comprised of a $1,267 million increase in Commercial Solutions, which includes $1,302 million from the Merger, partially offset by lower costs from Encore during the first half of 2017 and the sale of Encore at the beginning of the third quarter of 2017, a $119 million increase in Research & Development Solutions and a $2 million increase in Integrated Engagement Services.

As a percent of revenues, costs of revenue declined in 2017 to 57.3% as compared to 60.3% in 2016. This decline was primarily due to the fact that 2017 includes a lower proportion of revenues from the lower margin Integrated Engagement Services segment, primarily as a result of the Merger.

2016 compared to 2015

When compared to 2015, costs of revenue, exclusive of depreciation and amortization, in 2016 increased $531 million. This increase includes a constant currency increase of approximately $566 million, or 20.9%, partially offset by a positive impact of approximately $35 million from the effects of foreign currency fluctuations. The constant currency growth was comprised of a $403 million increase in Commercial Solutions, which includes $435 million from the Merger, partially offset by a decline in the legacy service offerings, a $222 million increase in Research & Development Solutions, which includes the incremental impact from the businesses that Quest contributed to Q2 Solutions, and a $59 million decrease in Integrated Engagement Services.

Selling, General and Administrative Expenses

		Year Ended December 31,
(dollars in millions)		2017				2016				2015
Selling, general and administrative expenses		$	1,605			$	1,011			$	815
% of revenues			19.9	%			18.8	%			18.8	%

2017 compared to 2016

The $594 million increase in selling, general and administrative expenses in 2017 includes a constant currency increase of $587 million, or 58.1%, and a negative impact of approximately $7 million from the effects of foreign currency fluctuations. The constant currency growth primarily consisted of a $479 million increase in Commercial Solutions, primarily from the Merger and a $6 million increase in Research & Development Solutions. Also contributing to the increase was a higher level of general corporate and unallocated expenses of $111 million, primarily due to higher stock-based compensation expense and acquisition and integration related costs, which was partially offset by a $9 million decrease in Integrated Engagement Services.

2016 compared to 2015

The $196 million increase in selling, general and administrative expenses in 2016 includes a constant currency increase of $215 million, or 26.4%, partially offset by a positive impact of approximately $19 million from the effects of foreign currency fluctuations. The constant currency growth was comprised of a $149 million increase in Commercial Solutions, which includes $156 million from the Merger, partially offset by a decline in legacy service offerings, a $34 million increase in Research & Development Solutions, which includes the incremental impact from the businesses that Quest contributed to Q2 Solutions, a $3 million increase in Integrated Engagement Services, and a $29 million increase in general corporate and unallocated expenses, which includes $37 million from the Merger. The constant currency increase in general corporate and unallocated expenses in 2016 was primarily due to higher stock-based compensation expense.

Depreciation and Amortization

		Year Ended December 31,
(dollars in millions)		2017				2016				2015
Depreciation and amortization		$	1,011			$	289			$	128
% of revenues			12.5	%			5.4	%			3.0	%

The $722 million and $161 million increases in depreciation and amortization in 2017 and 2016, respectively, were primarily due to the approximately $6.4 billion of intangible assets acquired in the Merger.

Restructuring Costs

		Year Ended December 31,
(in millions)		2017				2016				2015
Restructuring costs		$	63			$	71			$	30

During 2017, we recognized $63 million of restructuring charges, net of reversals for changes in estimates, under our existing restructuring plans. The remaining actions under these plans, as well as actions associated with upcoming 2018 plans, are expected to occur throughout 2018, and are expected to consist of severance, facility closure and other exit-related costs.

During 2016, we recognized $71 million of restructuring charges, net of reversals for changes in estimates, under our existing restructuring plans.

During 2015, we recognized $30 million of restructuring charges, net of reversals for changes in estimates, associated with both the February 2015 restructuring plan and the Q2 Solutions restructuring plan.

Merger Related Costs

		Year Ended December 31,
(in millions)		2017				2016				2015
Merger related costs		$	—			$	87			$	—

During 2016, we recognized $87 million of merger related costs. Merger related costs include the direct and incremental costs associated with the Merger such as (i) investment banking, legal, accounting and consulting fees, (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 employees whose positions became redundant as a result of the Merger.

Impairment Charges

		Year Ended December 31,
(in millions)		2017				2016				2015
Impairment charges		$	40			$	28			$	2

During 2017 and 2016, we recognized $40 million and $28 million, respectively, of impairment losses for declines in fair value of goodwill and identifiable intangible assets in Encore. See Note 17 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information with respect to impairment charges. During the fourth quarter of 2015, we exited a training facility in Japan, resulting in a $2 million impairment of the land and building.

Interest Income and Interest Expense

		Year Ended December 31,
(in millions)		2017				2016				2015
Interest income		$	(7	)		$	(4	)		$	(4	)
Interest expense		$	346			$	144			$	101

Interest income includes interest received primarily from bank balances and investments.

Interest expense during 2017 was higher than 2016 due to an increase in the average debt outstanding, primarily as a result of the debt assumed in the Merger and the refinancing transaction in the fourth quarter of 2016 (approximately $4.5 billion), the February 2017 issuance of €1,425 million (approximately $1,522 million) of 3.25% senior notes, the September 2017 issuance of €420 million (approximately $501 million) of 2.875% senior notes and the incremental term B loan of $750 million. See Note 11 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information with respect to these debt transactions. Interest expense during 2016 was higher than 2015 due to an increase in the average debt outstanding, primarily as a result of the debt acquired from the Merger.

Loss on Extinguishment of Debt

		Year Ended December 31,
(in millions)		2017				2016				2015
Loss on extinguishment of debt		$	19			$	31			$	8

During 2017, we recognized a $19 million loss on extinguishment of debt for fees and expenses incurred related to the refinancing of our senior notes and senior secured credit facilities, which includes a $16 million make-whole premium.

In the fourth quarter of 2016, we recognized a $31 million loss on extinguishment of debt related to the refinancing of our senior secured credit facilities. The loss on extinguishment of debt includes an $8 million make-whole premium, $9 million of unamortized debt issuance costs and $14 million of unamortized discount.

In May 2015, we recognized an $8 million loss on extinguishment of debt related to the refinancing of our senior secured credit facilities. The loss on extinguishment of debt includes $1 million of unamortized debt issuance costs, $1 million of unamortized discount and $6 million of related fees and expenses.

See “—Liquidity and Capital Resources” for more information on these transactions.

Other Expense (Income), Net

		Year Ended December 31,
(in millions)		2017				2016				2015
Other expense (income), net		$	30			$	(8	)		$	2

Other expense, net for 2017 primarily consisted of foreign currency net losses, partially offset by investment gains. The foreign currency losses in 2017 were primarily the result of the combination of changes in intercompany loan balances from corporate legal entity integration and a weaker U.S. dollar.

Other income, net for 2016 primarily consisted of a gain on the sale of a cost basis investment partially offset by foreign currency net losses.

Other expense, net for 2015 primarily consisted of $6 million of expense related to the change in fair value of contingent consideration related to an acquisition, partially offset by $5 million of foreign currency net gains.

Income Tax (Benefit) Expense

		Year Ended December 31,
(dollars in millions)		2017				2016				2015
Income tax (benefit) expense		$	(987	)		$	345			$	159
Effective income tax rate			(298.2	)%			72.0	%			29.5	%

On December 22, 2017, the U.S. government enacted the Tax Act. The Tax Act is comprehensive legislation that includes provisions that lower the federal corporate income tax rate from 35% to 21% beginning in 2018 and impose a one-time transition tax on undistributed foreign earnings. ASC 740 “Income Taxes” generally requires the effects of the tax law change to be recorded in the period of enactment. However, the SEC staff issued Staff Accounting Bulletin No. 118 to address situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. We have recognized the tax impacts related to the transition tax on undistributed foreign earnings and the impact to deferred tax assets and liabilities and included these amounts in our consolidated financial statements for the year ended December 31, 2017, on a provisional basis. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions we have made, and additional interpretive regulatory guidance that may be issued. The accounting is expected to be complete when the 2017 U.S. corporate income tax return is filed in 2018.

As a result of the Tax Act, we recorded a provisional deferred tax benefit of $977 million related to the revaluation of deferred taxes at the newly enacted 21% rate and the reversal of the deferred tax liability on undistributed foreign earnings net of the newly enacted transition tax. We no longer consider any of our foreign earnings to be indefinitely reinvested. Our effective income tax rate was also favorably impacted by a tax benefit of $261 million related to purchase accounting amortization of approximately $763 million as a result of the Merger. Additionally, due to the adoption of the new stock-based compensation accounting standard on January 1, 2017, our effective income tax rate was favorably impacted by $26 million of excess tax benefits on equity compensation.

The increase in the 2016 effective income tax rate, as compared to 2015, was due to a change in our indefinite reinvestment assertion on the majority of our cumulative foreign earnings. Due to the Merger, we reevaluated our indefinite reinvestment assertion based on the need for cash in the United States, including funding the Repurchase Program and potential acquisitions. Accordingly, we changed our assertion with respect to $2,801 million of foreign earnings, including $1,865 million of IMS Health’s previously undistributed historical foreign earnings. 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

Equity in Earnings (Losses) of Unconsolidated Affiliates

		Year Ended December 31,
(in millions)		2017				2016				2015
Equity in earnings (losses) of unconsolidated affiliates		$	10			$	(4	)		$	8

Equity in earnings (losses) of unconsolidated affiliates primarily includes earnings (losses) from our investment in NovaQuest Pharma Opportunities Funds. See Note 4 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information with respect to these funds.

Net Income Attributable to Non-controlling Interests

		Year Ended December 31,
(in millions)		2017				2016				2015
Net income attributable to non-controlling interests		$	(19	)		$	(15	)		$	(1	)

Net income attributable to non-controlling interests primarily includes Quest’s interest in Q2 Solutions.

Segment Results of Operations

Revenues and profit by segment are as follows (dollars in millions):

		Segment Revenues												Segment Profit
		2017				2016				2015				2017				2016				2015
Commercial Solutions		$	3,630			$	1,089			$	323			$	1,010			$	234			$	19
Research & Development Solutions			3,647				3,478				3,159				997				943				824
Integrated Engagement Services			783				797				844				73				76				78
Total			8,060				5,364				4,326				2,080				1,253				921
General corporate and unallocated															(247	)			(136	)			(115	)
Depreciation and amortization															(1,011	)			(289	)			(128	)
Restructuring costs															(63	)			(71	)			(30	)
Merger related costs															—				(87	)			—
Impairment charges															(40	)			(28	)			(2	)
Consolidated		$	8,060			$	5,364			$	4,326			$	719			$	642			$	646

Prior period segment results have been recast to conform to immaterial changes to management reporting in 2017. The recast only impacts the fourth quarter of 2016 as the management reporting changes relate to IMS Health and these results are only reflected in our results since the date of the Merger on October 3, 2016.

Certain costs are not allocated to our 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. In addition, we do not allocate depreciation and amortization, restructuring costs, merger related costs or impairment charges to our segments.

Commercial Solutions

		Year Ended December 31,												Change
(dollars in millions)		2017				2016				2015				2017 vs. 2016								2016 vs. 2015
Revenues		$	3,630			$	1,089			$	323			$	2,541				233.3	%		$	766				237.2	%
Costs of revenue, exclusive of depreciation and amortization			1,917				641				239				1,276				199.1				402				168.2
Selling, general and administrative expenses			703				214				65				489				228.5				149				229.2
Segment profit		$	1,010			$	234			$	19			$	776				331.6	%		$	215				1,131.6	%

Revenues

2017 compared to 2016

Commercial Solutions’ revenues were $3,630 million in 2017, an increase of $2,541 million over 2016. This increase was comprised of constant currency revenue growth of approximately $2,515 million, and a positive impact of approximately $26 million from the effects of foreign currency fluctuations. The constant currency increase includes the incremental impact from the Merger of $2,557 million, including post-Merger acquisitions, partially offset by a decline in revenue from Encore during the first half of 2017 and the sale of Encore at the beginning of the third quarter of 2017.

2016 compared to 2015

Commercial Solutions’ revenues were $1,089 million in 2016, an increase of $766 million over 2015, which includes the impact from the Merger of $799 million. The revenue increase was due to the impact from the Merger and from growth in real-world and late phase research services, partially offset by lower revenues from Encore and advisory services. The revenue contributed by the Merger in 2016 was negatively impacted by approximately $55 million as a result of adjusting the acquired IMS Health unearned income to fair value as required by purchase accounting.

Costs of Revenue, exclusive of Depreciation and Amortization

2017 compared to 2016

Commercial Solutions’ costs of revenues, exclusive of depreciation and amortization, were $1,917 million in 2017, an increase of $1,276 million over 2016. This increase was comprised of a $1,267 million constant currency increase and a negative impact of approximately $9 million from the effects of foreign currency fluctuations. The constant currency increase includes the incremental impact from the Merger of $1,302 million, including post-Merger acquisitions, partially offset by lower costs from Encore due to lower revenue volumes during the first half of 2017 and the sale of Encore at the beginning of the third quarter of 2017.

2016 compared to 2015

Commercial Solutions’ costs of revenue, exclusive of depreciation and amortization, increased approximately $402 million in 2016. This increase was comprised of a $403 million constant currency increase, which includes $435 million from the Merger, offset by lower costs from Encore and advisory services due to lower revenue volumes, and $1 million due to the negative effects of foreign currency fluctuations.

Selling, General and Administrative Expenses

2017 compared to 2016

Commercial Solutions’ selling, general and administrative expenses increased approximately $489 million in 2017 as compared to 2016. This increase was comprised of a $479 million constant currency increase and a negative impact of approximately $10 million from the effects of foreign currency fluctuations. The constant currency increase was primarily due to the incremental impact from the Merger of $487 million, including post-Merger acquisitions.

2016 compared to 2015

Commercial Solutions’ selling, general and administrative expenses increased approximately $149 million in 2016 as compared to 2015. This increase was primarily due to $156 million from the Merger, an increase in bad debt expense and partially offset by cost reductions in various other areas.

Research & Development Solutions

		Year Ended December 31,												Change
(dollars in millions)		2017				2016				2015				2017 vs. 2016								2016 vs. 2015
Revenues		$	3,647			$	3,478			$	3,159			$	169				4.9	%		$	319				10.1	%
Costs of revenue, exclusive of depreciation and amortization			2,068				1,956				1,779				112				5.7				177				9.9
Selling, general and administrative expenses			582				579				556				3				0.5				23				4.1
Segment profit		$	997			$	943			$	824			$	54				5.7	%		$	119				14.4	%

Backlog and Net New Business

Beginning with the third quarter of 2016, we began reporting net new business and backlog on an as-contracted basis (signed binding commitments and signed contracts during the period) on a rolling basis for the last twelve months. We only report backlog and net new business for the Research & Development Solutions segment. Previously, net new business included non-binding written awards, which was consistent with industry practice. We believe the as-contracted method is a more precise approach as it requires a higher threshold and less judgment for backlog inclusion. Net new business totaled $4.54 billion and $4.34 billion for the twelve months ended December 31, 2017 and 2016, respectively. Ending backlog was $10.54 billion at December 31, 2017.

Net new business under sole provider arrangements is recorded over the life of the arrangement as projects are awarded. Consistent with our methodology for calculating net new business during a particular period, backlog represents, at a particular point in time, future service revenues from work not yet completed or performed under signed contracts. Once work begins on a project, service revenues are recognized over the duration of the project. Net new business and backlog denominated in foreign currencies are valued each month using the actual average foreign exchange rates in effect during the month.

We believe that backlog and net new business may not be consistent indicators of future revenues because they have been and likely will be affected by a number of factors, including the variable size and duration of projects, many of which are performed over several years, cancellations, and changes to the scope of work during the course of projects. Projects that have been delayed remain in backlog, but the timing of the revenue generated may differ from the timing originally expected. Additionally, projects may be terminated or delayed by the customer or delayed by regulatory authorities. In the event that a client cancels a contract, we typically would be entitled to receive payment for all services performed up to the cancellation date and subsequent client-authorized services related to winding down the canceled project. For more details regarding risks related to our backlog, see Part I, Item IA, “Risk Factors—Risks Related to our Business—The relationship of backlog to revenues varies over time.”

Revenues

2017 compared to 2016

Research & Development Solutions’ revenues were $3,647 million in 2017, an increase of $169 million, or 4.9%, over 2016. This increase was comprised of constant currency revenue growth of $172 million, or 4.9%, partially offset by a negative impact of approximately $3 million from the effects of foreign currency fluctuations.

The constant currency revenue growth for 2017 primarily includes volume-related increases from both our clinical solutions and services and our clinical trial support services as well as revenue from current year acquisitions, partially offset by lower revenue from early clinical development services, due to a facility closure in Europe in 2016.

2016 compared to 2015

Research & Development Solutions’ revenues were $3,478 million in 2016, an increase of $319 million, or 10.1%, over 2015. This increase was comprised of constant currency revenue growth of $341 million, or 10.8%, partially offset by a negative impact of approximately $22 million from the effects of foreign currency fluctuations. The constant currency revenue growth primarily includes volume-related increases in our services and the incremental impact from the businesses that Quest contributed to Q2 Solutions.

The volume-related revenue growth was related to increases in revenue from both our clinical solutions and services and our clinical trial support services. This growth was due largely to execution on the higher backlog in place as we entered the year. The 2016 growth was negatively impacted by $17 million of non-recurring revenue recognized in the second quarter of 2015 related to the early close out of a client arrangement. The constant currency revenue growth in 2016 was negatively impacted by $27 million of foreign currency exchange rate adjustments associated with client contracts and losses on foreign exchange forward contracts.

Costs of Revenue, exclusive of Depreciation and Amortization

2017 compared to 2016

Research & Development Solutions’ costs of revenue, exclusive of depreciation and amortization, increased approximately $112 million in 2017 as compared to 2016. This increase includes constant currency growth of $119 million, or 6.1%, partially offset by $7 million from the positive effects of foreign currency fluctuations.

The constant currency costs of revenue growth was primarily due to an increase in compensation and related expenses and the impact from post-Merger acquisitions. The increase in compensation and related expenses resulted from (i) an increase in billable headcount resulting from the higher volume of constant currency revenue, (ii) our continued investment in our global delivery network (“GDN”) that enables us to provide standardized, centrally-managed services from seven hub locations across five countries, and (iii) an increase in competition for qualified personnel in certain markets.

2016 compared to 2015

Research & Development Solutions’ costs of revenue, exclusive of depreciation and amortization, increased approximately $177 million in 2016 over 2015. This increase includes constant currency growth of $222 million, or 12.5%, which includes the incremental impact from the businesses that Quest contributed to Q2 Solutions, partially offset by $45 million from the positive effects of foreign currency fluctuations.

The constant currency costs of revenue growth was primarily due to the impact from the Q2 Solutions transaction and an increase in compensation and related expenses. The increase in compensation and related expenses resulted from (i) an increase in billable headcount resulting from the higher volume of constant currency revenue, (ii) our continued investment in our GDN which is a coordinated global delivery model that enables us to provide standardized, centrally-managed services from seven hub locations across five countries, (iii) annual merit increases and (iv) an increase in competition for qualified personnel in certain markets. The constant currency growth for 2016 also includes a $12 million reserve for certain potentially non-reimbursable expenses. These increases in cost were partially offset by $17 million of expense recognized in the second quarter of 2015 related to the early close out of a client arrangement that did not recur in 2016 and a $15 million increase in the benefit from research and development credits received in Europe.

Selling, General and Administrative Expenses

2017 compared to 2016

Research & Development Solutions’ selling, general and administrative expenses increased approximately $3 million, or 0.5%, in 2017 as compared to 2016. This increase was caused by a constant currency increase of $6 million, offset by a positive impact of approximately $3 million from the effects of foreign currency fluctuations. As a percent of revenues, Research & Development Solutions’ selling, general and administrative expenses were 16.0% and 16.6% in 2017 and 2016, respectively. The constant currency increase for 2017 was primarily due to the impact of post-Merger acquisitions, partially offset by lower incentive compensation and bad debt expense.

2016 compared to 2015

Research & Development Solutions’ selling, general and administrative expenses increased approximately $23 million, or 4.1%, in 2016 as compared to 2015. This increase was caused by constant currency growth of $34 million, partially offset by a reduction of $11 million from foreign currency fluctuations. As a percent of revenues, Research & Development Solutions’ selling, general and administrative expenses were 16.6% and 17.6% in 2016 and 2015, respectively. The constant currency increase was primarily due to the incremental impact from the businesses that Quest contributed to Q2 Solutions, higher compensation and related expenses due to annual merit increases and an increase in headcount and an increase in bad debt expense.

Integrated Engagement Services

		Year Ended December 31,												Change
(dollars in millions)		2017				2016				2015				2017 vs. 2016								2016 vs. 2015
Revenues		$	783			$	797			$	844			$	(14	)			(1.8	)%		$	(47	)			(5.6	)%
Costs of revenue, exclusive of depreciation and amortization			637				639				687				(2	)			(0.3	)			(48	)			(7.0	)
Selling, general and administrative expenses			73				82				79				(9	)			(11.0	)			3				3.8
Segment profit		$	73			$	76			$	78			$	(3	)			(3.9	)%		$	(2	)			(2.6	)%

Revenues

2017 compared to 2016

Integrated Engagement Services’ revenues were $783 million in 2017, a decrease of $14 million, or 1.8%, over 2016. This decrease was comprised of a constant currency revenue decrease of $9 million, or 1.1%, and a negative impact of approximately $5 million due to the effects of foreign currency fluctuations. The decline in constant currency revenues for 2017 was due to lower demand in Japan and North America, which was also a result of cancellations that occurred in 2017. The decline was also due to a $9 million benefit from the acceleration of revenue in the second quarter of 2016 that did not recur in 2017 related to a contract modification on a sales force arrangement that fixed a portion of the contract price that was previously not determinable until future sales-based royalties were known, partially offset by revenue from new projects starting up, primarily in Europe.

2016 compared to 2015

Integrated Engagement Services’ revenues were $797 million in 2016, a decrease of $47 million, or 5.6%, over 2015. This decrease was comprised of a constant currency revenue decrease of $66 million, or 7.8%, partially offset by a positive impact of approximately $19 million due to the effects of foreign currency fluctuations. The decline in constant currency revenues for 2016 was due to decreases in North America (primarily as a result of cancellations that occurred in 2015 and earlier this year), Japan and Europe. The decline in Europe was partially offset by a $9 million benefit from the acceleration of revenue related to a contract modification in 2016.

Costs of Revenue, exclusive of Depreciation and Amortization

2017 compared to 2016

Integrated Engagement Services’ costs of revenue, exclusive of depreciation and amortization, decreased approximately $2 million in 2017. This decrease includes constant currency growth of $2 million, or 0.3%, more than offset by $4 million from the positive effects of foreign currency fluctuations. The constant currency cost of revenue growth in 2017 was due to an increase in compensation and related expenses resulting from an increase in billable headcount in Europe as a result of an increase in new projects starting up in the 2017 period.

2016 compared to 2015

Integrated Engagement Services’ costs of revenue, exclusive of depreciation and amortization, decreased approximately $48 million in 2016. This decrease was comprised of a $59 million constant currency decrease, or 8.6%, partially offset by $11 million due to the positive effects of foreign currency fluctuations. The constant currency decrease for 2016 was due to a decrease in compensation and related expenses resulting from a decrease in billable headcount.

Selling, General and Administrative Expenses

2017 compared to 2016

Integrated Engagement Services’ selling, general and administrative expenses decreased approximately $9 million in 2017 as compared to 2016, primarily due to lower compensation and related expenses resulting from a decrease in headcount.

2016 compared to 2015

Integrated Engagement Services’ selling, general and administrative expenses increased approximately $3 million in 2016 as compared to 2015, primarily due to a higher level of bad debt expense.

Liquidity and Capital Resources

Overview

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Our principal source of liquidity is operating cash flows. In addition to operating cash flows, other significant factors that affect our overall management of liquidity include: capital expenditures, acquisitions, investments, debt service requirements, dividends, equity repurchases, adequacy of our revolving credit and receivables financing facilities and access to the capital markets.

We manage our worldwide cash requirements by monitoring the funds available among our subsidiaries and determining the extent to which those funds can be accessed on a cost-effective basis. The repatriation of cash balances from certain of our subsidiaries could have adverse tax consequences; however, those balances are generally available without legal restrictions to fund ordinary business operations. We have and expect to transfer cash from those subsidiaries to the United States and to other international subsidiaries when it is cost effective to do so.

We had a cash balance of $959 million at December 31, 2017 ($147 million of which was in the United States), a decrease from $1,198 million at December 31, 2016.

Based on our current operating plan, we believe that our available cash and cash equivalents, future cash flows from operations and our ability to access funds under our revolving credit and receivables financing facilities will enable us to fund our operating requirements and capital expenditures and meet debt obligations for at least the next 12 months. We regularly evaluate our debt arrangements, as well as market conditions, and from time to time we may explore opportunities to modify our existing debt arrangements or pursue additional financing arrangements that could result in the issuance of new debt securities by us or our affiliates. We may use our existing cash, cash generated from operations or dispositions of assets or businesses and/or proceeds from any new financing arrangements or issuances of debt or equity securities to repay or reduce some of our outstanding obligations, to repurchase shares from our stockholders or for other purposes. As part of our ongoing business strategy, we also continually evaluate new acquisition, expansion and investment possibilities or other strategic growth opportunities, as well as potential dispositions of assets or businesses, as appropriate, including dispositions that may cause us to recognize a loss on certain assets. Should we elect to pursue any such transaction, we may seek to obtain debt or equity financing to facilitate those activities. Our ability to enter into any such potential transactions and our use of cash or proceeds is limited to varying degrees by the terms and restrictions contained in our existing debt arrangements. We cannot provide assurances that we will be able to complete any such financing arrangements or other transactions on favorable terms or at all.

Equity Repurchase Program

On October 30, 2013, our Board approved the Repurchase Program authorizing the repurchase of up to $125 million of either our common stock or vested in-the-money employee stock options, or a combination thereof. Our Board increased the stock repurchase authorization under the Repurchase Program with respect to the repurchase of our common stock by $600 million, $1.5 billion, $1.0 billion and $1.0 billion in 2015, November 2016, February 2017 and May 2017, respectively, which increased the total amount that has been authorized under the Repurchase Program to $4.225 billion. The Repurchase Program does not obligate us to repurchase any particular amount of common stock or vested in-the-money employee stock options, and it may be modified, suspended or discontinued at any time. The timing and amount of repurchases are determined by our management based on a variety of factors such as the market price of our common stock, our corporate requirements, and overall market conditions. Purchases of our 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. We may also repurchase shares of our common stock pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Exchange Act, which would permit shares of our common stock to be repurchased when we might otherwise be precluded from doing so by law. The Repurchase Program for common stock does not have an expiration date.

During the year ended December 31, 2017, we repurchased 30,896,313 shares of our common stock for approximately $2.6 billion. These amounts include 9,677,420 shares of our common stock, which we repurchased from certain of our principal stockholders in a private transaction for approximately $750 million and 10,071,003 shares of our common stock, which we repurchased directly from underwriters in connection with three separate underwritten, secondary public offerings of shares of our common stock held by certain of our principal stockholders for approximately $935 million in the aggregate in May, September and November 2017. Additional information regarding the Repurchase Program is presented in Part II, Item 5 “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” and Notes 14 and 27 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

As of December 31, 2017, we have remaining authorization to repurchase up to $182 million of our common stock under the Repurchase Program. In addition, from time to time, we have repurchased and may continue to repurchase common stock through private or other transactions outside of the Repurchase Program. On February 14, 2018, the Board authorized an increase in the post-merger share repurchase authorization by $1.5 billion to a total of $5.0 billion, with $1.7 billion authorization remaining.

Debt

As of December 31, 2017, we had $10.3 billion of total indebtedness, excluding $500 million of available borrowings under our revolving credit facilities. See Note 11 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional details regarding our credit arrangements.

Senior Secured Credit Agreement and Senior Notes

2017 Financing Transactions

At December 31, 2017, our senior secured credit facility provided financing of up to approximately $5,656 million, which consisted of $5,185 million principal amount of debt outstanding and $471 million of available borrowing capacity on the $1 billion revolving credit facility that expires 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 2024 and 2025. Under certain circumstances, the maturity date of the term A loans and the senior secured revolving facility may be accelerated to 2020. We are 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. We are 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, we are required to apply 50% of excess cash flow (as defined in our senior secured credit facility), subject to a reduction to 25% or 0% depending upon our 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. We are 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 our assets and the assets of our material domestic subsidiaries including 100% of the equity interests of substantially all of our material domestic subsidiaries and 66% of the equity interests of substantially all of our first-tier material foreign subsidiaries and their domestic subsidiaries.

During the third quarter of 2017, we issued €420 million (approximately $501 million) of senior notes due 2025. The senior notes mature on September 15, 2025 and bear an interest rate of 2.875%, which is paid semi-annually on March 15 and September 15, beginning on March 15, 2018. Also during the third quarter of 2017, we entered into an amendment to provide for an incremental term B loan of $750 million and an increase in restricted payment capacity. The term B loan will mature in 2025 and bears a floating interest rate of LIBOR plus 2.00% per year. The net proceeds from the senior notes due 2025 and the incremental term B loan were used for the redemption of the outstanding 4.125% Euro denominated senior notes due 2023, to pay down the revolving credit facility, to pay certain fees and expenses and for other general corporate purposes, including the repurchase of the Company’s common stock and acquisitions.

During the first quarter of 2017, we issued €1.425 billion (approximately $1,522 million) of senior notes due 2025. The senior notes mature on March 15, 2025 and bear an annual interest rate of 3.25%, which is paid semi-annually on March 15 and September 15, beginning on September 15, 2017. Also during the first quarter of 2017, we refinanced our term B loans in which the maturity was extended to 2024 and the interest rate margin on the loan denominated in U.S. dollars was reduced from 2.50% to 2.00% and the interest rate margin on the loan denominated in Euros was reduced from 2.75% to 2.00%. See Note 11 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional details regarding our credit arrangements.

2016 Financing Transactions

On October 3, 2016, we 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. We 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 $1,750 million of senior unsecured notes, which consisted of (i) $1,050 million of 5% senior notes due October 2026 (the “5% Dollar Notes”) and (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 we assumed 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 our wholly-owned domestic restricted subsidiaries (excluding IMS Japan K.K.) and, subject to certain exceptions, each of our future domestic subsidiaries that guarantees our 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.

We also assumed in the Merger €275 million of 4.125% Senior Notes due in April 2023 (the “4.125% Senior Notes”). As noted above, during the third quarter of 2017, the 4.125% Senior Notes were redeemed. Interest on the 4.125% Senior Notes was payable semi-annually each year and commenced on October 1, 2015.

Receivables Financing Facility

On December 5, 2014, we entered into a four-year arrangement to securitize certain of our accounts receivable. Under the receivables financing facility, certain of our accounts receivable are sold on a non-recourse basis by certain of our consolidated subsidiaries to another of our 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 includes 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. IQVIA 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 available to satisfy any of our obligations or any obligations of our subsidiaries. As of December 31, 2017, the full $25 million of revolving loan commitment was available under the receivables financing facility. On December 15, 2017, the Company amended its receivables financing facility to extend the original term of the facility to December 15, 2020. In addition, the applicable margin (over LIBOR) changed to 90 bps regardless of our credit rating. Prior to the amendment, the margin was based on our credit rating and could range from 85 bps to 135 bps.

Restrictive Covenants

Our 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 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 Note 11 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. At December 31, 2017, the Company was in compliance in all material respects with the financial covenants under the Company’s financing arrangements.

Years ended December 31, 2017, 2016 and 2015

Cash Flow from Operating Activities

		Year Ended December 31,
(in millions)		2017				2016				2015
Net cash provided by operating activities		$	970			$	860			$	476

2017 compared to 2016

Cash provided by operating activities increased $110 million in 2017 as compared to 2016. Cash flows from operating activities reflects higher cash-related net income of $614 million, offset by higher payments for interest, income taxes and normal fluctuations in cash collections from clients and accounts payable. Cash collections from clients can vary significantly each year depending on the timing of cash receipts under contractual payment terms relative to the recognition of revenue over a project lifecycle and the timing of renewals.

2016 compared to 2015

Cash provided by operating activities increased $384 million in 2016 as compared to 2015. Cash flows from operating activities reflects higher cash-related net income, lower payments for income taxes and normal fluctuations in cash collections from clients and accounts payable.

Cash Flow from Investing Activities

		Year Ended December 31,
(in millions)		2017				2016				2015
Net cash (used in) provided by investing activities		$	(1,190	)		$	1,731			$	(67	)

2017 compared to 2016

During 2017, we had net cash outflows from investing activities, while during 2016, we had net cash inflows. The decrease of $2,921 million in our net cash flows from investing activities was primarily due to cash from the acquisition of businesses, including the Merger in 2016 ($1,887 million), cash used for the acquisition of businesses in 2017 ($854 million) and higher cash used for the acquisition of property, equipment and software in 2017 ($205 million).

2016 compared to 2015

Cash provided by investing activities increased $1,798 million in 2016 as compared 2015. This increase was primarily related to cash from the acquisition of businesses, including the Merger ($1,887 million) partially offset by higher cash used for the acquisition of property, equipment and software ($86 million).

Cash Flow from Financing Activities

		Year Ended December 31,
(in millions)		2017				2016				2015
Net cash used in financing activities		$	(72	)		$	(2,284	)		$	(249	)

2017 compared to 2016

Cash used in financing activities decreased $2,212 million in 2017 as compared to 2016. The decrease in cash used in financing activities was primarily related to higher net borrowings under our credit facilities ($3,781 million), partially offset by higher cash used to repurchase common stock ($1,523 million).

2016 compared to 2015

Cash used in financing activities increased $2,035 million in 2016 as compared to 2015. The increase in cash used in financing activities was primarily related to lower net borrowing under our credit facilities ($1,488 million) and higher cash used to repurchase common stock ($582 million).

Contingencies

We are exposed to certain known contingencies that are material to our investors. The facts and circumstances surrounding these contingencies and a discussion of their effect on us are in Note 13 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. These contingencies may have a material effect on our liquidity, capital resources or results of operations. In addition, even where our reserves are adequate, the incurrence of any of these liabilities may have a material effect on our liquidity and the amount of cash available to us for other purposes.

We believe that we have made appropriate arrangements in respect of the future effect on us of these known contingencies. We also believe that the amount of cash available to us from our operations, together with cash from financing, will be sufficient for us to pay any known contingencies as they become due without materially affecting our ability to conduct our operations and invest in the growth of our business.

Contractual Obligations and Commitments

Below is a summary of our future payment commitments by year under contractual obligations as of December 31, 2017 (in millions):

		2018				2019 - 2020				2021 - 2022				Thereafter				Total
Long-term debt, including interest(1)		$	496			$	1,251			$	2,336			$	8,429			$	12,512
Operating leases			169				250				169				157				745
Data acquisition and telecommunication services			254				397				194				13				858
Purchase obligations(2)			28				29				17				3				77
Commitments to unconsolidated affiliates(3)			—				—				—				—				—
Benefit obligations(4)			22				23				24				74				143
Uncertain income tax positions(5)			9				—				—				—				9
Total		$	978			$	1,950			$	2,740			$	8,676			$	14,344

(1)	Interest payments on our debt are based on the interest rates in effect on December 31, 2017.

(2)	Purchase obligations are defined as agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable pricing provisions and the approximate timing of the transactions.

(3)	We are currently committed to invest $70 million in private equity funds. As of December 31, 2017, we have funded approximately $54 million of these commitments and we have approximately $16 million remaining to be funded which has not been included in the above table as we are unable to predict when these commitments will be paid.

(4)

Amounts represent expected future benefit payments for our pension and postretirement benefit plans, as well as expected contributions for 2018 for our funded pension benefit plans. We made cash contributions totaling approximately $25 million to our defined benefit plans in 2017, and we estimate that we will make contributions totaling approximately $22 million to our defined benefit plans in 2018. Due to the potential impact of future plan investment performance, changes in interest rates, changes in other economic and demographic assumptions and changes in legislation in foreign jurisdictions, we are not able to reasonably estimate the timing and amount of contributions that may be required to fund our defined benefit plans for periods beyond 2018.

(5)	As of December 31, 2017, our liability related to uncertain income tax positions was approximately $95 million, $86 million of which has not been included in the above table as we are unable to predict when these liabilities will be paid due to the uncertainties in the timing of the settlement of the income tax positions.

Application of Critical Accounting Policies

Note 1 to the audited consolidated financial statements provided elsewhere in this Annual Report on Form 10-K describes the significant accounting policies used in the preparation of the consolidated financial statements. The preparation of our consolidated financial statements 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. Our estimates are based on historical experience and various other assumptions we believe are reasonable under the circumstances. We evaluate our estimates on an ongoing basis and make changes to the estimates and related disclosures as experience develops or new information becomes known. Actual results may differ from those estimates.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

We recognize 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 fees is probable and (4) the arrangement consideration is fixed or determinable. We do 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 contracts in which portions of revenue are contingent upon the occurrence of uncertain future events we recognize the revenue only after it has been earned and the contingency has been resolved.

In some cases, contracts provide for consideration that is contingent upon the occurrence of uncertain future events. We recognize contingent revenue when the contingency has been resolved and all other criteria for revenue recognition have been met. Cash payments made to clients as incentives to induce the clients to enter into service agreements with us are amortized as a reduction of revenue over the period the services are performed. We record 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. We do 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 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 we charge when the deliverable is sold separately. When VSOE is not available to determine selling price, we use relevant third-party evidence (“TPE”) of selling price, if available. When neither VSOE nor TPE of selling price exists, we use our best estimate of selling price considering all relevant information that is available without undue cost and effort.

We derive the majority of our revenues in the Commercial Solutions segment from various information and technology service offerings. Our revenue arrangements may include multiple elements. 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. Our subscription arrangements typically have terms ranging from one to three years and are generally non-cancelable and do not contain refund-type provisions. We also offer technology services offerings that enable our clients to make informed business decisions. Technology services offerings consist of a mix of small and large-scale services and consulting projects, multi-year outsourcing contracts and 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 revenue in our Research & Development Solutions segment and Integrated Engagement Services segment is recognized based on objective contractual criteria and does not require significant estimates or judgments. However, at any point in time we are working on thousands of active client projects, which are governed by individual contracts. Most projects are customized based on the needs of the client, the type of services being provided, therapeutic indication of the drug, geographic locations and other variables. Project specific terms related to pricing, billing terms and the scope and type of services to be provided are generally negotiated and contracted on a project-by-project basis. Changes in the scope of work are common, especially under long-term contracts, and generally result in a change in contract value. In such situations, we enter into negotiations for a contract amendment to reflect the change in scope and the related price. Depending on the complexity of the amendment, the negotiation process can take from a few weeks for a simple adjustment to several months for a complex amendment. Management may authorize the project team to commence work on activities outside the contract scope while we negotiate and finalize the contract amendment. In these limited cases, if we are not able to obtain a contract amendment from the client, our profit margin on the arrangement may be impacted. This result occurs because our costs of delivery are expensed as they are incurred, while revenue is not recognized unless the client has agreed to the changes in scope and renegotiated pricing terms, the contract value is amended and all other revenue recognition criteria are met. Most contracts are terminable upon 30 to 90 days notice by the client. Our risk of material loss in these situations is mitigated as these contracts generally require payment to us for expenses to wind down the clinical trial or project, fees earned to date and, in some cases, a termination fee or a payment of some portion of the fees or profits that could have been earned under the contract if it had not been terminated early. In addition, our contract terms provide for payment terms that generally correspond with performance of the services. Termination fees are included in revenues when realization is assured.

See Note 1 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for details regarding the new revenue recognition standard, which will be effective January 1, 2018.

Accounts Receivable and Unbilled Services

Accounts receivable represents amounts billed to clients. Revenues recognized in excess of billings are classified as unbilled services. The realization of these amounts is based on the client’s willingness and ability to pay us. We have an allowance for doubtful accounts based on management’s estimate of probable losses we expect to incur resulting from a client failing to pay us. Our allowance for doubtful accounts, and losses from clients failing to pay us, have not been material to our results of operations. If any of these estimates change or actual results differs from expected results, then an adjustment is recorded in the period in which the amounts become reasonably estimable. These adjustments could have a material effect on our results of operations.

Investments in Unconsolidated Affiliates—Equity Method Investments

We have investments in unconsolidated affiliates that are accounted for under the equity method of accounting. Periodically, we review our investments for a decline in value which we believe may be other than temporary. Should we identify such a decline, we will record a loss through earnings to establish a new cost basis for the investment. These losses could have a material adverse effect on our results of operations.

Income Taxes

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

Income tax expense is based on the distribution of profit before income tax among the various taxing jurisdictions in which we operate, adjusted as required by the income tax laws of each taxing jurisdiction. Changes in the distribution of profits and losses among taxing jurisdictions may have a significant impact on our effective income tax rate. We do not consider the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested outside of the United States. Accordingly, we have provided a deferred income tax liability related to those undistributed earnings. The associated foreign income taxes on our foreign earnings could be available as a credit in the United States on our income taxes. We recognize foreign tax credits to the extent that the recognition is supported by projected foreign source income. See Note 18 to our audited consolidated financial statements included elsewhere in the Annual Report on Form 10-K for details regarding the Tax Cuts and Jobs Act and the impact on our consolidated financial statements.

Business Combinations

We use the acquisition method to account for business combinations, and accordingly, 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. We use significant judgments, estimates and assumptions in determining the estimated fair value of assets acquired, liabilities assumed and non-controlling interest including expected future cash flows, discount rates that reflect the risk associated with the expected future cash flows and estimated useful lives.

When a business combination involves contingent consideration, we recognize a liability equal to the estimated fair value of the contingent consideration obligation at the date of the acquisition. The estimate of fair value of a contingent consideration liability requires subjective assumptions to be made regarding future business results including revenues and net new business, discount rates that reflect the risk associated with the expected future cash flows and probabilities assigned to various potential business result scenarios. We reassess the estimated fair value of the contingent consideration each financial reporting period over the term of the arrangement. Any resulting changes are recognized in earnings and could have a material effect on our results of operations.

Goodwill, Tangible and Identifiable Intangible Assets

We have recorded and allocated to our reporting units the excess of the cost over the fair value of the net assets acquired, known as goodwill. The recoverability of the goodwill and indefinite-lived intangible assets are evaluated annually for impairment, or if and when events or circumstances indicate a possible impairment. We review the carrying values of other identifiable intangible assets if the facts and circumstances indicate a possible impairment. Goodwill and indefinite-lived intangible assets are not amortized, and other identifiable intangible assets are amortized over their estimated useful lives. We believe that the risk of an impairment to goodwill or indefinite-lived intangible assets is currently very low.

For goodwill, we perform a 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 estimated fair value is less than the book value for the respective reporting unit, we apply a two-step impairment test in which we determine 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, we perform the second step of the impairment test to determine the implied estimated fair value of the reporting unit’s goodwill. We determine 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. The inherent subjectivity of applying a discounted cash flow and market comparables approach to valuing our assets and liabilities could have a significant impact on our analysis. Any future impairment could have a material adverse effect on our financial condition or results of operations.

For indefinite-lived intangible assets, we perform a qualitative analysis to determine whether it is more likely than not that the estimated fair value of the indefinite-lived intangible asset is less than its carrying value. If this qualitative analysis indicates that it is more likely than not that the estimated fair value is less than the carrying value of the indefinite-lived intangible asset, we determine 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. Any future impairment could have a material adverse effect on our financial condition or results of operations.

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

Stock-based Compensation

We measure compensation cost for stock-based payment awards (stock options and stock appreciation rights) granted to employees and non-employee directors at fair value using the Black-Scholes-Merton option-pricing model and for performance awards using the Monte Carlo simulation model. Stock-based compensation expense includes stock-based awards granted to employees and non-employee directors and has been reported in selling, general and administrative expenses in our consolidated statements of income based upon the classification of the individuals who were granted stock-based awards.

The Black-Scholes-Merton option-pricing model requires the use of subjective assumptions, including share price volatility, the expected life of the award, risk-free interest rate and the fair value of the underlying common shares on the date of grant. In developing our assumptions, we take into account the following:

	•	We calculate expected volatility based on reported data for selected reasonably similar publicly traded companies for which the historical information is available. We plan to continue to use the guideline peer group volatility information until the historical volatility of our common shares is relevant to measure expected volatility for future award grants;

	•	We determine the risk-free interest rate by reference to implied yields available from United States Treasury securities with a remaining term equal to the expected life assumed at the date of grant;

	•	We estimate the dividend yield to be zero as we do not currently anticipate paying any future dividends;

	•	We estimate the average expected life of the award based on our historical experience; and

	•	We estimate forfeitures based on our historical analysis of actual forfeitures.

Pensions and Other Postretirement Benefits

We provide 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 our postretirement health care and life insurance benefit plans. Management reviews these critical assumptions at least annually. Other assumptions involve demographic factors such as turnover, retirement and mortality rates. Management reviews these assumptions periodically and updates them when its 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 other non-United States plans, the discount rate is based on the current yield of an index of high quality corporate bonds. As a sensitivity measure, a 25 basis point increase in the discount rate for our United States plan and United Kingdom plans, absent any offsetting changes in other assumptions, would result in a $1 million decrease and a less than $1 million increase, respectively, in pension expense at December 31, 2017.

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.

In selecting an expected return on plan asset assumption, we consider 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. We believe 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 our actual return on plan assets will approximate the long-term expected forecasts. As a sensitivity measure, a 25 basis point change in the expected return on assets (“EROA”) assumption for our United States plan, absent any offsetting changes in other assumptions, would result in a less than $1 million increase or decrease in pension expense at December 31, 2017. For our United Kingdom plans, a 25 basis point change in the EROA assumption, absent any offsetting changes in other assumptions, would result in a less than $1 million increase or decrease in pension expense at December 31, 2017. While we believe that the assumptions used are reasonable, differences in actual experience or changes in assumptions may materially affect our pension and postretirement obligations and future expense.

We utilize a corridor approach to amortizing unrecognized gains and losses in the pension and postretirement 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. At December 31, 2017, the weighted-average remaining service life of active employees was approximately 12 years.

Foreign Currency

We have significant investments in non-United States countries. Therefore, changes in the value of foreign currencies affect our consolidated financial statements when translated into United States dollars. For all operations outside the United States where we have designated the local currency as the functional currency, assets and liabilities are translated using end-of-period exchange rates; revenues, expenses and cash flows are translated using average rates of exchange prevailing during the period the transactions occurred. Translation gains and losses are included as an adjustment to the accumulated other comprehensive income (loss) component of stockholders’ equity. In addition, gains and losses from foreign currency transactions, such as those resulting from the settlement and revaluation of third-party and intercompany foreign receivables and payables, are included in the determination of net income (loss).

For operations outside the United States 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.

Recently Issued Accounting Standards

Information relating to recently issued accounting standards is included in Note 1 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.