<PAGE>   1

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ---------------------

                                   FORM 10-K
(MARK ONE)

    [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
             EXCHANGE ACT OF 1934

               FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                       OR

    [  ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
              SECURITIES EXCHANGE ACT OF 1934

               FOR THE TRANSITION PERIOD FROM ________ TO ________

                        COMMISSION FILE NUMBER 000-23520
                         QUINTILES TRANSNATIONAL CORP.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                            <C>
               NORTH CAROLINA                                   56-1714315
          (State of incorporation)                (I.R.S. Employer Identification Number)
      4709 CREEKSTONE DRIVE, SUITE 200
           DURHAM, NORTH CAROLINA                               27703-8411
   (Address of principal executive office)                      (Zip Code)
</TABLE>

      Registrant's telephone number, including area code:  (919) 998-2000

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

                                     NONE.
          Securities registered pursuant to Section 12(g) of the Act:

      COMMON STOCK, $.01 PAR VALUE PER SHARE (AND RIGHTS ATTACHED THERETO)
                                (Title of Class)

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

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

     The aggregate market value of the registrant's Common Stock at January 31,
2001 held by those persons deemed by the registrant to be non-affiliates was
approximately $2,351,946,877.

     As of January 31, 2001 (the latest practicable date), there were
116,062,330 shares of the registrant's Common Stock, $.01 par value per share,
outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the definitive Proxy Statement to be delivered to shareholders
in connection with the Annual Meeting of Shareholders to be held May 2, 2001 are
incorporated by reference into Part III.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

                         QUINTILES TRANSNATIONAL CORP.

                            FORM 10-K ANNUAL REPORT

                                     INDEX

<TABLE>
<CAPTION>
                                                                        PAGE
                                                                        ----
<S>       <C>                                                           <C>
                                   PART I
Item 1.   Business....................................................    1
Item 2.   Properties..................................................   12
Item 3.   Legal Proceedings...........................................   12
Item 4.   Submission of Matters to a Vote of Security Holders.........   14
                                  PART II
Item 5.   Market for Registrant's Common Equity and Related
          Stockholder Matters.........................................   14
Item 6.   Selected Consolidated Financial Data........................   15
Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operation....................................   16
Item 7a.  Quantitative and Qualitative Disclosures about Market
          Risk........................................................   28
Item 8.   Financial Statements and Supplementary Data.................   29
Item 9.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure....................................   53
                                  PART III
Item 10.  Directors and Executive Officers of the Registrant..........   53
Item 11.  Executive Compensation......................................   56
Item 12.  Security Ownership of Certain Beneficial Owners and
          Management..................................................   56
Item 13.  Certain Relationships and Related Transactions..............   56
                                  PART IV
Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form
          8-K.........................................................   56
</TABLE>

                                        i
<PAGE>   3

                                     PART I

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

     We caution you that any such forward looking statements are further
qualified by important factors that could cause our actual operating results to
differ materially from those in the forward looking statements, including
without limitation, the risk that our PharmaBio transactions, e-commerce
services or Informatics products and services will not generate revenues or
profit at the rate or levels we anticipate, our ability to distribute backlog
among project management groups and match demand to resources, actual operating
performance, the actual savings and operating improvements resulting from our
restructuring, the ability to maintain large client contracts or to enter into
new contracts, changes in trends in the pharmaceutical industry, the ability to
create data products from data licensed to us, the ability to operate
successfully in new lines of business and the other risk factors described
elsewhere in this report.

ITEM 1.  BUSINESS

GENERAL

     We are a market leader in providing a full range of integrated product
development and commercial development solutions to the pharmaceutical,
biotechnology and medical device industries. We also provide market research
solutions and strategic analyses to support healthcare decisions and healthcare
policy consulting to governments and other organizations worldwide. Supported by
our extensive information technology capabilities, we provide a broad range of
contract services to help our clients reduce the length of time from the
beginning of development to peak sales of a new drug or medical device. Our
product development services include a full range of services focused on helping
our clients through the development and regulatory approval of a new drug or
medical device. Our commercial development services, including sales and
specialized marketing support services, focus on helping our clients achieve
commercial success for a new product or medical device. We also offer healthcare
policy research and management consulting, which emphasize improving the
quality, availability and cost-effectiveness of healthcare, as well as data
analysis and market research services, which form the core of our healthcare
informatics services.

     Since our formation in 1982, we have continued to expand the scope of our
services and our geographic presence to support the needs of our customers on a
worldwide basis. We have implemented a number of strategic initiatives to
broaden our array of services and create new opportunities for growth. As part
of this strategy, we have completed approximately 33 acquisitions over the past
five years although our acquisition rate has slowed over the last two years,
with 10 acquisitions completed in 1999 and none in 2000, as we focused our
efforts on reorganizing our operating units, creating new ways of marketing and
selling our services and developing our informatics business in both stand alone
service offerings and support services for our other business units. In December
2000, we announced the acquisition of Pharmacia Corporation's clinical
development unit in Sweden, which became effective January 1, 2001.

     Also, in 2000, we sold our electronic data interchange subsidiary, ENVOY
Corporation, to WebMD Corporation. As a result of this transaction, we have
treated ENVOY's services as a discontinued operation. In connection with the
sale of ENVOY, we entered into an agreement with WebMD to form a strategic
alliance with WebMD to develop and market a Web-based integrated suite of
products and services for the pharmaceutical industry. Under this agreement,
WebMD has agreed to perform development services, and we have agreed to provide
funding for such services. We are currently involved in a dispute regarding this
agreement. We also entered into a data rights agreement under which WebMD agreed
to provide us with de-identified ENVOY and other WebMD data. We initiated a
lawsuit against WebMD on February 25, 2001 after it unilaterally suspended
delivery of data to us on February 24, 2001 and obtained a temporary restraining

                                        1
<PAGE>   4

order requiring them to continue delivery of the data. On March 16 and March 21,
2001 the court entered a preliminary injunction requiring WebMD to continue the
unaltered and uninterrupted flow of data to us. This data is critical to our
informatics service offerings, and we plan to pursue our rights to access the
data.

     In addition to these events, we created the PharmaBio Development group to
help facilitate non-traditional customer alliances, including gain sharing and
risk sharing strategies. PharmaBio Development works hand in hand with our
service groups to enter strategic alliances and make strategic investments that
we believe will position us to explore new opportunities and areas for potential
growth. For example, in a recent agreement, we are providing the resources for
the sales and marketing of Scios Inc.'s lead product in exchange for a
percentage of the drug's future revenue.

SERVICES

     We provide globally integrated contract research, sales, marketing and
healthcare policy consulting and health information management services to the
global pharmaceutical, biotechnology, medical device and healthcare industries.
We also provide market research and strategic analysis services to support
healthcare decisions. We manage our operations through three reportable
segments, namely the Product Development Group, the Commercial Services Group,
and the QUINTERNET(TM) Informatics Group. Management has distinguished these
segments based on our normal operations. The Product Development Group is
primarily responsible for all phases of clinical research. The Commercial
Services Group is primarily responsible for sales force deployment and strategic
marketing services, as well as healthcare policy research and consulting
services. The QUINTERNET(TM) Informatics Group provides market research and
healthcare information to pharmaceutical and healthcare customers. Note 17 of
the notes to our consolidated financial statements includes financial
information regarding each segment.

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

PRODUCT DEVELOPMENT OFFERINGS

     Through our Product Development Group, we provide a full range of drug
development services focused on helping our clients achieve regulatory success,
from strategic planning and preclinical services to regulatory submission and
approval.

  Early Development and Laboratory Services

     Preclinical services.  Our preclinical unit provides customers with a wide
array of early development services. These services are designed to produce the
data required to identify, quantify and evaluate the risks to humans resulting
from the manufacture or use of pharmaceutical and biotechnology products, and
include general toxicology, carcinogenicity testing, pathology, efficacy and
safety pharmacology, bioanalytical chemistry, drug metabolism and clinical
pharmacokinetics. During 2000, we sold our general toxicology operations in
Ledbury, Herefordshire, UK, which is consistent with our shift in focus of our
preclinical operations from basic toxicology to more advanced technologies such
as genomics and proteomics.

     Formulation, manufacturing and packaging services.  We offer services in
the design, development, analytical testing and commercial manufacture of
pharmaceutical dose forms. We provide study medications for preclinical and
clinical studies along with necessary good manufacturing practice, or GMP, and
chemistry, manufacturing and controls, or CMC, regulatory documentation.
Medications for use in clinical studies are packaged, labeled and distributed
globally. These services can expedite the drug development process because
clinical trials are often postponed by delays in the manufacture of study drug
materials.

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

                                        2
<PAGE>   5

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

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

  Clinical Development Services

     Clinical trial services.  We offer comprehensive clinical trial services
which are the basis for obtaining regulatory approval for drugs and medical
devices. On a global basis, our employees are aligned with key customers to
provide a full-range of management and scientific services tailored to their
specific requirements. Clinical unit employees working with our customers
include specialists in therapeutic areas of the central nervous system,
cardiovascular, infectious, allergic and respiratory diseases. We have extensive
experience in clinical trials within therapeutic areas of endocrinological,
gastroenterological, genitourinary and musculoskeletal diseases, as well as in
the area of stroke. Additional specialized offerings include oncology, as well
as development services in neonatal, pediatric and adolescent care. Because of
our global presence and ability to coordinate clinical staff to service
customers on an international basis, we are experienced in managing trials
involving several thousand patients at hundreds of sites concurrently in the
Americas, Europe, the Asia-Pacific region and South Africa.

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

          Study design.  We assist our customers in preparing the study protocol
     and designing case report forms, or CRFs. The study protocol defines the
     medical issues to be examined, the number of patients required to produce
     statistically valid results, the period of time over which they must be
     tracked, the frequency and dosage of drug administration, and the study
     procedures. A study's success often depends on the protocol's ability to
     predict the requirements of the applicable regulatory authorities.

          Investigator recruitment.  During clinical trials, the drug is
     administered to patients by physicians, referred to as investigators, at
     hospitals, clinics or other sites. We have access to several thousand
     investigators who have conducted our clinical trials worldwide.

          Patient recruitment.  We assist our customers in recruiting patients
     to participate in clinical trials through investigator relationships, media
     advertising and other methods.

          Study monitoring.  We provide study monitoring services which include
     investigational site initiation, patient enrollment assistance, and data
     collection and clarification. Site visits help to assure the quality of the
     data, which are gathered according to good clinical practice, or GCP,
     regulations and guidelines, and to meet the sponsors' and regulatory
     agencies' requirements according to the study protocol.

          Clinical data management and biostatistical services.  We have
     extensive experience in the United States and Europe in the creation of
     scientific databases for all phases of the drug development process. These
     databases include: (1) customized databases to meet customer-specific
     formats, (2) integrated databases to support NDA submissions and (3)
     databases in accordance with the United States Food and Drug
     Administration, or FDA, and European specifications.

     Regulatory affairs services.  We provide comprehensive medical and
regulatory services for our pharmaceutical and biotechnology customers. Our
medical services include medical oversight of studies, review and interpretation
of adverse experiences, medical writing of reports and study protocols and
strategic planning of

                                        3
<PAGE>   6

drug development programs. Regulatory services for product registration include
regulatory strategy design, document preparation, consultation and liaison with
various regulatory agencies. Our regulatory affairs professionals help to define
the steps necessary to obtain registration as quickly as possible. We are able
to provide such services in numerous countries to meet our clients' needs to
launch products in multiple countries simultaneously.

     Medical device services.  Our service offerings for medical devices include
(1) review of global strategies for device development and introduction, (2)
identification of regulatory requirements in targeted markets, (3) clinical
study design and planning, (4) data management, (5) statistical analysis of
report preparations, (6) global clinical trial management and monitoring
capabilities, (7) consulting on quality control and quality assurance issues,
(8) regulatory filings, (9) compliance with United States, European and European
Union regulations relating to medical devices, (10) long-range planning for
multinational product launches, (11) compliance with legislative requirements
for market access, (12) post-marketing requirements, (13) management of
relationships with national governments and regulatory authorities and (14)
European pricing strategies.

COMMERCIAL SERVICES OFFERINGS

     Our Commercial Services Group provides sales force deployment and strategic
marketing services, as well as healthcare policy research and consulting
services designed to bring an integrated approach to outsourcing solutions for
our customers.

  Quintiles Integrated Strategic Solutions

     We provide integrated strategic health and human services consulting and
medical communications services for international and United States domestic
customers. Our clinical and marketing expertise spans the healthcare spectrum,
from pharmaceutical, biotechnology, and medical device customers to hospitals,
long-term care facilities, foundations, managed care organizations, employers,
the military, and federal and state governments.

     Late phase clinical studies.  Through our late phase clinical services,
which include Phase IV clinical trials, clinical experience trials and patient
registries, we offer post-submission studies in support of marketing claims,
post-marketing surveillance, health management support programs and other
disease management activities. In designing and implementing these services, we
use clinical and health management programs to establish and promote a favorable
environment for new product introductions in advance of product launch and to
assist in sales generation post-launch.

     Disease management services.  Our disease management services consist of
applying healthcare outcomes analysis to the economic valuation of drugs and the
treatment of diseases. Our expertise also includes developing patient registries
and designing disease management programs. These services enable regulators,
healthcare providers, pharmaceutical and biotechnology companies and others to
assess the pricing and cost-effectiveness of new medical therapies. We typically
include these services in comprehensive launch programs with other clinical
activities to help our customers maximize product launch and sales
opportunities.

     Healthcare policy research and consulting.  Our management consulting
services focus on improving the quality, availability and cost-effectiveness of
healthcare in the highly regulated and rapidly changing healthcare industry.
These services include corporate strategic planning and management, program and
policy development, financial and cost-effectiveness analysis, evaluation
design, microsimulation modeling and data analysis. They represent the core
competencies of The Lewin Group, a nationally recognized healthcare consulting
firm.

     Regulatory and compliance consulting.  We supply regulatory and compliance
consulting services to the medical device, pharmaceutical, and biotechnology
industries. Services include global regulatory consulting, quality systems, and
engineering and validation. We assist companies in preparing for FDA
interactions, including inspections and resolution of enforcement actions;
complying with good manufacturing, good clinical

                                        4
<PAGE>   7

practice and quality systems regulations; meeting process validation
requirements; and in bringing new medical devices to market.

     Strategic marketing and communications services.  Our strategic marketing
and communications services span the development and commercialization cycles
for a new drug, beginning in the early stages of product development and
continuing through product launch and peak market penetration. Services include
communications strategy and planning, product positioning and branding, opinion
leader development, symposia organization, continuing medical education
programs, promotional programs, sponsored publications, patient education,
clinical experience programs, large-scale exhibitions, and Internet and new
media-based programs. As early as Phase II trials, we begin to disseminate
scientific information and develop and present educational forums to gain
opinion leader support for a new drug. These services are the core competencies
of Medical Action Communications Limited, a strategic marketing and medical
communications consultancy that focuses on international customers, and Q.E.D.
Communications, a provider of strategic marketing and medical communications
services in the United States.

  Commercialization Offerings

     Contract sales.  We provide sales and marketing services focused on
accelerating the commercial success of pharmaceutical, biotechnology, veterinary
and other health related products. We offer a flexible range of contract sales
services, which are delivered through dedicated and syndicated sales teams.
Dedicated sales teams are comprised of sales representatives we recruit in
accordance with customer specifications regarding specific sales and market
share objectives. We can manage these dedicated sales teams or they can report
directly to the customer, depending on customer preference. In certain
circumstances, we can transfer an entire dedicated sales team to the customer
for an additional placement fee, which is agreed upon at the beginning of the
contract. Syndicated sales teams can promote a number of non-competing drugs for
different customers at the same time, and we always manage these teams directly.
Our contract sales teams form a highly skilled network of professionals that
afford customers substantial flexibility in selecting the extent of product
promotion, as well as their level of involvement in managing the sales effort.
We offer rapid sales force recruitment utilizing an extensive computerized
candidate database, dedicated internal staff and regionally based recruiting. In
the United States, we also offer our ITMS sales force automation system, a
proprietary web-enabled automated system for call reporting, sample
accountability, territory planning and alignment. We also offer training
services to support our contract sales offerings, including traditional
outsourced pharmaceutical sales representative training services. In June 2000,
we opened a 43,000 square foot in-residence training facility in Gotenba City,
Japan to meet the training needs of the growing pharmaceutical industry in
Japan.

     Marketing services.  We provide customized product marketing services for
pharmaceutical companies aimed at influencing the decisions of patients and
physicians and accelerating the acceptance of drugs into treatment guidelines
and formularies. We can assess markets, conduct research, develop strategies and
tactics, assist in discussions with regulatory bodies, identify distribution
channels and coordinate vendors in every region in the country. The marketing
departments of pharmaceutical companies are typical purchasers of these
services. Our team of industry experts, with experience in most therapeutic
areas, can provide marketing insight into a wide range of geographic markets
while optimizing commercial success. We also provide peer-to-peer educational
programs, including physician meetings and other events, as well as
telemarketing and other marketing services.

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

                                        5
<PAGE>   8

QUINTERNET(TM) Informatics Offerings

     QUINTERNET(TM) Informatics provides a broad range of knowledge-rich
products and services that are used by the pharmaceutical, biotechnology and
medical and surgical device industries, and healthcare providers, payors and
patients to improve the quality of care and to efficiently manage the delivery
of care at multiple points along the continuum of healthcare delivery. In
addition, QUINTERNET(TM) Informatics serves as the foundation for our corporate
strategy of providing a comprehensive electronic network to streamline
communications and enhance information flow throughout the healthcare industry.

     Since its inception in early 1999, QUINTERNET(TM) Informatics has continued
to expand the scope of the products and services offered to meet the needs of
our customers. We are implementing a number of strategic initiatives to broaden
our product and service offerings and to create opportunities for growth. We
currently compete in two key market segments: Market Research and Sales
Management and Optimization. Through the integration of our QUINTERNET(TM)
proprietary database, which we believe is the healthcare industry's largest
database combining medical and pharmaceutical data, with our Internet
initiative, we intend to (1) develop innovative new Market Research and Sales
Management and Optimization products and services, (2) build upon our initial
success in the Clinical Research & Development knowledge-rich information
products and services market segment and (3) leverage our investment into
opportunities for both our Product Development and Commercial Services
offerings.

     Market Research.  Through our Scott-Levin brand, QUINTERNET(TM) Informatics
provides pharmaceutical and healthcare customers market research analysis and
information tools. The Scott-Levin products and services include (1) proprietary
healthcare databases and syndicated market research audits, (2) managed
healthcare services, (3) state government affairs services, (4) issues-oriented
strategic studies and surveys and (5) consulting services and software
solutions.

          Proprietary healthcare databases and syndicated market research
     audits.  Through self-administered surveys, we maintain comprehensive
     proprietary databases that contain (1) information collected from
     physicians on their diagnoses and prescribing activities, (2) information
     regarding the incidence of, and response to, direct selling and other
     promotion activities, (3) information regarding healthcare legislation and
     key influencers in the United States and (4) managed care information,
     detailing cost containment measures imposed by United States managed care
     organizations, or MCOs, that influence or restrict physicians' prescribing
     activities. Our databases hold de-identified patient-level data. In
     addition, pursuant to a contract with National Data Corporation, or NDC, we
     obtain prescription information that NDC collects from approximately 34,000
     pharmacies located across the United States. With this prescription
     information, we create projected state and national data on product-level
     prescription movement.

     Our syndicated market research audits are generated from databases
containing information collected by questionnaire, diary or personal interview,
dispensed prescriptions and secondary research. These audits include (1) the
Source Prescription Audit, which analyzes pharmaceutical prescription activity,
(2) the Physician Drug and Diagnosis Audit, which analyzes the pharmaceuticals
prescribed by physicians relative to associated diagnosis, (3) the Personal
Selling Audit, or PSA, which analyzes the effectiveness of the client's sales
activities to office-based physicians compared with those of its competitors,
(4) the Hospital Personal Selling Audit, which complements the PSA by monitoring
and analyzing sales activity to hospital-based physicians, (5) the Physician
Meeting and Event Audit and Rx Link, which assesses the impact of promotional
activity on subsequent attendee prescribing, (6) the HIV Therapy Audit, which
provides a projectable database tracking physicians who treat HIV positive
patients, (7) the Direct-to-Consumer Advertising Audit, designed to evaluate and
measure the impact of direct-to-consumer advertising on physicians and
consumers, (8) the Professional Journal Audit, which provides a recap of
advertising in medical and professional publications, and (9) the NP/PA
Promotional Audit, which measures personal selling activity to Nurse
Practitioners and Physician Assistants.

          Managed health care services.  We provide a range of services designed
     to enable pharmaceutical companies to assess the impact of their promotions
     on the managed care and long-term care markets. These data also include
     managed care formulary status as well as prescription share analysis. Other
                                        6
<PAGE>   9

     services include three-tier co-pay analysis and tracking of pharmaceutical
     industry managed healthcare sales forces.

          State government affairs.  We offer a comprehensive state level
     healthcare legislation and regulation database, known as StateLine. This
     service tracks healthcare and healthcare related issues of interest in all
     50 states, the District of Columbia and Puerto Rico. In addition, we supply
     profiles of the key government officials who are involved in shaping state
     healthcare legislation and regulations.

          Strategic studies and consulting.  Services provided in this area
     include Pharmaceutical Sales Force Structures and Strategies and
     Pharmaceutical Company Image, two industry-standard reports on sales force
     activity and overall pharmaceutical company image. In addition, this
     service area offers other research services our customers use (1) to study
     specific issues and trends in the marketplace and the broader healthcare
     industry, (2) to evaluate the effectiveness of marketing programs, (3) to
     analyze in depth particular components of a product marketing program at
     any stage of its implementation and (4) for guidance on optimizing company
     strategy, sales and marketing activities and product commercialization.

          Custom studies.  Our custom studies services provide customers with
     insights into how patients, physicians and payors utilize their products,
     and how their products can best be positioned. These services quantify the
     value of pharmaceuticals in terms of cost effectiveness and outcomes,
     helping pharmaceutical manufacturers to differentiate their products beyond
     the traditional measures of safety and efficacy.

     Sales Management and Optimization.  Through our domain expertise and
innovation in information technology, QUINTERNET(TM) Informatics provides sales
management and optimization products and services to the pharmaceutical
industry.

     We provide services that help pharmaceutical companies determine return on
investment for targeted prescribers, optimal sales force resource allocation,
territory alignment and product positioning. We also provide domain expertise in
data warehousing, data cleansing and value-added consulting. QUINTERNET(TM)
Informatics data warehousing and business information solutions integrate data
from disparate sources, such as third party vendors, market research groups,
promotional and contract groups, and customer databases into a central
repository that can be accessed by geographically dispersed decision-makers. Our
data cleansing solutions employ advanced techniques to transform raw and
disparate customer data into what we believe is clean, accurate and actionable
information.

     We also maintain proprietary regional profiling databases covering most
United States healthcare facilities. Our profiling databases contain information
on more than 200,000 healthcare facilities nationwide, including health
management organizations, or HMOs, preferred provider organizations, pharmacy
benefit managers, integrated health networks, group purchasing organizations,
employer coalitions, mail service pharmacies and HMO-affiliated physicians. We
also provide advanced software applications to help customers access healthcare
information over the Internet to help solve healthcare marketing business
problems. For example, WebInSite(TM) is an Internet-based managed care data and
account management product designed to offer pharmaceutical national account
managers and sales representatives a competitive edge in managing their managed
care accounts. This product integrates data profiles of companies operating in
the managed care environment into analytical reports and interactive
applications to enable pharmaceutical marketers to achieve maximum efficiency
and sales potential in each of their managed accounts.

     QUINTERNET(TM) Proprietary Database.  Our QUINTERNET(TM) proprietary
database together with our Internet initiative provides us with opportunities to
broaden our product and service offerings. We use what we believe is the
healthcare industry's largest database combining medical and pharmaceutical data
to provide real-time information about pharmaceutical market use, medical
interventions and outcomes. The data used are aggregated from pharmacy and
medical transactions, de-identified and linked at the patient level, allowing
in-depth analysis across the continuum of patient care -- from initial diagnosis
to drug intervention and follow-up, without identifying individual patients. We
obtain much of this data through an agreement with WebMD that gives us exclusive
rights to de-identified ENVOY transaction data, as well as other data received
by WebMD. We are dependent on WebMD for this data, and any interruption in the
flow

                                        7
<PAGE>   10

of data to us from WebMD, as has happened on one occasion, would disrupt our
current ability to provide QUINTERNET-based products and services. We are
continuing development of our Rx Market Monitor product suite, formerly known as
the QUINTERNET(TM) Series. Also, we are developing two portals, QUINTERNET(TM)
Real-time Pharma Management (R.P.M.) and QUINTERNET(TM) Physician R.P.M., that
will provide access as appropriate to key information from an integrated
repository of data. These portals are targeted for beta testing starting in
mid-2001.

CUSTOMERS AND MARKETING

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

     For the year ended December 31, 2000, approximately 56.0% of our net
revenue from external customers was attributed to operations in the United
States and 44.0% to operations outside the United States. Please refer to the
notes to our consolidated financial statements included in Item 8 of this Form
10-K for further details regarding our foreign and domestic operations.
Approximately 34.5%, 38.8%, and 39.1% of our net revenue was attributed to our
clinical development services in 2000, 1999 and 1998, respectively;
approximately 39.4%, 37.5% and 41.2% of our net revenue was attributed to our
commercialization services in 2000, 1999 and 1998, respectively; and
approximately 14.3%, 13.6% and 11.3% of our net revenue was attributed to our
early development and laboratory services in 2000, 1999 and 1998 respectively.
Neither our integrated strategic services nor our informatics services accounted
for more than 10% of our net revenue in any of these years. ENVOY is accounted
for as a discontinued operation as a result of its sale to WebMD in May 2000;
therefore, the results of ENVOY through the date of sale are not included in our
net revenue and are reported separately.

     In the past, we have derived, and may in the future derive, a significant
portion of our net revenue from a relatively limited number of major projects or
customers. As pharmaceutical companies continue to outsource large projects and
studies to fewer full-service providers, the concentration of business could
increase. We may experience concentration in 2001 and in future years. Although
no customer accounted for more than 10% of our consolidated net revenue in 1998,
Aventis S.A. accounted for approximately 10% and 11% of our consolidated net
revenue in 2000 and 1999, respectively.

COMPETITION

     The market for our product development services is highly competitive, and
we compete against traditional contract research organizations, or CROs, and the
in-house research and development departments of pharmaceutical companies, as
well as universities and teaching hospitals. Among the traditional CROs, there
are several hundred small, limited-service providers, several medium-sized
firms, and only a few full-service companies with global capabilities.
Consolidation among CROs likely will result in greater competition among the
larger contract research providers for customers and acquisition candidates. Our
primary contract research competitors include Covance Inc., PAREXEL
International Corp. and Pharmaceutical Product Development, Inc. In commercial
development services, we compete against the in-house sales and marketing
departments of pharmaceutical companies and other contract sales organizations
in each country in which we operate. We also compete against national consulting
firms offering healthcare consulting and medical communications services,
including boutique firms specializing in the healthcare industry and the
healthcare departments of large firms. Our primary commercial services
competitors include Ventiv Health and Professional Detailing, Inc. Competitors
for our informatics services include IMS Health Incorporated and NDC. We believe
that we compete favorably in these areas.

     Competitive factors for product development services include (1) previous
experience, (2) medical and scientific experience in specific therapeutic areas,
(3) the quality of contract research, (4) speed to completion, (5) the ability
to organize and manage large-scale trials on a global basis, (6) the ability to
manage large and complex medical databases, (7) the ability to provide
statistical and regulatory services, (8) the ability to recruit investigators,
(9) the ability to integrate information technology with systems to

                                        8
<PAGE>   11

improve the efficiency of contract research, (10) an international presence with
strategically located facilities and (11) financial viability and price. The
primary competitive factors affecting commercial services are the proven ability
to quickly assemble, train and manage large qualified sales forces to handle
broad scale launches of new drugs and price. Competitive factors affecting
healthcare consulting and medical communications services include experience,
reputation and price. Although our informatics services have been systematically
established over many years, our market position may be affected in the future
by competitors' efforts to create or acquire enhanced databases or to develop
and market new information products and services. In addition, our market
position could be adversely affected if our competitors secure exclusive rights
to data that we require for our informatics services. Notwithstanding all these
competitive factors, we believe that the synergies arising from integrating
product development services with commercial development services, supported by
global operations and information technology and supplemented by our informatics
capabilities differentiate us from our competitors.

EMPLOYEES

     As of January 31, 2001, we had approximately 18,219 employees, comprised of
approximately 7,717 in the Americas, 8,829 in Europe and Africa and 1,673 in the
Asia-Pacific region. As of January 31, 2001, our Product Development Group had
8,953 employees, our Commercial Services Group had 8,448 employees, and our
QUINTERNET Informatics Group had 480 employees. In addition, 56 employees worked
on our Internet capabilities and 282 were in our centralized
operations/corporate office.

BACKLOG

     We report backlog based on anticipated net revenue from uncompleted
projects which have been authorized by the customer, through a written contract
or otherwise. Once work begins on a project, net revenue is recognized over the
duration of the project. Using this method of reporting backlog, at December 31,
2000, backlog was approximately $1.9 billion, as compared to approximately $2.2
billion at December 31, 1999.

     We believe that backlog may not be a consistent indicator of future results
because it can be affected by a number of factors, including the variable size
and duration of projects, many of which are performed over several years.
Additionally, projects may be terminated by the customer or delayed by
regulatory authorities. Moreover, the scope of work can change during the course
of a project.

POTENTIAL LIABILITY

     In conjunction with our product development services, we contract with
physicians to serve as investigators in conducting clinical trials to test new
drugs on human volunteers. Such testing creates risk of liability for personal
injury to or death of volunteers, particularly to volunteers with
life-threatening illnesses, resulting from adverse reactions to the drugs
administered. Although we do not believe we are legally accountable for the
medical care rendered by third party investigators, it is possible that we could
be held liable for the claims and expenses arising from any professional
malpractice of the investigators with whom we contract or in the event of
personal injury to or death of persons participating in clinical trials. In
addition, as a result of our Phase I clinical trial facilities, we could be
liable for the general risks associated with a Phase I facility including, but
not limited to, adverse events resulting from the administration of drugs to
clinical trial participants or the professional malpractice of Phase I medical
care providers. We also could be held liable for errors or omissions in
connection with the services we perform through each of our service groups. For
example, we could be held liable for errors or omissions or breach of contract
if one of our labs inaccurately reports or fails to report lab results or if our
informatics products violate rights of third parties. We believe that some of
our risks are reduced by one or more of the following: (1) contractual
indemnification provisions with customers and investigators, (2) insurance
maintained by customers and investigators and by us and (3) various regulatory
requirements, including the use of institutional review boards and the
procurement of each volunteer's informed consent to participate in the study.
The contractual indemnifications generally do not fully protect us against
certain of our own actions such as negligence. Contractual arrangements are
subject to negotiation with customers and the terms and scope of such
indemnification vary from customer to
                                        9
<PAGE>   12

customer and from trial to trial. Additionally, financial performance of these
indemnities is not secured. Therefore, we bear the risk that the indemnifying
party may not have the financial ability to fulfill its indemnification
obligations. We maintain professional liability insurance that covers worldwide
territories in which we currently do business and includes drug safety issues as
well as data processing errors and omissions. We could be materially and
adversely affected if we were required to pay damages or bear the costs of
defending any claim outside the scope of or in excess of a contractual
indemnification provision or beyond the level of insurance coverage or in the
event that an indemnifying party does not fulfill its indemnification
obligations.

GOVERNMENT REGULATION

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

     GCP regulations and guidelines contain the industry standard for the
conduct of clinical research and development studies. The FDA and many other
regulatory authorities require that study results and data submitted to such
authorities be based on studies conducted in accordance with GCP provisions.
These provisions include: (1) complying with specific regulations governing the
selection of qualified investigators, (2) obtaining specific written commitments
from the investigators, (3) ensuring the protection of human subjects by
verifying that Institutional Review Board independent ethics committee approval
and patient informed consent are obtained, (4) instructing investigators to
maintain records and reports, (5) verifying drug or device accountability, (6)
reporting of adverse events, (7) adequate monitoring of the study for compliance
with GCP requirements and (8) permitting appropriate governmental authorities
access to data for their review. Records for clinical studies must be maintained
for specified periods for inspection by the FDA during audits. Significant
non-compliance with GCP requirements can result in the disqualification of data
collected during the clinical trial.

     FDA regulations on electronic records and signatures set forth requirements
for data in electronic format supporting any submissions to the FDA.

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

     Our commercial development services are subject to detailed and
comprehensive regulation in each geographic market in which we operate. Such
regulation relates, among other things, to the distribution of drug samples, the
qualifications of sales representatives and the use of healthcare professionals
in sales

                                        10
<PAGE>   13

functions. In the United States our commercial development services are subject
to the Prescription Drug Marketing Act with regard to the distribution of drug
samples. In the U.K., they are subject to the Association of the British
Pharmaceutical Industry Code of Practice for the Pharmaceutical Industry, which
prescribes, among other things, an examination that must be passed by sales
representatives within two years of their taking up employment, and which
prevents the employment of healthcare professionals as sales representatives. We
follow similar guidelines which are in effect in the other countries where we
offer commercial development services.

     Our United States laboratories are subject to licensing and regulation
under federal, state and local laws relating to hazard communication and
employee right-to-know regulations, the handling and disposal of medical
specimens and hazardous waste and radioactive materials, as well as the safety
and health of laboratory employees. All of our laboratories are subject to
applicable federal, state and national laws and regulations relating to the
storage and disposal of all laboratory specimens including the regulations of
the Environmental Protection Agency, the Nuclear Regulatory Commission, the
Department of Transportation, the National Fire Protection Agency and the
Resource Conservation and Recovery Act. The use of controlled substances in
testing for drugs of abuse is regulated by the United States Drug Enforcement
Administration, or DEA. All of our laboratories using controlled substances for
testing purposes are licensed by the DEA. The regulations of the United States
Department of Transportation, the Public Health Service and the Postal Service
apply to the surface and air transportation of laboratory specimens. Our
laboratories also are subject to International Air Transport Association
regulations, which govern international shipments of laboratory specimens.
Furthermore, when the materials are sent to a foreign country, the
transportation of such materials becomes subject to the laws, rules and
regulations of such foreign country.

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

     Our disease management and healthcare information management services
relate to the diagnosis and treatment of disease and are, therefore, subject to
substantial governmental regulation. In addition, the confidentiality of
patient-specific information and the circumstances under which such
patient-specific records may be released for inclusion in our databases or used
in other aspects of our business are heavily regulated. Legislation has been
proposed at both the state and federal levels that may (1) require us to
implement security measures that could involve substantial expenditures or (2)
limit our ability to offer some of our products and services.

     Specifically, various initiatives being considered at the federal level
could impact the manner in which we conduct our informatics business. The Health
Insurance Portability and Accountability Act of 1996, or HIPAA, requires the use
of standard transactions, standard identifiers, security and other
administrative simplification provisions and instructs the Secretary of Health
and Human Services, or HHS, to promulgate regulations regarding these standards.
Final rules requiring standardized electronic transactions of health information
were published by the Secretary in August 2000 and have a compliance deadline of
October 16, 2002. The Act also requires the Secretary of HHS to develop
recommendations regarding the privacy of individually identifiable health
information. On September 11, 1997, the Secretary presented her recommendations,
which, among other things, advised that patient information should not be
disclosed except when authorized by the patient. This Act further established an
August 1999 deadline for Congress to enact privacy legislation and directed the
Secretary to issue regulations setting privacy standards to protect health
information that is transmitted electronically in the event that Congress missed
its deadline. Congress did not meet the August 1999 deadline.
                                        11
<PAGE>   14

     On December 28, 2000, the Secretary issued the final rule on Standards for
Privacy of Individually Identifiable Health Information to implement the privacy
requirements for HIPAA. These regulations generally (1) impose standards for
entities transmitting or maintaining protected data in an electronic, paper or
oral form with respect to the rights of individuals who are the subject of
protected health information; and (2) establish procedures for (a) the exercise
of those individuals' rights and (b) the uses and disclosure of protected health
information. Unless properly extended by Congress or the current Administration,
the effective date of the final rule is April 14, 2001 and the compliance date
is April 14, 2003.

     The impact of such legislation and regulations relating to health
information cannot be predicted. Such legislation or regulations could
materially affect our business. Compliance with the final regulations must be no
later than 24 months after their effective date, and we are preparing to comply
with this timetable.

     In addition, broad-based health information privacy legislation restricting
third party processors from using, transmitting or disclosing certain patient
data without specific patient consent has been introduced in the United States
Congress and certain state legislatures. If such legislation were adopted, it
could prevent or restrict third party processors from using, transmitting or
disclosing certain treatment and clinical data. It is difficult to predict the
impact of the legislation and regulations described above, but such legislation
and regulations could materially adversely affect our business.

     The Market Research Code of Conduct, a pharmaceutical industry-promulgated
code of conduct to which we adhere to in connection with our informatics
business, provides that the identity of the individual researched may never be
disclosed to the company sponsoring such research without such individual's
consent. We supply only aggregated statistics to the sponsoring company when
information is generated from market research databases. As recommended by the
board of directors of the Pharmaceutical Manufacturer's Association, our
informatics databases do not contain patient names and certain other personal
identifiers, thus preserving confidentiality.

     We are directly subject to certain restrictions on the collection and use
of data. In the United States, certain states have enacted legislation
prohibiting the use of personally identifiable prescription drug information
without consent. Because our informatics business generally does not receive
information regarding the identity of patients, we believe that such state
legislation will have no material adverse effect on our business. There can be
no assurance that future legislation or regulations will not directly or
indirectly restrict the dissemination of information regarding physicians or
prescriptions. Such legislation, if enacted, could have a material adverse
effect on our informatics operations.

ITEM 2.  PROPERTIES

     As of January 31, 2001 we had approximately 124 offices located in 39
countries. Our executive headquarters is located adjacent to Research Triangle
Park, North Carolina. We maintain substantial offices serving our Product
Development Group in Durham, North Carolina; Kansas City, Missouri; Smyrna,
Georgia; Bracknell, England; Irene, South Africa; Tokyo, Japan; and Singapore.
We also maintain substantial offices serving our Commercial Development Group in
Parsippany, New Jersey; Falls Church, Virginia; Hawthorne, New York; Marlow,
England, and Tokyo, Japan. Substantial offices serving our Informatics Group are
located in Newtown, Pennsylvania and Chicago, Illinois. We own facilities that
serve our Product Development Group in Lenexa, Kansas; London, England;
Riccarton, Scotland; Bathgate, Scotland; Glasgow, Scotland; Freiburg, Germany;
and Pretoria, South Africa. We also own a facility in Gotenba City, Japan that
serves our Commercial Development Group. Additionally, we own a corporate office
in London, England. All of our other offices are leased. We believe that our
facilities are adequate for our operations and that suitable additional space
will be available when needed.

ITEM 3.  LEGAL PROCEEDINGS

     Beginning on September 30, 1999, several purported class action lawsuits
were filed in the United States District Court for the Middle District of North
Carolina against us and several of our executive officers and directors on
behalf of all persons who purchased or otherwise acquired shares of our common
stock between July 16, 1999, and September 15, 1999. These actions were
subsequently consolidated and plaintiffs filed an
                                        12
<PAGE>   15

amended complaint purporting to represent a class of purchasers of our stock or
call options, and sellers of put options, during the period between April 21,
1999, and September 15, 1999. The amended complaint alleges violations of
Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5.
Plaintiffs seek unspecified damages, plus costs and expenses, including
attorneys' fees and experts' fees. We believed the claims to be without merit
and intended to defend the suit vigorously. Accordingly, we and the named
officers and directors filed a motion to dismiss the amended complaint.
Immediately prior to the hearing scheduled on February 6, 2001, on the motion to
dismiss, the parties agreed to settle the lawsuit. The parties are negotiating a
memorandum of understanding to present before the court for approval.

     In February 1999, Kenneth Hodges ("Hodges") filed a civil lawsuit in the
State Court of Fulton County, Georgia, naming as defendants Richard L. Borison,
Bruce I. Diamond, 14 pharmaceutical companies and Quintiles Laboratories
Limited, one of our subsidiaries. We reached a settlement with Hodges under
which Hodges acknowledged that we had no liability with respect to the lawsuit.
Hodges released all claims against us and has filed a Stipulation of Dismissal
with Prejudice which has been entered by the Court.

     On August 17, 2000, Joseph Lewis filed a civil lawsuit in the State Court
of Fulton County, State of Georgia naming as defendants Richard L. Borison,
Bruce I. Diamond, Janssen Pharmaceutica, Inc., Zeneca, Inc., Novartis
Pharmaceuticals Corporation and Quintiles Laboratories Limited, one of our
subsidiaries. The plaintiff alleged that he suffered from schizophrenia and that
he was given experimental drugs for this condition in connection with numerous
clinical drug trials conducted by defendants Borison and Diamond between January
1988 and June 1996. The plaintiff alleged that the defendants and their agents
conspired to conduct these drug trials on him, and that they improperly
supervised, monitored and regulated the trials, causing him to have violent
adverse reactions to the drugs involved in the trials. The plaintiff sought to
recover his actual damages in unspecified amounts, medical expenses, litigation
costs and punitive damages. The Plaintiff dismissed his claims against us,
without prejudice.

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

     On February 25, 2001, we initiated a lawsuit in Superior Court of Wake
County, North Carolina against WebMD Corporation. Our complaint alleged that
WebMD's suspension of the delivery of data to us on February 24, 2001 was a
material breach of the Data Rights Agreement we entered into with WebMD in May
2000, and we requested a preliminary injunction to require WebMD to continue
providing the data to us pending final resolution of the action. We obtained a
temporary restraining order on February 25, 2001 requiring WebMD to continue the
delivery of data to us pursuant to the Data Rights Agreement. WebMD removed the
suit to the United States District Court for the Eastern District of North
Carolina on March 1, 2001 and moved to dissolve the temporary restraining order.
On March 5, 2001, the court denied the defendant's motion to dissolve the
temporary restraining order and, subsequently extended the temporary restraining
order through March 16, 2001. On March 16 and March 21, the court entered a
preliminary injunction requiring WebMD to continue the unaltered and
uninterrupted flow of data. We intend to vigorously pursue the protection of our
rights under the Data Rights Agreement.

     We are also a party in certain other pending litigation arising in the
normal course of our business. While the final outcome of such litigation cannot
be predicted with certainty, it is the opinion of management that the outcome of
these matters would not materially affect our consolidated financial position or
results of operations.

                                        13
<PAGE>   16

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not applicable.

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET PRICES

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

<TABLE>
<CAPTION>
                      CALENDAR PERIOD                          HIGH       LOW
                      ---------------                          ----       ---
<S>                                                           <C>       <C>
Quarter ended March 31, 1999................................  $53.375   $34.625
Quarter ended June 30, 1999.................................   45.500    34.750
Quarter ended September 30, 1999............................   41.938    16.875
Quarter ended December 31, 1999.............................   25.031    16.000
Quarter ended March 31, 2000................................   35.000    15.313
Quarter ended June 30, 2000.................................   17.438    12.000
Quarter ended September 30, 2000............................   20.250    12.563
Quarter ended December 31, 2000.............................  $22.500   $12.500
</TABLE>

     As of February 2, 2001, there were approximately 30,399 beneficial owners
of our common stock, including 1,399 holders of record.

DIVIDEND POLICIES

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

RECENT SALES OF UNREGISTERED SECURITIES

     Not applicable.

                                        14
<PAGE>   17

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

     The selected Consolidated Statement of Operations Data set forth below for
each of the years in the three-year period ended December 31, 2000 and the
Consolidated Balance Sheet Data set forth below as of December 31, 2000 and 1999
are derived from our audited consolidated financial statements and notes thereto
as included elsewhere herein. The selected Consolidated Statement of Operations
Data set forth below for the years ended December 1997 and 1996, and the
Consolidated Balance Sheet Data set forth below as of December 31, 1998, 1997
and 1996 are derived from our consolidated financial statements. During 2000, we
completed the sale of our electronic data interchange unit, ENVOY Corporation,
and as such the results of ENVOY, for all periods presented, have been reported
separately as a discontinued operation in the consolidated financial statements.
Our consolidated financial statements have been restated to reflect material
acquisitions in transactions accounted for as poolings of interests. However,
the consolidated financial statements have not been restated to reflect certain
other acquisitions accounted for as pooling of interests where we determined
that the consolidated financial data would not have been materially different if
the pooled companies had been included. For such immaterial pooling of interests
transactions, which include three transactions in 1998 and one transaction in
1997, our financial statements for the year of each transaction have been
restated to include the pooled companies from January 1 of that year, but the
financial statements for years prior to the year of each transaction have not
been restated because the effect of such restatement would be immaterial. The
selected consolidated financial data presented below should be read in
conjunction with our audited consolidated financial statements and notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31,
                                                    ----------------------------------------------------------
                                                       2000         1999         1998        1997       1996
                                                    ----------   ----------   ----------   --------   --------
<S>                                                 <C>          <C>          <C>          <C>        <C>
Net revenue.......................................  $1,659,910   $1,607,087   $1,221,776   $885,557   $627,251
(Loss) income from operations.....................     (68,170)     136,355      129,389     91,814     46,495
(Loss) income from continuing operations before
  income taxes....................................     (51,005)     115,910      125,567     89,439     26,864
(Loss) income from continuing operations..........     (34,174)      73,168       85,643     58,063     11,625
Income from discontinued operation, net of income
  taxes...........................................      16,770       36,123        2,926     (9,197)   (37,217)
Extraordinary gain from sale of discontinued
  operation, net of income taxes..................     436,327           --           --         --         --
Net income (loss) available for common
  shareholders....................................  $  418,923   $  109,291   $   88,569   $ 48,866   $(27,377)
                                                    ==========   ==========   ==========   ========   ========
Basic net income (loss) per share:
  (Loss) income from continuing operations........  $    (0.29)  $     0.64   $     0.82   $   0.58   $   0.13
  Income (loss) from discontinued operation.......        0.14         0.32         0.03      (0.09)     (0.41)
  Extraordinary gain from sale of discontinued
    operation.....................................        3.76           --           --         --         --
                                                    ----------   ----------   ----------   --------   --------
  Basic net income (loss) per share...............  $     3.61   $     0.96   $     0.85   $   0.49   $  (0.30)
                                                    ==========   ==========   ==========   ========   ========
Diluted net income (loss) per share:
  (Loss) income from continuing operations........  $    (0.29)  $     0.63   $     0.77   $   0.54   $   0.13
  Income (loss) from discontinued operation.......        0.14         0.31         0.03      (0.09)     (0.41)
  Extraordinary gain from sale of discontinued
    operation.....................................        3.76           --           --         --         --
                                                    ----------   ----------   ----------   --------   --------
  Diluted net income (loss) per share.............  $     3.61   $     0.94   $     0.80   $   0.46   $  (0.30)
                                                    ==========   ==========   ==========   ========   ========
Weighted average shares outstanding:(1)
  Basic...........................................     115,968      113,525      104,799     99,908     91,693
  Diluted.........................................     115,968      115,687      110,879    107,141     91,693
</TABLE>

<TABLE>
<CAPTION>
                                                                        AS OF DECEMBER 31,
                                                    ----------------------------------------------------------
                                                       2000         1999         1998        1997       1996
                                                    ----------   ----------   ----------   --------   --------
<S>                                                 <C>          <C>          <C>          <C>        <C>
Cash and cash equivalents.........................  $  330,214   $  191,653   $  128,621   $ 84,597   $ 76,129
Working capital, excluding discontinued
  operation(2)....................................     308,684       78,039      197,005    166,866    103,736
Total assets......................................   1,961,578    1,607,565    1,171,777    960,803    694,517
Long-term debt including current portion..........      38,992      185,765      193,270    189,507    191,509
Shareholders' equity..............................  $1,404,706   $  991,759   $  646,132   $517,283   $278,574
Employees.........................................      18,060       20,496       16,732     12,717      8,998
</TABLE>

---------------
(1) Restated to reflect the two-for-one stock split of our common stock effected
    in the form of a 100% stock dividend in December 1997.
(2) Working capital of discontinued operation was $36.0 million in 1999, $42.4
    million in 1998, $18.0 million in 1997 and $47.5 million in 1996.

                                        15
<PAGE>   18

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATION

     Unless otherwise noted, all foreign currency denominated amounts due,
subsequent to December 31, 2000, have been translated using the Thursday,
December 28, 2000 foreign exchange rates as published in the December 29, 2000
edition of the Wall Street Journal.

OVERVIEW

     Quintiles Transnational Corp. improves healthcare by bringing new medicines
to patients faster and providing knowledge-rich medical and drug data to advance
the quality and cost effectiveness of healthcare. We are a global market leader
in helping pharmaceutical, biotechnology and medical device companies market and
sell their products. We also provide insightful market research solutions and
strategic analyses to support healthcare decisions. Based on industry analyst
reports, we are the largest company in the pharmaceutical outsourcing services
industry as ranked by 2000 net revenue; the net revenue of the second largest
company was over $790 million less than our 2000 net revenue.

     During 2000, we generated solutions to help guide the pharmaceutical
industry through a period of transformation by helping our customers stay ahead
of ever-changing market conditions. Our evolution from outsourcing to
partnering, we believe, reinforces our global position. The following
initiatives were implemented in 2000 to align our business more closely with our
customers needs:

     During 2000, we announced and implemented a restructuring plan designed to
streamline the organization by consolidating operations. As part of the
restructuring, we began the implementation of a shared services environment for
our finance, human resources and information technology services worldwide, and
we also adopted a more centralized approach to the product development group's
clinical data management, regulatory and drug safety, and business development
functions.

     In May 2000, we completed the sale of our electronic data interchange unit,
ENVOY Corporation, to WebMD Corporation. Prior to the sale, ENVOY transferred
its informatics subsidiary, Synergy Health Care, Inc., to us. We received $400
million in cash and 35 million shares of WebMD common stock in exchange for our
entire interest in ENVOY and a warrant to acquire 10 million shares of our
common stock at $40 per share. We retained exclusive rights to de-identified
ENVOY transaction data and to certain other de-identified data available from
WebMD, subject to limited exceptions. We agreed to share with WebMD a royalty
derived from net operating income of products using the licensed data. We are
currently in a dispute with WebMD regarding our rights to this data.

     Upon closing the sale of ENVOY, we formed a strategic alliance with WebMD
to develop and market a web-based suite of integrated products and services for
the pharmaceutical industry. These products and services will be designed to
bring Internet speed and efficiency to the drug development and marketing
process. We are currently in a dispute with WebMD regarding this alliance.

     Consistent with the shift in focus of our pre-clinical operations from
basic toxicology to more advanced technologies, such as genomics and proteomics,
we sold our general toxicology operations in Ledbury, Hereforeshire, U.K. in
June 2000.

CONTRACT REVENUE

     We consider net revenue, which excludes reimbursed costs, our primary
measure of revenue growth. Substantially all net revenue for the product
development and commercialization service groups is earned by performing
services under contracts with various pharmaceutical, biotechnology, medical
device and healthcare companies. Many of our contracts are fixed price, with
some variable components, and range in duration from a few months to several
years. We are also party to fee-for-service and unit-of-service contracts. We
recognize net revenue based upon (1) percentage of completion (utilizing input
or output measures as appropriate) for fixed price contracts, (2) contractual
per diem or hourly rate basis as work is performed for fee-for-service contracts
or (3) completion of units of service for unit-of-service contracts.

                                        16
<PAGE>   19

     Our commercialization service group has entered into agreements with
certain customers, whereby we provide a dedicated sales force and fund certain
sales and marketing expenses, and we receive payments based on the achievement
of certain sales levels of the promoted product. During the sales force
recruitment and training phase, we defer certain costs and will amortize those
costs over the lesser of the contractual termination period (generally one year)
or the proportion to revenue recognized.

     Our contracts generally provide for price negotiation upon scope of work
changes. We recognize revenue related to these scope changes when the underlying
services are performed according to a binding commitment. Most contracts are
terminable upon 15 - 90 days' notice by the customer. In the event of
termination, contracts typically require payment for services rendered through
the date of termination, as well as subsequent services rendered to close out
the contract. Any anticipated losses resulting from contract performance are
charged to earnings in the period identified.

     Each contract specifies billing and payment procedures. Generally, the
procedures require a portion of the contract fee to be paid at the time the
project is initiated with subsequent contract billings and payments due
periodically over the length of the project's term in accordance with
contractual provisions. Revenue recognized in excess of billings is classified
as unbilled services, while billings in excess of revenue recognized are
classified as unearned income.

     We report backlog based on anticipated net revenue from uncompleted
projects which have been authorized by the customer through a written contract
or otherwise. Using this method of reporting backlog, at December 31, 2000, 1999
and 1998, our backlog was approximately $1.9 billion, $2.2 billion and $1.9
billion, respectively. We believe that backlog may not be a consistent indicator
of future results because backlog can be affected by a number of factors,
including the variable size and duration of projects, many of which are
performed over several years, loss or significant delay of contracts or a change
in the scope of a project during the course of a contract.

RESULTS OF CONTINUING OPERATIONS

YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999

     Net revenue for the year ended December 31, 2000 was $1.7 billion, an
increase of $52.8 million or 3.3% over 1999 net revenue of $1.6 billion. Factors
contributing to the growth included an increase of contract service offerings,
an increase in services rendered under existing contracts, the initiation of
services under contracts awarded subsequent to December 31, 1999 and our
acquisitions accounted for under purchase accounting completed subsequent to
January 1, 1999 which contributed approximately $48.4 million of 2000 net
revenue as compared to $36.2 million of 1999 net revenue. These factors were
partially offset by less than expected new business and the effects of large
commercialization contracts being converted in-house instead of being renewed.
We experienced growth in the Americas and Asia Pacific regions. The decrease
that we experienced in the Europe and Africa region was primarily due to the
effect of foreign currency fluctuations related to the strengthening of the US
dollar relative to the euro and other European currencies.

     Direct costs, which include compensation and fringe benefits for billable
employees, and other expenses directly related to contracts, were $993.8 million
or 59.9% of 2000 net revenue versus $883.3 million or 55.0% of 1999 net revenue.
The increase in direct costs as a percentage of net revenue was primarily
attributable to a decrease in our realization rates during 2000.

     General and administrative expenses, which include compensation and fringe
benefits for administrative employees, non-billable travel, professional
services, advertising, computer and facility expenses, were $565.8 million or
34.1% of net revenue for 2000 versus $505.2 million or 31.4% of 1999 net
revenue.

     In January 2000, we announced the adoption of a restructuring plan. In
connection with this plan, we recognized a restructuring charge of $58.6 million
during the quarter ended March 31, 2000. The restructuring charge consists of
$33.2 million related to severance payments, $11.3 million related to asset
impairment write-offs and $14.0 million of exit costs. As a part of this plan,
approximately 770 positions worldwide will be eliminated and as of December 31,
2000, 601 individuals have been terminated. Most of the eliminated positions
were in the product development service group.

                                        17
<PAGE>   20

     In the fourth quarter of 2000 we updated our expectations for the
restructuring plan which resulted in a reduction of the expected cost by $6.9
million. This reduction was made up of $6.3 million in severance payments and
$632,000 in exit costs. The severance reduction resulted primarily from a higher
than expected number of voluntary terminations, reduced outplacement costs and
related fringe benefits.

     Also during the fourth quarter, management conducted a detailed review of
the resource levels within selected service groups. Based on this review, we
adopted a follow-on restructuring plan resulting in a restructuring charge of
$7.1 million. The restructuring charge consists of $5.8 million related to
severance payments and $1.3 million related to exit costs. As part of this plan,
approximately 220 positions will be eliminated and as of December 31, 2000, 42
individuals have been terminated. Most of the eliminated positions were in the
commercialization service group.

     Also included in general and administrative expenses for year-ended
December 31, 1999 were $8.8 million of incremental costs related to our Year
2000 program. Excluding these incremental costs, general and administrative
expenses increased $69.4 million primarily due to costs associated with our
Internet initiative of $21.4 million, the implementation of a global shared
service center of $5.7 million and the implementation of global account teams of
$6.5 million, as well as delays in realizing the benefits of our restructuring
program.

     Depreciation and amortization were $92.6 million or 5.6% of 2000 net
revenue versus $82.3 million or 5.1% of 1999 net revenue. Amortization expenses
increased $1.9 million primarily due to the goodwill amortization resulting from
our 1999 acquisitions accounted for under purchase accounting. The remaining
$8.4 million increase is primarily due to the increase in our capitalized asset
base.

     Consistent with the shift in focus of our preclinical operations from basic
toxicology to more advanced technologies such as genomics and proteomics, we
completed the sale of our general toxicology operations in Ledbury,
Herefordshire, UK. This facility was not contributing to our profitability and
represented less than one percent of our net revenue. In connection with this
sale, we recognized a $17.3 million loss on the disposal.

     Loss from operations was $68.2 million or (4.1%) of 2000 net revenue versus
income from operations of $136.4 million or 8.5% of 1999 net revenue. Excluding
the non-recurring charges of $75.9 million and the $24.3 million for the
Internet initiative, income from operations was $32.0 million or 1.9% of 2000
net revenue.

     Other income was $17.2 million in 2000 as compared to other expense of
$20.4 million in 1999. Included in other income are net realized gains from
investments in equity securities of $578,000 and $2.1 million for the year ended
December 31, 2000 and 1999, respectively. Excluding transaction costs and these
gains, other income was $16.6 million in 2000 versus $3.8 million in 1999. The
$12.8 million increase is primarily due to an increase in net interest income.

     The effective income tax rate for 2000 was (33.0%) versus a 36.9% rate in
1999. Excluding transaction costs, which are not generally deductible for tax
purposes, the effective income tax rate for 1999 would have been 30.1%. Since we
conduct operations on a global basis, our effective income tax rate may vary.
See "-- Income Taxes."

  Analysis By Segment

     The following table summarizes the operating activities for our three
reportable segments for the years ended December 31, 2000 and 1999. We do not
include net revenue and expenses related to the Internet initiative and
non-recurring charges in our segment analysis (stated in millions).

<TABLE>
<CAPTION>
                                     NET REVENUE                 (LOSS)/INCOME FROM OPERATIONS
                            ------------------------------   -------------------------------------
                                                                      % OF NET            % OF NET
                              2000       1999     GROWTH %    2000    REVENUE     1999    REVENUE
                            --------   --------   --------   ------   --------   ------   --------
<S>                         <C>        <C>        <C>        <C>      <C>        <C>      <C>
Product development.......  $  809.1   $  848.6     (4.7)%   $ (9.3)    (1.2)%   $ 74.4      8.8%
Commercialization.........     790.2      706.1     11.9       55.6      7.0       66.0      9.4
QUINTERNET(TM)
  informatics.............      59.7       52.4     14.0      (14.2)   (23.8)      (4.1)    (7.8)
                            --------   --------              ------              ------
                            $1,659.0   $1,607.1      3.2%    $ 32.0      1.9%    $136.4      8.5%
                            ========   ========              ======              ======
</TABLE>

                                        18
<PAGE>   21

     The product development group's financial performance was negatively
impacted by several factors, including early termination and delays in clinical
trials, less than expected new business, realization rates that were lower than
historical levels, adjustments made in existing programs, higher operating costs
in our laboratory services, and the effects of contracts with lower profit
margins than we historically achieved. During 2000, the cancellation rate for
clinical trials decreased to the level we experienced during the first half of
1999 as opposed to the second half of 1999. During the second half of 2000, the
product development group began to realize benefits from the restructuring plan.

     The commercialization group's net revenue growth includes net revenue from
an acquisition accounted for as a purchase that was completed subsequent to
January 1, 1999 of $12.1 million for the year ended December 31, 2000 as
compared to $6.3 million for the year ended December 31, 1999. The financial
performance of this group is the result of strong growth in the Americas,
primarily the US, and Asia Pacific regions offset by a weakening in the Europe
and Africa region, primarily in the United Kingdom and Continental Europe. A
portion of this stems from growth in the medical communications and strategic
consulting services. During the second half of 2000, the commercialization group
was negatively impacted by less than expected new business and the effect of
large contracts being taken in-house by our customers instead of being renewed.

     The net revenue for the QUINTERNET(TM) informatics includes net revenue
from an acquisition accounted for as a purchase that was completed subsequent to
January 1, 1999 of $29.8 million for the year ended December 31, 2000 as
compared to $24.6 million for the year ended December 31, 1999. The
QUINTERNET(TM) informatics group's performance was impacted by the
discontinuation of products that we expect to replace with more technologically
advanced products and the costs associated with web-enabling the unique data
products of the QUINTERNET(TM) informatics group.

YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998

     Net revenue for the year ended December 31, 1999 was $1.6 billion, an
increase of $385.3 million or 31.5% over net revenue for the year ended December
31, 1998 of $1.2 billion. Growth occurred across each of our geographic regions
and each of our major service groups. Factors contributing to the growth
included an increase of contract service offerings, the provision of increased
services rendered under existing contracts, the initiation of services under
contracts awarded subsequent to January 1, 1999 and our 1999 acquisitions
accounted for under purchase accounting which contributed approximately $36.0
million of net revenue for the year ended December 31, 1999.

     Direct costs, which include compensation and related fringe benefits for
billable employees, and other expenses directly related to contracts, were
$883.3 million or 55.0% of 1999 net revenue versus $640.8 million or 52.4% of
1998 net revenue. The increase in direct costs as a percentage of net revenue
was primarily attributable to a decrease in the utilization rates during the
year ended December 31, 1999.

     General and administrative expenses, which include compensation and fringe
benefits for administrative employees, non-billable travel, professional
services, advertising, computer and facility expenses, were $505.2 million or
31.4% of 1999 net revenue versus $394.4 million or 32.3% of 1998 net revenue.
Also included in general and administrative expenses were incremental costs
related to our Year 2000 Program of $8.8 million for the year ended December 31,
1999 as compared to $2.6 million for the year ended December 31, 1998. The
remaining $104.6 million increase in general and administrative expenses was
primarily due to an increase in personnel, facilities and locations and outside
services resulting from our growth.

     Depreciation and amortization expense was $82.3 million or 5.1% of 1999 net
revenue versus $57.2 million or 4.7% of 1998 net revenue. Amortization expense
increased $4.7 million due to the goodwill amortization resulting from our 1999
acquisitions accounted for under purchase accounting. The remaining $20.4
million increase is primarily due to the increase in our capitalized asset base.

     Income from operations was $136.4 million or 8.5% of 1999 net revenue
versus $129.4 million or 10.6% of 1998 net revenue.

                                        19
<PAGE>   22

     Other expense, which consists primarily of transaction costs and interest,
increased to $20.4 million in 1999 from $3.8 million in 1998. Transaction costs
included in other expense were $26.3 million in 1999 versus $3.5 million in
1998. Excluding these transaction costs, other income was $5.9 million for the
year ended December 31, 1999 versus other expense of $347,000 for the year ended
December 31, 1998. The $5.5 million fluctuation was due to an increase of $3.3
million of net interest income, an increase of $645,000 of gains on foreign
currency and a $2.1 million realized gain on the sale of an investment in
marketable equity securities.

     The effective income tax rate for 1999 was 36.9% versus a 31.8% rate in
1998. Excluding transaction costs, which are not generally deductible for income
tax purposes, the effective income tax rate for 1999 would have been 30.1%
versus a 30.9% rate for 1998. Since we conduct operations on a global basis, our
effective income tax rate may vary. See "-- Income Taxes."

     The following table summarizes the operating activities for our three
reportable segments for the years ended December 31, 1999 and 1998. We do not
include net revenue and expenses related to the Internet initiative and
non-recurring charges in our segment analysis (stated in millions).

<TABLE>
<CAPTION>
                                     NET REVENUE                 (LOSS)/INCOME FROM OPERATIONS
                            ------------------------------   -------------------------------------
                                                                      % OF NET            % OF NET
                              1999       1998     GROWTH %    1999    REVENUE     1998    REVENUE
                            --------   --------   --------   ------   --------   ------   --------
<S>                         <C>        <C>        <C>        <C>      <C>        <C>      <C>
Product development.......  $  848.6   $  615.5     37.9%    $ 74.4      8.8%    $ 67.9     11.0%
Commercialization.........     706.1      580.1     21.7       66.0      9.4       55.2      9.5
QUINTERNET(TM)
  informatics.............      52.4       26.2    100.0       (4.1)   (7.8)        6.3     24.1
                            --------   --------              ------              ------
                            $1,607.1   $1,221.8     31.5%    $136.4      8.5%    $129.4     10.6%
                            ========   ========              ======              ======
</TABLE>

     The product development group's growth was slower than anticipated as a
result of several factors, including, early termination and delays in clinical
trials, utilization rates that were lower than historical levels and an increase
of approximately $5.6 million in incremental costs incurred related to our Year
2000 Program.

     The commercialization group's net revenue includes approximately $6.3
million of net revenue contributed by a 1999 acquisition accounted for as a
purchase.

     The net revenue for the QUINTERNET(TM) informatics includes net revenue
from an acquisition accounted for as a purchase that was completed during 1999
of approximately $24.6 million. The QUINTERNET(TM) informatics group's financial
performance was negatively impacted by an increase in amortization expense due
to a 1999 acquisition accounted for as a purchase and the allocation of
corporate overhead costs attributable to increased costs incurred to develop the
informatics market in 1999.

LIQUIDITY AND CAPITAL RESOURCES

     Cash flows generated from operations were $10.5 million in 2000 versus
$123.8 million and $125.6 million in 1999 and 1998, respectively. Cash flows
provided by investing activities in 2000 were $270.4 million, versus cash used
in investing activities of $104.5 million and $76.0 million in 1999 and 1998,
respectively. Investing activities for 2000 consisted primarily of $390.7
million of net proceeds from the sale of ENVOY, partially offset by capital
asset purchases. Of these investing activities, capital asset purchases required
$108.8 million in 2000 versus $158.1 million and $97.0 million in 1999 and 1998,
respectively. Capital asset expenditures in 2000 included $25.2 million for the
implementation of the shared service centers and $8.0 million for the purchase
of the training academy in Japan. Capital asset expenditures in 1999 included
approximately $35 million in connection with the acquisition of Aventis S.A.'s
(formerly Hoechst Marion Roussel) Drug Innovation and Approval Facility. We
believe that we will either pay the remainder of the purchase price,
approximately $58 million, or enter into a long-term lease for the facility in
2001. The remaining capital expenditures were predominantly incurred in
connection with the expansion of existing operations, the enhancement of
information technology capabilities and the opening of new offices.

     Total working capital, excluding net assets of discontinued operation,
increased $230.6 million to $308.7 million at December 31, 2000 from $78.0
million at December 31, 1999. This increase primarily results from

                                        20
<PAGE>   23

receiving $390.7 million of cash from the sale of ENVOY which is partially
offset by the cash payment of $143.75 million to redeem our 4.25% Convertible
Subordinated Notes. Trade accounts receivable and unbilled services increased
9.7% to $414.0 million at December 31, 2000 from $377.3 million at December 31,
1999. Trade accounts receivable and unbilled services, net of unearned income,
increased 7.4% to $219.8 million at December 31, 2000 from $204.7 million at
December 31, 1999. The number of days revenue outstanding in trade accounts
receivable and unbilled services, net of unearned income, were 43 and 38 days at
December 31, 2000 and December 31, 1999, respectively.

     Investments in debt securities were $107.8 million at December 31, 2000
versus $109.4 million at December 31, 1999. Our investments in debt securities
consist primarily of U.S. Government Securities and money funds.

     Investments in strategic marketable equity securities at December 31, 2000
were $384.0 million, which includes $79.6 million of net unrealized losses, as
compared to $45.2 million, which includes $29.7 million of net unrealized gains,
at December 31, 1999. The increase in value primarily results from the 35
million shares of WebMD common stock we acquired in connection with the sale of
ENVOY.

     In May 1999, we signed a commercialization agreement with CV Therapeutics,
a development stage biopharmaceutical company, to commercialize one of its
products. The agreement calls for us to conduct certain pre-launch activities,
hire and train a dedicated sales force to promote the product and provide post-
launch marketing and sales services for at least three years after launch and
provide services in years four and five, if certain product sales levels are
achieved. As part of this agreement, we acquired approximately $5.0 million of
CVT common stock and will be required to provide a $10.0 million secured credit
facility to CVT if the Federal Drug Administration accepts CVT's New Drug
Application for the product.

     We have a $150 million senior unsecured credit facility with a U.S. bank.
In addition, we have available to us a L10.0 million (approximately $14.9
million) unsecured line of credit with a U.K. bank and a L1.5 million
(approximately $2.2 million) general bank facility with the same U.K. bank. At
December 31, 2000, we did not have any outstanding balances on these facilities.

     In February 2000, the Board of Directors authorized us to repurchase up to
$200 million of our common stock until February 2001. During 2000, we
repurchased approximately 1.4 million shares for an aggregate price of $21.9
million. To enhance our repurchase program, we sold put options to an
independent third party. The put options entitled the holder to sell a total of
500,000 shares of our common stock to us on January 2, 2001 at $13.7125 per
share. The put options expired on January 2, 2001 in accordance with its terms.
Shareholders' equity increased $412.9 million to $1.4 billion at December 31,
2000 from $991.8 million at December 31, 1999.

     In March 2001, the Board of Directors authorized us to repurchase up to
$100 million of our common stock from time to time until March 1, 2002.

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

INCOME TAXES

     Since we conduct operations on a global basis, our effective income tax
rate has depended and will continue to depend on the amount of profits in
locations with varying income tax rates. Our results of operations will be
impacted by changes in the income tax rates of the various jurisdictions and by
changes in any applicable tax treaties. In particular, as the portion of our
non-U.S. business varies, our effective income tax rate may vary significantly
from period to period. Our effective tax rate may also depend upon the extent to

                                        21
<PAGE>   24

which we are allowed (and are able to use under applicable limitations) U.S.
foreign tax credits in respect of income taxes paid on its foreign operations.

INFLATION

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

CONVERSION TO THE EURO CURRENCY

     On January 1, 1999, a new currency, the euro, became the legal currency for
11 of the 15 member countries of the European Economic Community. Between
January 1, 1999 and January 1, 2002, governments, companies and individuals may
conduct business in the member countries in both the euro and existing national
currencies. On January 1, 2002, the euro will become the sole currency in the
member countries. We conduct business in the member countries. We have reviewed
the issues involved with the introduction of the euro including: (1) whether we
may have to change the prices of our services in the different countries and (2)
whether we will have to change the terms of any financial instruments in
connection with our hedging activities.

     The use of the euro has not had a significant impact on our business or
operations. Based on current information, we do not expect the conversion to the
euro to have a material effect on our financial condition or results of
operations.

RECENTLY ISSUED ACCOUNTING STANDARD

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," subsequently amended by SFAS No. 138. SFAS
Nos. 133 and 138 require that upon adoption, all derivative instruments be
recognized in the balance sheet at fair value, and that changes in such fair
values be recognized in earnings unless specific hedging criteria are met.
Changes in the values of derivatives that meet these hedging criteria will
ultimately offset related earnings effects of the hedged items; effects of
certain changes in fair value are recorded in other comprehensive income pending
recognition in earnings. We adopted SFAS Nos. 133 and 138 when required to do so
on January 1, 2001. Because of our limited use of derivatives, the adoption did
not have a material impact nor do we not expect the application of Statement No.
133 and 138 to have a significant impact on our financial position or results of
operations.

MARKET RISK

     Market risk is the potential loss arising from adverse changes in the
market rates and prices, such as foreign currency rates, interest rates, and
other relevant market rate or price changes. In the ordinary course of business,
we are exposed to various market risks, including changes in foreign currency
exchange rates, interest rates and equity price changes, and we regularly
evaluate our exposure to such changes. Our overall risk management strategy
seeks to balance the magnitude of the exposure and the cost and availability of
appropriate financial instruments. From time to time, we have utilized forward
exchange contracts to manage our foreign currency exchange rate risk. We do not
hold or issue derivative instruments for trading purposes. The following
analyses present the sensitivity of our financial instruments to hypothetical
changes in interest and foreign currency exchange rates that are reasonably
possible over a one-year period.

  Foreign Currency Exchange Rates

     Approximately 44.0%, 45.8% and 50.9% of our net revenue for the years ended
December 31, 2000, 1999, and 1998, respectively, was derived from our operations
outside the United States. We do not have significant operations in countries in
which the economy is considered to be highly-inflationary. Our financial
statements are denominated in U.S. dollars, and accordingly, changes in the
exchange rate between foreign currencies and the U.S. dollar will affect the
translation of our subsidiaries' financial results into U.S. dollars for
purposes of reporting our consolidated financial results. Accumulated currency
translation adjustments recorded as a
                                        22
<PAGE>   25

separate component (reduction) of shareholders' equity were ($42.2) million at
December 31, 2000 as compared to ($15.5) million at December 31, 1999.

     We may be subject to foreign currency transaction risk when our service
contracts are denominated in a currency other than the currency in which we earn
fees or incur expenses related to such contracts. At December 31, 2000, our most
significant foreign currency exchange rate exposures were in the British pound
and the euro. We limit our foreign currency transaction risk through exchange
rate fluctuation provisions stated in our contracts with customers, or we may
hedge our transaction risk with foreign currency exchange contracts or options.
We recognize changes in value in income only when foreign currency exchange
contracts or options are settled or exercised, respectively. There were no open
foreign exchange contracts or options relating to service contracts at December
31, 2000.

     As of December 31, 2000, we had a short-term obligation denominated in a
foreign currency (approximately L1.75 million). Assuming a hypothetical change
of 10% in year-end exchange rates (a weakening of the U.S. dollar), the fair
value of these instruments would increase by approximately $261,000.

  Interest Rates

     At December 31, 2000, our investment in debt securities portfolio consists
primarily of U.S. Government securities, of which most are callable by the
issuer at par, and money funds. The portfolio is primarily classified as
available-for-sale and therefore these investments are recorded at fair value in
the financial statements. These securities are exposed to market price risk
which also takes into account interest rate risk. As of December 31, 2000, the
fair value of the investment portfolio was $107.8 million, based on quoted
market prices. The potential loss in fair value resulting from a hypothetical
decrease of 10% in quoted market price is approximately $10.8 million.

  Equity Prices

     At December 31, 2000, we had investments in marketable equity securities.
These investments are classified as available-for-sale and are recorded at fair
value in the financial statements. These securities are subject to equity price
risk. As of December 31, 2000, the fair value of these investments was $384.0
million, based on quoted equity prices. The potential loss in fair value
resulting from a hypothetical decrease of 10% in quoted equity price is
approximately $38.4 million.

RISK FACTORS

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

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

     Economic factors and industry trends that affect our primary customers,
pharmaceutical and biotechnology companies, also affect our business. For
example, the practice of many companies in these industries has been to hire
outside organizations like us to conduct large clinical research and sales and
marketing projects. This practice has grown substantially over the past decade,
and we have benefited from this trend. Some industry commentators believe that
the rate of growth of outsourcing will continue to trend downward. If these
industries reduce their tendency to outsource those projects, our operations,
financial condition and growth rate could be materially and adversely affected.
Recently, we also believe we have been negatively impacted by pending mergers
and other factors in the pharmaceutical industry, which appear to have slowed
decision making by our customers and delayed certain trials. A continuation of
these trends would have an ongoing adverse effect on our business. In addition,
numerous governments have undertaken efforts to control growing healthcare costs
through legislation, regulation and voluntary agreements with medical care
providers and
                                        23
<PAGE>   26

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

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

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

     For example, we are expanding our pharmaceutical and healthcare information
and market research services. These services involve analyzing healthcare
information to study aspects of current healthcare products and procedures for
use in developing new products and services or in analyzing sales and marketing
of existing products. In addition to the other difficulties associated with the
development of any new service, our ability to develop these services may be
limited further by contractual provisions limiting our use of the healthcare
information or the legal rights of others that may prevent or impair our use of
the healthcare information. Due to these and other limitations, we cannot assure
you that we will be able to develop this type of service successfully. Our
inability to develop new products or services or any delay in development may
adversely affect our ability to maintain our rate of growth in the future.

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

     We are currently making a substantial investment in developing an Internet
platform for our product development and commercialization services, but we do
not believe that we will see any positive impact to our revenues from this
investment over the short term. We have entered into an agreement with WebMD and
certain other vendors for them to provide web-enablement services to help us
develop this platform. Performance and other issues regarding the agreement
currently are under dispute with WebMD. If WebMD or other vendors fail to
perform as required, if we are unable to favorably resolve our current dispute
with WebMD or if there are substantial delays in developing and implementing
this platform, we may have to make substantial further investments, internally
or with WebMD or third parties, to achieve our objectives. Also, these
expenditures are likely to negatively impact our profitability, at least until
our web-enabled products are commercialized. Over time, we envision continuing
to invest in extending and enhancing our Internet platform in other ways to
further support and improve our services. We cannot assure you that any
improvements in revenues resulting from our Internet capabilities will be
sufficient to offset our investments in the Internet platform. Our results could
be further negatively impacted if our competitors are able to execute their
services on a web-based platform before we can launch our Internet services or
if they are able to structure a platform that attracts clients away from our
services.

  Our ability to provide informatics services depends on our agreement with
  WebMD.

     In order to provide our informatics products and services, we need access
to healthcare data. Prior to the sale of our ENVOY subsidiary, we obtained this
data directly from ENVOY. Following the sale of ENVOY to WebMD, we entered into
a data rights agreement with WebMD to continue to provide us with the ENVOY
data, as well as other data collected by WebMD. If WebMD fails to perform under
this agreement, for example, by stopping transmission of data to us, or our
access to data is otherwise significantly limited, we would be unable to provide
some or all of our informatics services, which would have a negative impact on
our business.

     On February 24, 2001, WebMD unilaterally stopped the transmission of data
to us in violation of our rights under the data rights agreement. We have
obtained a preliminary injunction requiring WebMD to

                                        24
<PAGE>   27

continue the unaltered and uninterrupted flow of data to us until the matter can
be resolved, and we intend to pursue our rights under the data agreement. If we
are unable to enforce our rights to this data, we would have to re-negotiate the
terms of our agreement with WebMD or seek to obtain similar data from alternate
sources. These options may not be available if WebMD or third parties are not
willing to negotiate or provide terms that are acceptable to us, or are unable
to give us access to the quality and timeliness of data that we need to support
our informatics products. If we do not have continued access to data on the
terms we negotiated with WebMD or on similar terms, our QUINTERNET Informatics
service group would not be able to support its contracts with existing customers
or continue development projects as currently planned, which would have a
material adverse effect on our business.

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

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

  Our backlog may not be indicative of future results.

     We report backlog, $1.9 billion at December 31, 2000, based on anticipated
net revenue from uncompleted projects that our customers have authorized. We
cannot assure you that the backlog we have reported will be indicative of our
future results. A number of factors may affect our backlog, including:

     - the variable size and duration of projects (some are performed over
       several years);

     - the loss or delay of projects;

     - and a change in the scope of work during the course of a project.

     Also, if customers delay projects, the projects will remain in backlog, but
will not generate revenue at the rate originally expected. Accordingly,
historical indications of the relationship of backlog to revenues are not
indicative of the future relationship.

  Underperformance of our risk-sharing and gain-sharing strategies could have a
  negative impact on our financial performance.

     As part of our sales strategy, we enter into creative arrangements with
customers in which we take on some of the risk of the potential success or
failure of the customer's product. We may take risk through our PharmaBio
transactions, which may include a strategic investment in a customer, or by
taking an interest in the revenues from a customer's product. For example, we
may build a sales organization for a biotechnology customer to commercialize a
new product in exchange for a share in the revenues of the product. We must
carefully analyze and select the customers and products with which we are
willing to structure our risk-based deals. Our financial results would be
adversely affected if our customers' products do not achieve the level of
success that we anticipate and/or our return from the product or investment is
less than our costs of performance or investment.

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

     Our success substantially depends on the performance, contributions and
expertise of our senior management team, led by Dennis B. Gillings, Ph.D., our
Chairman of the Board of Directors and Chief Executive Officer. Our performance
also depends on our ability to attract and retain qualified management
                                        25
<PAGE>   28

and professional, scientific and technical operating staff, as well as our
ability to recruit qualified representatives for our contract sales services.
The departure of Dr. Gillings, or any key executive, or our inability to
continue to attract and retain qualified personnel could have a material adverse
effect on our business, results of operations or financial condition.

  Our product development services create a risk of liability from clinical
  trial participants and the parties with whom we contract.

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

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

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

     We also could be held liable for errors or omissions in connection with our
services. For example, we could be held liable for errors or omissions or breach
of contract if one of our laboratories inaccurately reports or fails to report
lab results or if our informatics products violate rights of third parties. We
maintain insurance to cover ordinary risks but any insurance might not be
adequate, and it would not cover the risk of a customer deciding not to do
business with us as a result of poor performance.

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

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

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

     Any failure on our part to comply with applicable regulations could result
in the termination of ongoing clinical research or sales and marketing projects
or the disqualification of data for submission to regulatory authorities, either
of which could have a material adverse effect on us. For example, if we were to
fail to verify that informed consent is obtained from patient participants in
connection with a particular clinical trial, the
                                        26
<PAGE>   29

data collected from that trial could be disqualified, and we could be required
to redo the trial under the terms of our contract at no further cost to our
customer, but at substantial cost to us.

  Proposed and final laws and regulations may create a risk of liability and
  increase the cost of our business or limit our service offerings.

     The confidentiality of patient-specific information and the circumstances
under which such patient-specific records may be released for inclusion in our
databases or used in other aspects of our business are subject to substantial
government regulation. Additional legislation governing the possession, use and
dissemination of medical record information and other personal health
information has been proposed or adopted at both the state and federal levels.
Proposed and final federal regulations governing patient-specific information
may (1) require us to implement new security measures that may require
substantial expenditures or (2) limit our ability to offer some of our products
and services. These regulations may also increase costs by creating new privacy
requirements for our informatics business and mandating additional privacy
procedures for our clinical research business. Additionally, states may adopt
health information legislation or regulations that contain privacy and security
provisions that are more burdensome than the proposed federal regulations. In
our dispute with WebMD, WebMD has advised us that a number of state laws apply
which may require modifications to access specifications for specific types of
de-identified patient-level data. These and other changes in regulation could
limit our ability to offer some of our products or have an impact on the
business opportunities available to us. There is a risk of civil or criminal
liability if we are found to be responsible for any violations of applicable
laws, regulations or duties relating to the use, privacy or security of health
information.

  Industry regulation may restrict our ability to analyze and disseminate
  pharmaceutical and healthcare data.

     We are directly subject to certain restrictions on the collection and use
of data. Laws relating to the collection and use of data are evolving, as are
contractual rights. We cannot assure you that contractual restrictions imposed
by our customers, legislation or regulations will not, now or in the future,
directly or indirectly restrict the analysis or dissemination of the type of
information we gather and therefore materially adversely affect our operations.
We also have certain obligations to indemnify parties which provide us data for
losses they may incur arising from claims that they have provided us data in
violation of contract or other rights.

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

     The markets for our services, particularly our QUINTERNET(TM) informatics
services, which include our data analysis services, are characterized by rapidly
changing technology, evolving industry standards and frequent introduction of
new and enhanced services. To succeed, we must continue to:

     - enhance our existing services;

     - introduce new services on a timely and cost-effective basis to meet
       evolving customer requirements;

     - achieve market acceptance for new services; and

     - respond to emerging industry standards and other technological changes.

                                        27
<PAGE>   30

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

     We derive a large portion of our net revenue from international operations;
for example, we derived approximately 44.0% of our 2000 net revenue from outside
the United States. Our financial statements are denominated in U.S. dollars;
thus, factors associated with international operations, including changes in
foreign currency exchange rates and any trends associated with the transition to
the euro, could significantly affect our results of operations and financial
condition. Exchange rate fluctuations between local currencies and the U.S.
dollar create risk in several ways, including:

     - Foreign Currency Translation Risk.  The revenue and expenses of our
       foreign operations are generally denominated in local currencies.

     - Foreign Currency Transaction Risk.  Our service contracts may be
       denominated in a currency other than the currency in which we incur
       expenses related to such contracts.

     We try to limit these risks through exchange rate fluctuation provisions
stated in our service contracts, or we may hedge our transaction risk with
foreign currency exchange contracts or options. Although we may hedge our
transaction risk, there were no open foreign exchange contracts or options
relating to service contracts at December 31, 2000. Despite these efforts, we
may still experience fluctuations in financial results from our operations
outside the United States, and we cannot assure you that we will be able to
favorably reduce our currency transaction risk associated with our service
contracts.

  We may be adversely affected by customer concentration.

     We have one customer that accounted for 10.2% of our net revenues for the
year ended December 31, 2000. These revenues resulted from services provided by
each of our three service groups. If any large customer decreases or terminates
its relationship with us, our business, results of operations or financial
condition could be materially adversely affected.

  New healthcare legislation or regulation could restrict our informatics
  business.

     On December 28, 2000, the Secretary of the Department of Health and Human
Services issued the final rule on Standards for Privacy of Individually
Identifiable Health Information to implement the privacy requirements for HIPAA.
These regulations generally (1) impose standards for covered entities
transmitting or maintaining protected data in an electronic, paper or oral form
with respect to the rights of individuals who are the subject of protected
health information; and (2) establish limitations on and procedures for (a) the
exercise of those individuals' rights and (b) the uses and disclosures of
protected health information. Unless properly extended by Congress or President
Bush's Administration the effective date of the final rule is April 14, 2001 and
the compliance date is April 14, 2003. If state or federal legislation or a more
restrictive regulation is adopted, it could inhibit third party processors in
using, transmitting or disclosing health data (even if they have been
de-identified) for purposes other than facilitating payment or performing other
clearinghouse functions which would restrict our ability to obtain data for use
in our informatics services. In addition, it could require us to establish
uniform specifications for obtaining de-identified data, so that de-identified
data obtained from different sources could be aggregated. While the impact of
developments in legislation, regulations or the demands of third party
processors is difficult to predict, each could materially adversely affect our
informatics business.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

                                        28
<PAGE>   31

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31,
                                                             ---------------------------------------
                                                                2000          1999          1998
                                                             -----------   -----------   -----------
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                          <C>           <C>           <C>
Net revenue................................................  $1,659,910    $1,607,087    $1,221,776
Costs and expenses:
  Direct...................................................     993,795       883,274       640,764
  General and administrative...............................     565,801       505,166       394,432
  Depreciation and amortization............................      92,567        82,292        57,191
  Non-recurring charges:
     Restructuring.........................................      58,592            --            --
     Disposal of business..................................      17,325            --            --
                                                             ----------    ----------    ----------
                                                              1,728,080     1,470,732     1,092,387
                                                             ----------    ----------    ----------
(Loss) income from operations..............................     (68,170)      136,355       129,389
Other income (expense):
  Interest income..........................................      20,703        14,391        11,646
  Interest expense.........................................      (4,842)      (11,233)      (11,810)
  Transaction costs........................................          --       (26,322)       (3,475)
  Other....................................................       1,304         2,719          (183)
                                                             ----------    ----------    ----------
                                                                 17,165       (20,445)       (3,822)
                                                             ----------    ----------    ----------
(Loss) income from continuing operations before income
  taxes....................................................     (51,005)      115,910       125,567
Income tax (benefit) expense...............................     (16,831)       42,742        39,924
                                                             ----------    ----------    ----------
(Loss) income from continuing operations...................     (34,174)       73,168        85,643
Income from discontinued operation, net of income taxes....      16,770        36,123         2,926
Extraordinary gain from sale of discontinued operation, net
  of income taxes..........................................     436,327            --            --
                                                             ----------    ----------    ----------
Net income.................................................  $  418,923    $  109,291    $   88,569
                                                             ==========    ==========    ==========
Basic net income per share:
  (Loss) income from continuing operations.................  $    (0.29)   $     0.64    $     0.82
  Income from discontinued operation.......................        0.14          0.32          0.03
  Extraordinary gain from sale of discontinued operation...        3.76            --            --
                                                             ----------    ----------    ----------
  Basic net income per share...............................  $     3.61    $     0.96    $     0.85
                                                             ==========    ==========    ==========
Diluted net income per share:
  (Loss) income from continuing operations.................  $    (0.29)   $     0.63    $     0.77
  Income from discontinued operation.......................        0.14          0.31          0.03
  Extraordinary gain from sale of discontinued operation...        3.76            --            --
                                                             ----------    ----------    ----------
  Diluted net income per share.............................  $     3.61    $     0.94    $     0.80
                                                             ==========    ==========    ==========
Shares used in computing net income per share:
  Basic....................................................     115,968       113,525       104,799
  Diluted..................................................     115,968       115,687       110,879
</TABLE>

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

                                        29
<PAGE>   32

                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                              -----------------------
                                                                 2000         1999
                                                              ----------   ----------
                                                                  (IN THOUSANDS)
<S>                                                           <C>          <C>
                                       ASSETS
Current assets:
  Cash and cash equivalents.................................  $  330,214   $  191,653
  Trade accounts receivable and unbilled services, net......     413,992      377,278
  Investments in debt securities............................      31,080       32,476
  Prepaid expenses..........................................      31,984       37,216
  Other receivables.........................................      16,850       21,571
  Other current assets......................................      12,555        6,420
  Net assets of discontinued operation......................          --      122,981
                                                              ----------   ----------
        Total current assets................................     836,675      789,595
Property and equipment:
  Land, buildings and leasehold improvements................     199,197      182,648
  Equipment and software....................................     321,844      296,843
  Furniture and fixtures....................................      45,564       47,356
  Motor vehicles............................................      36,345       47,243
                                                              ----------   ----------
                                                                 602,950      574,090
  Less accumulated depreciation.............................    (210,990)    (174,406)
                                                              ----------   ----------
                                                                 391,960      399,684
Intangibles and other assets:
  Intangibles, net..........................................     194,814      208,946
  Investments in debt securities............................      76,732       76,902
  Investments in marketable equity securities...............     384,040       45,237
  Deferred income taxes.....................................      29,175       49,786
  Deposits and other assets.................................      48,182       37,415
                                                              ----------   ----------
                                                                 732,943      418,286
                                                              ----------   ----------
        Total Assets........................................  $1,961,578   $1,607,565
                                                              ==========   ==========
                        LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Lines of credit...........................................  $       44   $       12
  Accounts payable..........................................      65,027       69,349
  Accrued expenses..........................................     190,211      165,446
  Unearned income...........................................     194,201      172,557
  Income taxes payable......................................      51,284        5,561
  Deferred income taxes.....................................       4,774        5,744
  Current portion of obligations held under capital
    leases..................................................      12,640       14,727
  Current portion of long-term debt and obligation..........       7,387      154,671
  Other current liabilities.................................       2,423          508
                                                              ----------   ----------
        Total current liabilities...........................     527,991      588,575
Long-term liabilities:
  Obligations held under capital leases, less current
    portion.................................................       8,496        8,589
  Long-term debt and obligation, less current portion.......      10,469        7,778
  Deferred income taxes.....................................          --        6,108
  Other liabilities.........................................       9,916        4,756
                                                              ----------   ----------
                                                                  28,881       27,231
                                                              ----------   ----------
        Total liabilities...................................     556,872      615,806
Commitments and contingencies
Shareholders' Equity:
  Preferred stock, none issued and outstanding at December
    31, 2000 and 1999, respectively.........................          --           --
  Common Stock and additional paid-in capital, 115,933,182
    and 115,118,347 shares issued and outstanding at
    December 31, 2000 and 1999, respectively................     876,407      788,247
  Retained earnings.........................................     622,985      204,062
  Accumulated other comprehensive income (loss).............     (94,686)       1,677
  Other equity..............................................          --       (2,227)
                                                              ----------   ----------
        Total shareholders' equity..........................   1,404,706      991,759
                                                              ----------   ----------
        Total liabilities and shareholders' equity..........  $1,961,578   $1,607,565
                                                              ==========   ==========
</TABLE>

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

                                        30
<PAGE>   33

                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                              ---------------------------------
                                                                2000        1999        1998
                                                              ---------   ---------   ---------
                                                                       (IN THOUSANDS)
<S>                                                           <C>         <C>         <C>
Operating activities:
  Net income................................................  $ 418,923   $ 109,291   $  88,569
  Income from discontinued operation, net of income taxes...    (16,770)    (36,123)     (2,926)
  Extraordinary gain from sale of discontinued operation,
    net of income taxes.....................................   (436,327)         --          --
                                                              ---------   ---------   ---------
  (Loss) income from continuing operations..................    (34,174)     73,168      85,643
Adjustments to reconcile income (loss) from continuing
  operations to net cash provided by operating activities:
  Depreciation and amortization.............................     92,567      82,292      57,191
  Non-recurring transaction costs...........................         --      26,322          --
  Restructuring charge......................................     25,886          --          --
  Loss on disposal of business..............................     17,325          --          --
  Net loss (gain) on sale of property and equipment.........        190        (355)        534
  Gain on sale of marketable equity securities..............       (578)     (2,057)         --
  Provision for (benefit from) deferred income taxes........     12,460      (1,448)     (1,728)
  Change in operating assets and liabilities:
    Accounts receivable and unbilled services...............    (48,226)    (76,156)    (85,657)
    Prepaid expenses and other assets.......................    (15,881)    (16,493)     (5,291)
    Accounts payable and accrued expenses...................     16,429      16,320      26,275
    Unearned income.........................................     28,706      13,960      49,332
    Income taxes payable and other current liabilities......    (84,285)      7,659        (780)
  Other.....................................................         95         585          81
                                                              ---------   ---------   ---------
Net cash provided by operating activities...................     10,514     123,797     125,600
Investing activities:
  Proceeds from disposition of property and equipment.......      8,591       6,535       6,297
  Proceeds from disposal of discontinued operation, net of
    expenses................................................    390,722          --          --
  Purchase of investments held-to-maturity..................     (1,296)     (6,215)         --
  Maturities of investments held-to-maturity................        465      86,683      10,593
  Purchase of investments available-for-sale................     (2,717)   (110,310)   (125,413)
  Proceeds from sale of investments available-for-sale......      5,296      25,296     130,422
  Purchase of marketable equity securities..................    (14,379)    (12,424)         --
  Proceeds from sale of marketable equity securities........      3,514       5,913          --
  Purchase of other investments.............................     (1,617)         --          --
  Proceeds from other investments...........................      2,959          --          --
  Acquisition of property and equipment.....................   (108,782)   (158,128)    (96,954)
  Acquisition of businesses, net of cash acquired...........    (15,169)     84,746       2,403
  Payment of non-recurring transaction costs................         --     (26,322)         --
  Payment from (loan to) ESOP, net..........................      2,857          --      (3,429)
  Other.....................................................         (2)       (233)         85
                                                              ---------   ---------   ---------
Net cash provided by (used in) investing activities.........    270,442    (104,459)    (75,996)
Financing activities:
  Increase (decrease) in lines of credit, net...............         33        (909)     (8,597)
  Proceeds from issuance of debt............................     11,183          --          --
  Repayment of debt.........................................   (151,653)     (4,341)       (677)
  Principal payments on capital lease obligations...........    (14,419)    (13,865)    (18,656)
  Issuance of common stock..................................     21,748      19,724      24,280
  Repurchase of common stock................................    (21,883)         --          --
  Dividend from discontinued operation......................     17,086      47,070         150
  Dividends paid by pooled entity...........................         --      (1,089)     (3,499)
  Other.....................................................         --         (28)        827
                                                              ---------   ---------   ---------
Net cash (used in) provided by financing activities.........   (137,905)     46,562      (6,172)
Effect of foreign currency exchange rate changes on cash....     (4,490)     (2,868)        592
                                                              ---------   ---------   ---------
Increase in cash and cash equivalents.......................    138,561      63,032      44,024
Cash and cash equivalents at beginning of year..............    191,653     128,621      84,597
                                                              ---------   ---------   ---------
Cash and cash equivalents at end of year....................  $ 330,214   $ 191,653   $ 128,621
                                                              =========   =========   =========
Supplemental Cash Flow Information:
  Interest paid.............................................  $   5,435   $  12,550   $  11,617
  Income taxes paid.........................................     64,451      32,961      22,286
Non-cash Investing and Financing Activities:
  Acquisition of property and equipment utilizing
    capitalized leases......................................     12,948      12,871      19,531
  Equity impact of mergers, acquisitions and dispositions...     82,557     206,275       5,046
  Equity impact from exercise of non-qualified stock
    options.................................................      6,752       3,711       5,498
  Marketable equity securities received from sale of
    discontinued operation..................................    447,353          --          --
  Unrealized (loss) gain on marketable securities, net of
    income tax..............................................  $ (69,619)  $  17,781   $    (572)
</TABLE>

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

                                        31
<PAGE>   34

                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                              ACCUMULATED
                                                                 OTHER
                                                             COMPREHENSIVE                        ADDITIONAL
                                  COMPREHENSIVE   RETAINED      INCOME       PREFERRED   COMMON    PAID-IN
                                     INCOME       EARNINGS      (LOSS)         STOCK     STOCK     CAPITAL
                                  -------------   --------   -------------   ---------   ------   ----------
                                                                (IN THOUSANDS)
<S>                               <C>             <C>        <C>             <C>         <C>      <C>
Balance, December 31, 1997......    $     --      $ 12,002     $ (7,302)       $ 43      $1,019    $512,123
Issuance of common stock........          --            --           --          --         17       24,263
Principal payments on ESOP
  loan..........................          --            --           --          --         --           --
Loan to ESOP....................          --            --           --          --         --           --
Stock issued for acquisitions...          --          (272)          --          --         11        4,474
Tax benefit from the exercise of
  non-qualified stock options...          --            --           --          --         --       15,603
Conversion of preferred stock by
  pooled entity.................          --            --           --         (10)        10           --
Dividends paid by pooled
  entity........................          --        (3,181)          --          --         --           --
Other equity transactions.......          --        (1,500)          --          --         --        1,976
Comprehensive income:
  Net income....................      88,569        88,569           --          --         --           --
  Unrealized loss on marketable
    securities, net of tax......        (572)           --         (572)         --         --           --
  Foreign currency
    adjustments.................       2,676            --        2,676          --         --           --
                                    --------      --------     --------        ----      ------    --------
Comprehensive income for year
  ended December 31, 1998.......      90,673
                                    ========
Balance, December 31, 1998......                    95,618       (5,198)         33      1,057      558,439
Issuance of common stock........          --            --           --          --          8       19,716
Principal payments on ESOP
  loan..........................          --            --           --          --         --           --
Stock issued for acquisitions...          --            --           --          --         51      206,224
Tax benefit from the exercise of
  non-qualified stock options...          --            --           --          --         --        3,711
Conversion of preferred stock by
  pooled entity.................          --            --           --         (33)        33           --
Dividends paid by pooled
  entity........................          --        (1,089)          --          --         --           --
Effect due to change in fiscal
  year of pooled entity.........          --           200           --          --         --           --
Other equity transactions.......          --            42         (128)         --         --         (992)
Comprehensive income:
  Net income....................     109,291       109,291           --          --         --           --
  Unrealized gain on marketable
    securities, net of tax......      17,781            --       17,781          --         --           --
  Foreign currency
    adjustments.................     (10,778)           --      (10,778)         --         --           --
                                    --------      --------     --------        ----      ------    --------
Comprehensive income for year
  ended December 31, 1999.......     116,294
                                    ========
Balance, December 31, 1999......                   204,062        1,677          --      1,149      787,098
Issuance of common stock........          --            --           --          --         22       21,018
Repurchase of common stock......          --            --           --          --        (13)     (21,870)
Issuance of stock warrants......          --            --           --          --         --       32,300
Issuance of put option..........          --            --           --          --         --          925
Stock option charge in ENVOY
  sale..........................          --            --           --          --         --       50,040
Principal payments on ESOP
  loan..........................          --            --           --          --         --           --
Tax benefit from the exercise of
  non-qualified stock options...          --            --           --          --         --        6,752
Other equity transactions.......          --            --           --          --         --       (1,014)
Comprehensive income:
  Net income....................     418,923       418,923           --          --         --           --
  Unrealized loss on marketable
    securities, net of tax......     (69,619)           --      (69,619)         --         --           --
  Foreign currency
    adjustments.................     (26,744)           --      (26,744)         --         --           --
                                    --------      --------     --------        ----      ------    --------
Comprehensive income for year
  ended December 31, 2000.......    $322,560
                                    ========
Balance, December 31, 2000......                  $622,985     $(94,686)       $ --      $1,158    $875,249
                                                  ========     ========        ====      ======    ========

<CAPTION>

                                   EMPLOYEE STOCK
                                   OWNERSHIP PLAN
                                  LOAN GUARANTEE &
                                       OTHER           TOTAL
                                  ----------------   ----------
                                         (IN THOUSANDS)
<S>                               <C>                <C>
Balance, December 31, 1997......      $  (602)       $  517,283
Issuance of common stock........           --            24,280
Principal payments on ESOP
  loan..........................          215               215
Loan to ESOP....................       (3,429)           (3,429)
Stock issued for acquisitions...           --             4,213
Tax benefit from the exercise of
  non-qualified stock options...           --            15,603
Conversion of preferred stock by
  pooled entity.................           --                --
Dividends paid by pooled
  entity........................           --            (3,181)
Other equity transactions.......           (1)              475
Comprehensive income:
  Net income....................           --            88,569
  Unrealized loss on marketable
    securities, net of tax......           --              (572)
  Foreign currency
    adjustments.................           --             2,676
                                      -------        ----------
Comprehensive income for year
  ended December 31, 1998.......
Balance, December 31, 1998......       (3,817)          646,132
Issuance of common stock........           --            19,724
Principal payments on ESOP
  loan..........................          756               756
Stock issued for acquisitions...           --           206,275
Tax benefit from the exercise of
  non-qualified stock options...           --             3,711
Conversion of preferred stock by
  pooled entity.................           --                --
Dividends paid by pooled
  entity........................           --            (1,089)
Effect due to change in fiscal
  year of pooled entity.........           --               200
Other equity transactions.......          834              (244)
Comprehensive income:
  Net income....................           --           109,291
  Unrealized gain on marketable
    securities, net of tax......           --            17,781
  Foreign currency
    adjustments.................           --           (10,778)
                                      -------        ----------
Comprehensive income for year
  ended December 31, 1999.......
Balance, December 31, 1999......       (2,227)          991,759
Issuance of common stock........           --            21,040
Repurchase of common stock......           --           (21,883)
Issuance of stock warrants......           --            32,300
Issuance of put option..........           --               925
Stock option charge in ENVOY
  sale..........................           --            50,040
Principal payments on ESOP
  loan..........................        1,214             1,214
Tax benefit from the exercise of
  non-qualified stock options...           --             6,752
Other equity transactions.......        1,013                (1)
Comprehensive income:
  Net income....................           --           418,923
  Unrealized loss on marketable
    securities, net of tax......           --           (69,619)
  Foreign currency
    adjustments.................           --           (26,744)
                                      -------        ----------
Comprehensive income for year
  ended December 31, 2000.......
Balance, December 31, 2000......      $    --        $1,404,706
                                      =======        ==========
</TABLE>

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

                                        32
<PAGE>   35

                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

     Quintiles Transnational Corp. (the "Company") improves healthcare by
bringing new medicines to patients faster and providing knowledge-rich medical
and drug data to advance the quality and cost effectiveness of healthcare. The
Company is a global market leader in helping pharmaceutical, biotechnology and
medical device companies market and sell their products. The Company also
provides insightful market research solutions and strategic analyses to support
healthcare decisions.

PRINCIPLES OF CONSOLIDATION

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

RECLASSIFICATIONS

     Certain amounts in the 1999 financial statements have been reclassified to
conform with the 2000 financial statement presentation. The reclassifications
had no effect on previously reported net income, shareholders' equity or net
income per share.

USE OF ESTIMATES

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

FOREIGN CURRENCIES

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

FOREIGN CURRENCY HEDGING

     The Company may use foreign exchange contracts and options to hedge the
risk of changes in foreign currency exchange rates associated with contracts in
which the expenses for providing services are incurred in one currency and paid
for by the customer in another currency. The Company recognizes changes in value
in income only when contracts are settled or options are exercised. There were
no open foreign exchange contracts or options relating to service contracts at
December 31, 2000.

CASH EQUIVALENTS AND INVESTMENTS

     The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The Company does not
report in the accompanying balance sheets cash held for customers for
investigator payments in the amount of $3.1 million and $7.5 million at December
31, 2000 and 1999, respectively, that pursuant to agreements with these
customers, remains the property of the customers.

     The Company's investments in debt and marketable equity securities are
classified as either held-to-maturity or available-for-sale. Investments
classified as held-to-maturity are recorded at amortized cost. Investments
classified as available-for-sale are measured at market value and net unrealized
gains and losses

                                        33
<PAGE>   36
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

are recorded as a component of shareholders' equity until realized. In addition,
the Company has recorded $18.4 million and $10.2 million in deposits and other
assets at December 31, 2000 and 1999, respectively, that represents investments
in equity securities of and advances to companies for which there are not
readily available market values and for which the Company does not exercise
significant influence or control; such investments are accounted for using the
cost method. Any gains or losses on sales of investments are computed by
specific identification.

UNBILLED SERVICES AND UNEARNED INCOME

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

PROPERTY AND EQUIPMENT

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

<TABLE>
<S>                                                           <C>
Buildings and leasehold improvements........................          3 - 50 years
Equipment and software......................................          3 - 10 years
Furniture and fixtures......................................          5 - 10 years
Motor vehicles..............................................           3 - 5 years
</TABLE>

INTANGIBLE ASSETS

     Intangibles consist principally of the excess cost over the fair value of
net assets acquired ("goodwill"). Goodwill and other intangible assets are being
amortized on a straight-line basis over periods from two to 40 years.
Accumulated amortization totaled $25.0 million and $22.3 million at December 31,
2000 and 1999, respectively.

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

REVENUE RECOGNITION

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

     The Company's commercialization service group has entered into agreements
with certain customers, whereby the Company will provide a dedicated sales force
and fund certain sales and marketing expenses and receive payments based on the
achievement of certain sales levels of the promoted product. During the sales
force recruitment and training phase, the Company defers certain costs and will
amortize those costs over the lesser of the contractual termination period
(generally one year) or in proportion to revenue recognized.

                                        34
<PAGE>   37
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

CONCENTRATION OF CREDIT RISK

     Substantially all net revenue is earned by performing services under
contracts with various pharmaceutical, biotechnology, medical device and
healthcare companies. The concentration of credit risk is equal to the
outstanding accounts receivable and unbilled services balances, less the
unearned income related thereto, and such risk is subject to the financial and
industry conditions of the Company's customers. The Company does not require
collateral or other securities to support customer receivables. Credit losses
have been immaterial and consistently within management's expectations. One
customer accounted for 10.2% and 11.3% of consolidated net revenue in 2000 and
1999, respectively. These revenues were derived from each of the Company's
segments.

RESEARCH AND DEVELOPMENT COSTS

     Research and development costs relating principally to new software
applications and computer technology are charged to expense as incurred. These
expenses totaled $29.0 million, $3.0 million and $3.5 million in 2000, 1999 and
1998, respectively.

INCOME TAXES

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

NET INCOME PER SHARE

     The Company determines basic net income per share by dividing net income by
the weighted average number of common shares outstanding during each year.
Diluted net income per share reflects the potential dilution that could occur
assuming conversion or exercise of all convertible securities and issued and
unexercised stock options. A reconciliation of the number of shares used in
computing basic and diluted net income per share is in Note 14.

EMPLOYEE STOCK COMPENSATION

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

                                        35
<PAGE>   38
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

COMPREHENSIVE INCOME

     The Company includes foreign currency translation adjustments and
unrealized gains and losses on the available-for sale securities in other
comprehensive income. Accumulated other comprehensive loss at December 31, 2000
was $94.7 million which consisted of $42.2 million in foreign currency
translation adjustments and $52.5 million in unrealized losses on
available-for-sale securities.

RECENTLY ADOPTED ACCOUNTING STANDARD

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements,"
("SAB 101") that provides guidance for revenue recognition under certain
circumstances. The Company adopted the provisions of SAB 101 in 2000. The
adoption of SAB 101 did not have a material impact on the Company's financial
position or results of operations.

RECENTLY ISSUED ACCOUNTING STANDARD

     As required on January 1, 2001, the Company will recognize all derivative
instruments in the balance sheet at fair value with changes in fair values
recognized in earnings unless specific hedging criteria are met. Changes in the
values of derivatives that meet these hedging criteria will ultimately offset
related effects of the hedged items; effects of certain changes in fair value
are recorded in other comprehensive income pending recognition in earnings.
Because of the limited use of derivatives, the recently issued accounting
standards did not have a significant impact on the Company's financial position
or results of operations.

2. ACCOUNTS RECEIVABLE AND UNBILLED SERVICES

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

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Trade:
  Billed....................................................  $251,108   $221,827
  Unbilled services.........................................   167,665    157,022
                                                              --------   --------
                                                               418,773    378,849
Allowance for doubtful accounts.............................    (4,781)    (1,571)
                                                              --------   --------
                                                              $413,992   $377,278
                                                              ========   ========
</TABLE>

                                        36
<PAGE>   39
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                              ------------
                           REGION                             2000    1999
                           ------                             ----    ----
<S>                                                           <C>     <C>
Americas:
  United States.............................................   59%     55%
  Other.....................................................    1       1
                                                              ---     ---
          Americas..........................................   60      56
Europe and Africa:
  United Kingdom............................................   24      30
  Other.....................................................   11      11
                                                              ---     ---
          Europe and Africa.................................   35      41
Asia -- Pacific.............................................    5       3
                                                              ---     ---
                                                              100%    100%
                                                              ===     ===
</TABLE>

3. INVESTMENTS

     The following is a summary as of December 31, 2000 of held-to-maturity
securities and available-for-sale securities by contractual maturity where
applicable (in thousands):

<TABLE>
<CAPTION>
                                                              GROSS        GROSS
                                                AMORTIZED   UNREALIZED   UNREALIZED    MARKET
                                                  COST        GAINS        LOSSES      VALUE
                                                ---------   ----------   ----------   --------
<S>                                             <C>         <C>          <C>          <C>
HELD-TO-MATURITY SECURITIES:
  State Securities --
     maturing in one year or less.............  $    562     $     --     $     --    $    562
     maturing in over five years..............     6,483           --           --       6,483
                                                --------     --------     --------    --------
                                                $  7,045     $     --     $     --    $  7,045
                                                ========     ========     ========    ========
AVAILABLE-FOR-SALE SECURITIES:
  U.S. Government Securities:
     maturing in one year or less.............  $  2,500     $     --     $    (10)   $  2,490
     maturing between one and three years.....    43,566           --         (413)     43,153
     maturing between three and five years....    24,998           --         (222)     24,776
  State and Municipal Securities --
     maturing in one year or less.............     1,521            3           --       1,524
  Equity Securities...........................   463,618           --      (79,578)    384,040
  Money Funds.................................    27,186           --         (682)     26,504
  Other.......................................     2,320           --           --       2,320
                                                --------     --------     --------    --------
                                                $565,709     $      3     $(80,905)   $484,807
                                                ========     ========     ========    ========
</TABLE>

                                        37
<PAGE>   40
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following is a summary as of December 31, 1999 of held-to-maturity
securities and available-for-sale securities by contractual maturity where
applicable (in thousands):

<TABLE>
<CAPTION>
                                                              GROSS        GROSS
                                                AMORTIZED   UNREALIZED   UNREALIZED    MARKET
                                                  COST        GAINS        LOSSES      VALUE
                                                ---------   ----------   ----------   --------
<S>                                             <C>         <C>          <C>          <C>
HELD-TO-MATURITY SECURITIES:
  State Securities --
     maturing in one year or less.............  $    798     $    --      $    --     $    798
     maturing in over five years..............     5,416          --           --        5,416
                                                --------     -------      -------     --------
                                                $  6,214     $    --      $    --     $  6,214
                                                ========     =======      =======     ========
AVAILABLE-FOR-SALE SECURITIES:
  U.S. Government Securities --
     maturing in one year or less.............  $  5,438     $    --      $   (27)    $  5,411
     maturing between one and three years.....    12,535          --         (315)      12,220
     maturing between three and five years....    58,538          --       (2,421)      56,117
  State and Municipal Securities --
     maturing between one and three years.....     1,544          --           (3)       1,541
  Equity Securities...........................    15,523      29,714           --       45,237
  Money Funds.................................    27,013          --         (746)      26,267
  Other.......................................     1,608          --           --        1,608
                                                --------     -------      -------     --------
                                                $122,199     $29,714      $(3,512)    $148,401
                                                ========     =======      =======     ========
</TABLE>

     The gross realized gains on sales of available-for-sale securities were
$3.3 million, $2.1 million and $81,000 in 2000, 1999 and 1998, respectively.
Gross realized losses on sales of available-for-sale securities were $1,000 in
1999 and $210,000 in 1998. The net after-tax adjustment to unrealized holding
gains (losses) on available-for-sale securities included as a separate component
of shareholders' equity was ($69.6) million, $17.8 million and ($572,000) in
2000, 1999 and 1998, respectively.

4. ACCRUED EXPENSES

     Accrued expenses consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Compensation and payroll taxes..............................  $ 58,153   $ 51,704
Acquisition related accruals................................    60,261     67,086
Restructuring...............................................    14,655         --
Other.......................................................    57,142     46,656
                                                              --------   --------
                                                              $190,211   $165,446
                                                              ========   ========
</TABLE>

                                        38
<PAGE>   41
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. CREDIT ARRANGEMENTS AND OBLIGATIONS

     The following is a summary of the credit facilities available to the
Company during 2000:

<TABLE>
<CAPTION>
FACILITY                               INTEREST RATES                         BALANCE OUTSTANDING
--------                               --------------                         -------------------
<S>                                    <C>                                    <C>
$150 million senior unsecured credit   At the Company's option, interest is          None
  facility with a U.S. bank            charged at the Bank's prime (9.5% at
                                       December 31, 2000) or LIBOR (6.56125%
                                       at December 31, 2000) plus an
                                       applicable rate (0.17% at December
                                       31, 2000)
L10.0 million (approximately $14.9     Base (6.0% at December 31, 2000) plus         None
  million) unsecured line of credit    0.75%
L1.5 million (approximately $2.2       1% per annum fee for each guarantee           None
  million) general banking facility    issued
  with the same U.K. bank used for
  the issuance of guarantees
</TABLE>

     The Company had $143.75 million of 4.25% Convertible Subordinated Notes
("Notes") due May 31, 2000. In accordance with its terms, the Notes were repaid
and cancelled in May 2000.

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

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              ------------------
                                                               2000       1999
                                                              -------   --------
<S>                                                           <C>       <C>
Missouri tax incentive bonds due October 2009 (6.7% annual
  interest rate)............................................  $ 5,192   $  5,614
2% Note payable due April 2001..............................    1,493         --
2% Note payable due October 2001............................    1,746         --
2% Note payable due September 2006..........................    6,746         --
Purchase commitment (L1.75 million) due May 2001............    2,614      2,831
Other notes payable.........................................       65        148
4.25% Convertible Subordinated Notes due May 2000...........       --    143,747
Purchase commitment (L6.3 million) due April 2000...........       --     10,109
                                                              -------   --------
                                                               17,856    162,449
     Less: current portion..................................    7,387    154,671
                                                              -------   --------
                                                              $10,469   $  7,778
                                                              =======   ========
</TABLE>

     Maturities of long-term debt and obligations at December 31, 2000 are as
follows (in thousands):

<TABLE>
<S>                                                           <C>
2001........................................................  $ 7,387
2002........................................................    1,848
2003........................................................    1,621
2004........................................................    1,913
2005........................................................    1,690
Thereafter..................................................    3,397
                                                              -------
                                                              $17,856
                                                              =======
</TABLE>

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

                                        39
<PAGE>   42
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. COMMITMENTS AND CONTINGENCIES

     Beginning on September 30, 1999, several purported class action lawsuits
were filed in the United States District Court for the Middle District of North
Carolina against the Company and two of its executive officers and directors on
behalf of all persons who purchased or otherwise acquired shares of the
Company's Common Stock between July 16, 1999 and September 15, 1999. These
actions were subsequently consolidated and the plaintiffs filed an amended
complaint purporting to represent a class of purchasers of Quintiles stock or
call options, and sellers of put options, during the period between April 21,
1999, and September 15, 1999. The amended complaint alleges violations of
federal securities laws, including violations of Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint sought unspecified
damages, plus costs and expenses, including attorneys' fees and experts' fees.
The Company believed the claims to be without merit and intended to defend the
suit vigorously. Accordingly, the Company and the named executive officers and
directors filed a motion to dismiss the amended complaint. Immediately prior to
the hearing scheduled on February 6, 2001, on the motion to dismiss, the parties
agreed to settle the lawsuit. The parties are negotiating a memorandum of
understanding to present before the court for approval.

     In February 1999, Kenneth Hodges ("Hodges") filed a civil lawsuit in the
State Court of Fulton County, Georgia, naming as defendants Richard L. Borison,
Bruce I. Diamond, 14 pharmaceutical companies and Quintiles Laboratories
Limited, a subsidiary of the Company. The Company reached a settlement with
Hodges under which Hodges acknowledged that the Company had no liability with
respect to the lawsuit. Hodges released all claims against the Company and has
filed a Stipulation of Dismissal with Prejudice which has been entered by the
Court.

     On August 17, 2000, Joseph Lewis ("Lewis") filed a civil lawsuit in the
State Court of Fulton County, State of Georgia naming as defendants Richard L.
Borison, Bruce I. Diamond, Janssen Pharmaceutica, Inc., Zeneca, Inc., Novartis
Pharmaceuticals Corporation and Quintiles Laboratories Limited, a subsidiary of
the Company. Lewis alleges that he suffered from schizophrenia and that he was
given experimental drugs for this condition in connection with numerous clinical
drug trials conducted by defendants Borison and Diamond between January 1988 and
June 1996. Lewis alleged that the defendants and their agents conspired to
conduct these drug trials on him, and that they improperly supervised, monitored
and regulated the trials, causing him to have violent adverse reactions to the
drugs involved in the trials. Lewis seeks to recover his actual damages in
unspecified amounts, medical expenses, litigation costs and punitive damages.
Lewis has dismissed his claims against the Company, without prejudice.

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

     The Company is also a party in certain other pending litigation arising in
the normal course of business. In the opinion of management, based on
consultation with its legal counsel, the outcome of such litigation currently
pending will not have a material affect on the Company's consolidated financial
statements.

7. SHAREHOLDERS' EQUITY

     The Company is authorized to issue 25 million shares of preferred stock,
$.01 per share par value. At December 31, 2000, 200 million common shares of
$.01 par value were authorized.

                                        40
<PAGE>   43
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

     On February 3, 2000, the Board of Directors authorized the Company to
repurchase $200 million of the Company's Common Stock. The authorization expires
in February 2001. During 2000, the Company repurchased 1,365,500 shares of its
Common Stock for an aggregate price of approximately $21.9 million.

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

8. LOSS ON DISPOSAL

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

9. DISCONTINUED OPERATION

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

     The Company retained exclusive rights to de-identified ENVOY transaction
data and certain other de-identified data available from WebMD, subject to
limited exceptions. The Company agreed to share with WebMD a royalty derived
from sales of products using the licensed data. The Company formed a strategic
alliance with WebMD to develop a web-based suite of integrated products and
services for the pharmaceutical industry and may provide funding for development
of the products.

     On March 30, 1999, the Company acquired ENVOY in exchange for 28,465,160
shares of the Company's Common Stock. Outstanding ENVOY options became options
to acquire 3,914,583 shares of the Company's Common Stock ("Exchanged Options").
On May 26, 2000, employees of ENVOY held 3,312,200 options to acquire Company
Common Stock as a result of the Exchanged Options and ENVOY employees'
participation in Company stock option plans. In connection with the sale, all of
the options

                                        41
<PAGE>   44
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

outstanding immediately vested and became exercisable over a three year term.
Subsequently, 2,516,062 of the outstanding options were cancelled and issued
with new terms to certain ENVOY employees ("ENVOY Options"). This transaction
resulted in a charge of $50.0 million, based on the fair value of the options at
the date of grant, which reduced the extraordinary gain from sale of
discontinued operation. The ENVOY Options have an exercise price of $6.84,
vested immediately, have a term of three years and are automatically exercised
if the market price of the Company's Common Stock reaches $23.34. During 2000,
1,000,378 of these options were exercised, resulting in 1,515,684 options
outstanding at December 31, 2000.

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

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

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                                          -----------------------------
                                                           2000       1999       1998
                                                          -------   --------   --------
<S>                                                       <C>       <C>        <C>
Net revenue.............................................  $99,041   $219,908   $181,943
                                                          =======   ========   ========
Income before income taxes..............................  $27,121   $ 61,438   $ 21,407
Income taxes............................................   10,351     25,315     18,481
                                                          -------   --------   --------
          Net income....................................  $16,770   $ 36,123   $  2,926
                                                          =======   ========   ========
</TABLE>

     The assets and liabilities of ENVOY are reported in the accompanying
consolidated balance sheet as net assets of discontinued operation. The
following is a summary of these net assets of discontinued operation as of
December 31, 1999 (in thousands):

<TABLE>
<S>                                                           <C>
Current assets..............................................  $ 70,006
Other assets................................................    88,794
Current liabilities.........................................   (33,977)
Long-term liabilities.......................................    (1,842)
                                                              --------
          Net assets of discontinued operation..............  $122,981
                                                              ========
</TABLE>

10. BUSINESS COMBINATIONS

     On March 29, 1999, the Company acquired Pharmaceutical Marketing Services,
Inc. ("PMSI") and its core company, Scott-Levin, a leader in pharmaceutical
market information and research services in the U.S. The Company acquired PMSI
in exchange for approximately 4,993,787 shares of the Company's Common Stock.
Outstanding PMSI options became options to acquire approximately 440,426 shares
of the Company's Common Stock. The total purchase price of the PMSI acquisition
approximates $201.8 million. The PMSI net assets acquired included approximately
$90.0 million in cash. The Company recorded as goodwill approximately $111.5
million related to the excess cost over the fair value of net assets acquired,
which amount is being amortized over 30 years. The acquisition of PMSI has been
accounted for as a purchase and accordingly, the results of PMSI have been
included from the date of acquisition.

     On January 1, 1999, the Company acquired substantial assets of Aventis
S.A.'s (formerly Hoechst Marion Roussel) Kansas City-based Drug Innovation and
Approval facility for approximately $93 million in cash. The Company paid $35
million in cash to Aventis S.A. in 1999 for the facility and expects to pay the
remainder of the purchase price, approximately $58 million, or enter into a
long-term lease for the facility in 2001. As a part of this transaction, the
Company was awarded a $436 million contract for continued support and completion
of ongoing Aventis S.A. development projects over a five-year period. In
addition, Aventis

                                        42
<PAGE>   45
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

S.A. will offer the Company the opportunity to provide all U.S. clinical
research services up to an additional $144 million over the same period.

     The following transactions were accounted for by the pooling of interests
method and the financial statements of the Company have been restated to reflect
the results of operations of these acquisitions.

<TABLE>
<CAPTION>
                                                             NUMBER OF SHARES OF THE
        DATE                   ACQUIRED COMPANY           COMPANY'S COMMON STOCK ISSUED
        ----                   ----------------           -----------------------------
<S>                    <C>                                <C>
June 3, 1999.........  SMG Marketing Group, Inc.                    1,170,291
May 19, 1999.........  Minerva Medical plc                          1,143,625
March 31, 1999.......  Medlab Pty Ltd. and the assets of              271,146
                       the Niehaus & Botha partnership
October 12, 1998.....  QED International, Inc.                        523,520
September 9, 1998....  Data Analysis Systems, Inc.                    358,897
August 24, 1998......  Royce Consultancy, Limited                     664,194
May 31, 1998.........  Crossbox Limited t/a Cardiac                    70,743
                       Alert
February 26, 1998....  T2A S.A.                                       311,899
February 2, 1998.....  Pharma Networks N.V.                           132,000
</TABLE>

11. LEASES

     The Company leases certain office space and equipment under operating
leases. The leases expire at various dates through 2014 with options to cancel
certain leases at five-year increments. Some leases contain renewal options.
Annual rental expenses under these agreements were approximately $73.9 million,
$46.5 million and $36.8 million for the years ended December 31, 2000, 1999 and
1998, respectively. The Company leases certain assets, primarily vehicles, under
capital leases. Capital lease amortization is included with depreciation and
amortization expenses and accumulated depreciation in the accompanying financial
statements.

     The following is a summary of future minimum payments under capitalized
leases and under operating leases that have initial or remaining noncancelable
lease terms in excess of one year at December 31, 2000 (in thousands):

<TABLE>
<CAPTION>
                                                            CAPITAL LEASES   OPERATING LEASES
                                                            --------------   ----------------
<S>                                                         <C>              <C>
2001......................................................     $12,640           $ 59,826
2002......................................................      10,294             45,315
2003......................................................          88             31,371
2004......................................................          18             20,961
2005......................................................           3             14,976
Thereafter................................................          --             52,388
                                                               -------           --------
Total minimum lease payments..............................      23,043           $224,837
                                                                                 ========
Amounts representing interest.............................       1,907
                                                               -------
Present value of net minimum payments.....................      21,136
Current portion...........................................      12,640
                                                               -------
Long-term capital lease obligations.......................     $ 8,496
                                                               =======
</TABLE>

12. RESTRUCTURING

     In January 2000, the Company announced the adoption of a restructuring plan
("Original Plan"). In connection with this plan, the company recognized a
restructuring charge of $58.6 million. The restructuring

                                        43
<PAGE>   46
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

charge consists of $33.2 million related to severance payments, $11.3 million
related to asset impairment write-offs and $14.0 million of exit costs. As part
of this plan, approximately 770 positions worldwide will be eliminated and as of
December 31, 2000, 601 individuals have been terminated. Although positions
eliminated were across all functions, most of the eliminated positions were in
the product development service group.

     In the fourth quarter of 2000, the Company revised its estimates of the
Original Plan adopted in Q1 2000. This revision resulted in a reduction of the
Original Plan of $6.9 million. This reduction was made up of $6.3 million in
severance payments and $0.6 million in exit costs. The severance reduction
resulted primarily from a higher than expected number of voluntary terminations,
reduced outplacement costs and related fringes.

     During the fourth quarter, management conducted a detailed review of the
resource levels within each business group. Based on this review, the Company
adopted a follow-on restructuring plan ("New Plan") resulting in a restructuring
charge of $7.1 million. The restructuring charge consists of $5.8 million
related to severance payments and $1.3 million related to exit costs. As part of
this plan, approximately 220 positions will be eliminated mostly in the
commercialization service group. As of December 31, 2000, 42 individuals have
been terminated.

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

<TABLE>
<CAPTION>
                                               ACTIVITY TWELVE MONTHS ENDED DECEMBER 31, 2000
                            ------------------------------------------------------------------------------------
                                                                            ORIGINAL
                            ORIGINAL   REVISIONS TO                           PLAN                   BALANCE AT
                              PLAN       ORIGINAL                REVISED   WRITE-OFFS/   NEW PLAN   DECEMBER 31,
                            ACCRUAL        PLAN       NEW PLAN   ACCRUAL    PAYMENTS     PAYMENTS       2000
                            --------   ------------   --------   -------   -----------   --------   ------------
<S>                         <C>        <C>            <C>        <C>       <C>           <C>        <C>
Severance and related
  costs...................  $33,228      $(6,321)      $5,833    $32,740    $(23,136)     $(737)      $ 8,867
Asset impairment
  write-offs..............   11,315           --           --     11,315     (11,315)        --            --
Exit costs................   14,049         (632)       1,309     14,726      (8,938)        --         5,788
                            -------      -------       ------    -------    --------      -----       -------
          Totals..........  $58,592      $(6,953)      $7,142    $58,781    $(43,389)     $(737)      $14,655
                            =======      =======       ======    =======    ========      =====       =======
</TABLE>

13. INCOME TAXES

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

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                                           ----------------------------
                                                             2000      1999      1998
                                                           --------   -------   -------
<S>                                                        <C>        <C>       <C>
Current:
  Federal................................................  $(46,052)  $21,351   $26,640
  State..................................................     2,248     3,764     3,995
  Foreign................................................    15,752    10,099    12,736
                                                           --------   -------   -------
                                                            (28,052)   35,214    43,371
                                                           --------   -------   -------
Deferred expense (benefit):
  Federal................................................    24,213    11,320    (1,068)
  Foreign................................................   (12,992)   (3,792)   (2,379)
                                                           --------   -------   -------
                                                             11,221     7,528    (3,447)
                                                           --------   -------   -------
                                                           $(16,831)  $42,742   $39,924
                                                           ========   =======   =======
</TABLE>

Income tax expense attributable to continuing operations excludes income tax
expense from the Company's discontinued operation.

     The Company has allocated directly to additional paid-in capital
approximately $6.8 million in 2000, $3.7 million in 1999 and $15.6 million in
1998 related to the tax benefit from non-qualified stock options exercised.

                                        44
<PAGE>   47
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                                           ----------------------------
                                                             2000      1999      1998
                                                           --------   -------   -------
<S>                                                        <C>        <C>       <C>
Federal income taxes at statutory rate...................  $(17,852)  $40,569   $43,949
State and local income taxes, net of federal benefit.....    (1,787)    2,446     2,597
Non-deductible expenses and transaction costs............        --     9,966        --
Foreign earnings taxed at different rates................    (8,833)   (4,240)     (519)
Losses not utilized (utilized)...........................    12,725      (461)   (2,194)
Non-taxable income.......................................        --        --      (590)
Other....................................................    (1,084)   (5,538)   (3,319)
                                                           --------   -------   -------
                                                           $(16,831)  $42,742   $39,924
                                                           ========   =======   =======
</TABLE>

     Income (loss) before income taxes from foreign operations was approximately
$(40.3) million, $27.8 million and $30.8 million for the years 2000, 1999 and
1998, respectively. (Loss) income from foreign operations was approximately
$(11.6) million, $59.5 million and $63.0 million for the years 2000, 1999 and
1998, respectively. The difference between income from operations and income
(loss) before income taxes is due primarily to intercompany charges which
eliminate in consolidation. Undistributed earnings of the Company's foreign
subsidiaries amounted to approximately $120.2 million at December 31, 2000.
Those earnings are considered to be indefinitely reinvested, and accordingly, no
U.S. federal and state income taxes have been provided thereon. Upon
distribution of those earnings in the form of dividends or otherwise, the
Company would be subject to both U.S. income taxes (subject to an adjustment for
foreign tax credits) and withholding taxes payable to the various countries.

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

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Deferred income tax liabilities:
  Depreciation and amortization.............................  $(34,990)  $(25,834)
  Prepaid expenses..........................................    (6,958)    (6,274)
  Unrealized gain on equity investments.....................        --     (9,297)
  Revenue and ENVOY disposition gain........................   (50,446)        --
  Other.....................................................   (15,487)   (11,386)
                                                              --------   --------
Total deferred income tax liabilities.......................  (107,881)   (52,791)
Deferred income tax assets:
  Unrealized loss on debt and equity investments............    30,159         --
  Net operating loss carryforwards..........................    59,923     29,398
  Accrued expenses and unearned income......................    19,262     15,469
  Goodwill, net of amortization.............................    80,009     87,304
  Other.....................................................     7,459     14,778
                                                              --------   --------
                                                               196,812    146,949
Valuation allowance for deferred income tax assets..........   (64,114)   (56,224)
                                                              --------   --------
Total deferred income tax assets............................   132,698     90,725
                                                              --------   --------
Net deferred income tax assets..............................  $ 24,817   $ 37,934
                                                              ========   ========
</TABLE>

                                        45
<PAGE>   48
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The increase in the Company's valuation allowance for deferred income tax
assets to $64.1 million at December 31, 2000 from $56.2 million at December 31,
1999 is primarily due to the uncertainty related to the deferred income tax
asset for certain foreign net operating losses generated in 2000 that may not be
utilized in the future.

     The Company's deferred income tax expense (benefit) results from the
following (in thousands):

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                                           ----------------------------
                                                             2000      1999      1998
                                                           --------   -------   -------
<S>                                                        <C>        <C>       <C>
Excess (deficiency) of income tax over financial
  reporting:
  Depreciation and amortization..........................  $ 16,905   $ 8,322   $10,326
  Net operating loss carryforwards.......................   (29,880)      795    (6,816)
  Valuation allowance increase...........................     7,890    (2,120)   (2,194)
  Accrued expenses and unearned income...................    (4,379)   (2,397)   (6,611)
  Prepaid expenses.......................................       919        --        --
  Deferred Revenue.......................................    12,050        --        --
  Other items, net.......................................     7,716     2,928     1,848
                                                           --------   -------   -------
                                                           $ 11,221   $ 7,528   $(3,447)
                                                           ========   =======   =======
</TABLE>

     The U.K. subsidiaries qualify for Scientific Research Allowances (SRAs) for
100% of capital expenditures on certain assets under the Inland Revenue Service
guidelines. For 2000, 1999 and 1998, these allowances were $15.1 million, $9.7
million and $23 million, respectively, which helped to generate net operating
loss carryforwards of $22.8 million to be used to offset taxable income in that
country. Assuming the U.K. subsidiaries continue to invest in qualified capital
expenditures at an adequate level, the portion of the deferred income tax
liability relating to the U.K. subsidiaries may be deferred indefinitely. The
Company recognizes a deferred income tax benefit for foreign generated operating
losses at the time of the loss when the Company believes it is more likely than
not that the benefit will be realized. The Company has net operating loss and
capital loss carryforwards of approximately $139.4 million in various entities
within the United Kingdom which have no expiration date and has over $25.5
million of net operating loss carryforwards from various foreign jurisdictions
which have different expiration periods. In addition, the Company has
approximately $127.1 million of U.S. state operating loss carryforwards which
expire through 2015 and has approximately $1.4 million of U.S. federal operating
loss carryforwards which begin to expire in 2005.

14. WEIGHTED AVERAGE SHARES OUTSTANDING

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

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                            ---------------------------
                                                             2000      1999      1998
                                                            -------   -------   -------
<S>                                                         <C>       <C>       <C>
Weighted average shares:
  Basic weighted average shares...........................  115,968   113,525   104,799
  Effect of dilutive securities:
     Stock options........................................       --     2,162     2,815
     Preferred stock......................................       --        --     3,265
                                                            -------   -------   -------
  Diluted weighted average shares.........................  115,968   115,687   110,879
                                                            =======   =======   =======
</TABLE>

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

                                        46
<PAGE>   49
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

     Put options that entitle the holder to sell 500,000 shares of the Company's
Common Stock to the Company were outstanding during 2000 but were not included
in the computation of diluted net income per share because the effect would be
antidilutive.

15. EMPLOYEE BENEFIT PLANS

     The Company has numerous employee benefit plans, which cover substantially
all eligible employees in the countries where the plans are offered.
Contributions are primarily discretionary, except in some countries where
contributions are contractually required. Plans include Approved Profit Sharing
Schemes in the U.K. and Ireland that are funded with Company stock; a defined
contribution plan funded by Company stock in Australia, Belgium, Canada and
Singapore; defined contribution plans in Belgium, Holland, Sweden, Israel and
Great Britain; a profit sharing scheme in France; and defined benefit plans in
Germany and the U.K. The defined benefit plan in Germany is an unfunded plan,
which is provided for in the balance sheet. In addition, the Company sponsors a
supplemental non-qualified deferred compensation plan, covering certain
management employees.

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

     During 1998, the Company loaned the ESOP approximately $4.0 million to
purchase 100,000 shares of the Company's Common Stock. As of December 31, 2000,
the leveraged loans were repaid in full. The ESOP's trustee held such shares in
suspense and released them for allocation to participants as the loan was
repaid. The Company's contributions to the ESOP were used to repay the loan
principal and interest.

     The ESOP expense recognized is equal to the cost of the shares allocated to
plan participants and the interest expense on the leveraged loans for the year.
ESOP expense totaled $6.2 million, $1.3 million and $1.7 million in 2000, 1999
and 1998, respectively. As of December 31, 2000, 1999 and 1998, 1,667,449,
1,510,654 and 1,520,950 shares, respectively, were allocated to participants.
There are no unallocated shares held in suspense as of December 31, 2000. All
ESOP shares are considered outstanding for income per share calculations.

     Under the 401(k), the Company matches employee deferrals at varying
percentages, set at the discretion of the Board of Directors. For the years
ended December 31, 2000, 1999 and 1998, the Company expensed $5.1 million, $4.3
million and $3.4 million, respectively, as matching contributions.

     Participating employees in the Company's employee stock purchase plan (the
"Purchase Plan") have the option to purchase shares at 85% of the lower of the
closing price per share of common stock on the first or last day of the calendar
quarter. The Purchase Plan is intended to qualify as an "employee stock purchase
plan" under Section 423 of the Internal Revenue Code of 1986, as amended. During
2000, 1999 and 1998, 663,531, 414,971 and 141,727 shares, respectively, were
purchased under the Purchase Plan. At December 31, 2000, 1,692,236 shares were
available for issuance under the Purchase Plan.

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

                                        47
<PAGE>   50
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Stock option activity during the periods indicated is as follows:

<TABLE>
<CAPTION>
                                                    NUMBER     WEIGHTED-AVERAGE EXERCISE PRICE
                                                  ----------   -------------------------------
<S>                                               <C>          <C>
Outstanding at December 31, 1997................   9,335,516               $20.02
  Granted.......................................   3,148,054                43.26
  Exercised.....................................  (1,535,542)               12.38
  Canceled......................................    (728,087)               25.40
                                                  ----------
Outstanding at December 31, 1998................  10,219,941                27.99
  Granted.......................................   9,064,319                27.56
  Exercised.....................................    (530,872)               20.21
  Canceled......................................    (868,908)               36.69
                                                  ----------
Outstanding at December 31, 1999................  17,884,480                27.59
  Granted.......................................  15,340,516                14.78
  Exercised.....................................    (508,412)                9.24
  Canceled......................................  (5,558,403)               21.98
                                                  ----------
Outstanding at December 31, 2000................  27,158,181               $21.80
                                                  ==========
</TABLE>

     Pro forma information regarding net income and net income per share is
required by Statement No. 123 and has been determined as if the Company had
accounted for its employee stock options under the fair value method of
Statement No. 123. The per share weighted-average fair value of stock options
granted during 2000, 1999 and 1998 was $4.93, $9.05 and $16.07 per share,
respectively, on the date of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions:

<TABLE>
<CAPTION>
                                                  EMPLOYEE STOCK       EMPLOYEE STOCK
                                                     OPTIONS           PURCHASE PLAN
                                                ------------------   ------------------
                                                2000   1999   1998   2000   1999   1998
                                                ----   ----   ----   ----   ----   ----
<S>                                             <C>    <C>    <C>    <C>    <C>    <C>
Expected dividend yield......................      0%     0%     0%     0%     0%     0%
Risk-free interest rate......................    5.1%   5.8%   4.8%   5.9%   4.7%   4.9%
Expected volatility..........................   40.0%  40.0%  42.0%  40.0%  40.0%  40.0%
Expected life (in years from vesting)........   0.86   1.40   1.35   0.25   0.25   0.25
</TABLE>

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

     The Company's pro forma information (which includes pretax pro forma stock
compensation expense related to discontinued operation of approximately $1.5
million in 2000, $5.0 million in 1999 and $4.5 million in 1998) follows (in
thousands, except for net income per share information):

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                                           ----------------------------
                                                             2000      1999      1998
                                                           --------   -------   -------
<S>                                                        <C>        <C>       <C>
Pro forma net income.....................................  $381,204   $81,793   $70,252
Pro forma basic net income per share.....................      3.29      0.72      0.67
Pro forma diluted net income per share...................      3.29      0.71      0.63
</TABLE>

                                        48
<PAGE>   51
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Selected information regarding stock options as of December 31, 2000
follows:

<TABLE>
<CAPTION>
                          OPTIONS OUTSTANDING                                  OPTIONS EXERCISABLE
-----------------------------------------------------------------------   -----------------------------
NUMBER OF                           WEIGHTED-AVERAGE   WEIGHTED-AVERAGE   NUMBER OF    WEIGHTED-AVERAGE
 OPTIONS     EXERCISE PRICE RANGE    EXERCISE PRICE     REMAINING LIFE     OPTIONS      EXERCISE PRICE
----------   --------------------   ----------------   ----------------   ----------   ----------------
<S>          <C>                    <C>                <C>                <C>          <C>
   923,757     $ 1.04 - $ 6.68           $ 5.89              1.28            913,187        $ 5.94
11,572,688     $ 7.31 - $13.43            13.31              9.11            611,544         11.12
 6,994,314     $13.44 - $22.00            18.36              7.79          3,315,590         18.89
 5,815,982     $22.03 - $42.44            35.82              6.93          4,013,573         36.05
 1,851,440     $42.56 - $56.25            51.72              7.20          1,206,711         51.81
----------                                                                ----------
27,158,181                               $19.90              7.25         10,060,605        $23.93
==========                                                                ==========
</TABLE>

16. OPERATIONS BY GEOGRAPHIC LOCATION

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

<TABLE>
<CAPTION>
                                                                2000         1999         1998
                                                             ----------   ----------   ----------
<S>                                                          <C>          <C>          <C>
Net revenue:
  Americas:
     United States.........................................  $  929,916   $  870,559   $  599,757
     Other.................................................      28,710       23,987       15,078
                                                             ----------   ----------   ----------
          Americas.........................................     958,626      894,546      614,835
  Europe and Africa:
     United Kingdom........................................     348,267      378,099      346,090
     Other.................................................     233,231      260,096      232,047
                                                             ----------   ----------   ----------
          Europe and Africa................................     581,498      638,195      578,137
  Asia-Pacific.............................................     119,786       74,346       28,804
                                                             ----------   ----------   ----------
                                                             $1,659,910   $1,607,087   $1,221,776
                                                             ==========   ==========   ==========
Long-lived assets:
  Americas:
     United States.........................................  $  222,727   $  214,503   $   78,599
     Other.................................................       2,067        2,211        1,544
                                                             ----------   ----------   ----------
          Americas.........................................     224,794      216,714       80,143
  Europe and Africa:
     United Kingdom........................................     133,025      156,067      149,101
     Other.................................................      16,911       20,473       20,713
                                                             ----------   ----------   ----------
          Europe and Africa................................     149,936      176,540      169,814
  Asia-Pacific.............................................      17,230        6,430        5,374
                                                             ----------   ----------   ----------
                                                             $  391,960   $  399,684   $  255,331
                                                             ==========   ==========   ==========
</TABLE>

                                        49
<PAGE>   52
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. SEGMENTS

     The following table presents the Company's operations by reportable
segment. The Company is managed through three reportable segments, namely, the
product development service group, the commercialization service group and the
QUINTERNET(TM) informatics service group. Management has distinguished these
segments based on the normal operations of the Company. The product development
group is primarily responsible for all phases of clinical research. The
commercialization group is primarily responsible for sales force deployment and
strategic marketing services. The QUINTERNET(TM) informatics group is primarily
responsible for providing market research solutions and strategic analyses to
support healthcare decisions. During 2000 there were reclassifications between
segments due to management changes of certain business units. These changes are
reflected in all periods presented. The Company does not include net revenue and
expenses relating to the Internet initiative (approximately $952,000 and $25.2
million, respectively, in 2000), non-recurring costs, interest income (expense)
and income tax expense (benefit) in segment profitability. Overhead costs are
allocated based upon management's best estimate of efforts expended in managing
the segments. There are not any significant intersegment revenues (in
thousands):

<TABLE>
<CAPTION>
                                                        2000         1999         1998
                                                     ----------   ----------   ----------
<S>                                                  <C>          <C>          <C>
Net revenue:
  Product development..............................  $  809,050   $  848,611   $  615,521
  Commercialization................................     790,199      706,092      580,059
  QUINTERNET(TM) informatics.......................      59,709       52,384       26,196
                                                     ----------   ----------   ----------
                                                     $1,658,958   $1,607,087   $1,221,776
                                                     ==========   ==========   ==========
Income (loss) from operations:
  Product development..............................  $   (9,330)  $   74,388   $   67,929
  Commercialization................................      55,568       66,029       55,156
  QUINTERNET(TM) informatics.......................     (14,234)      (4,062)       6,304
                                                     ----------   ----------   ----------
                                                     $   32,004   $  136,355   $  129,389
                                                     ==========   ==========   ==========
Total assets:
  Product development..............................  $  972,047   $  864,785   $  712,567
  Commercialization................................     366,204      334,706      306,521
  QUINTERNET(TM) informatics.......................     344,725      285,093       22,231
  Internet initiative..............................     278,602           --           --
  Net assets of discontinued operation.............          --      122,981      130,458
                                                     ----------   ----------   ----------
                                                     $1,961,578   $1,607,565   $1,171,777
                                                     ==========   ==========   ==========
Expenditures to acquire long-lived assets:
  Product development..............................  $   78,111   $  129,873   $   77,732
  Commercialization................................      22,563       21,942       17,900
  QUINTERNET(TM) informatics.......................       7,196        6,313        1,322
  Internet initiative..............................         912           --           --
                                                     ----------   ----------   ----------
                                                     $  108,782   $  158,128   $   96,954
                                                     ==========   ==========   ==========
Depreciation and amortization expense:
  Product development..............................  $   54,118   $   47,798   $   31,130
  Commercialization................................      29,167       27,653       24,785
  QUINTERNET(TM) informatics.......................       9,242        6,841        1,276
  Internet initiative..............................          40           --           --
                                                     ----------   ----------   ----------
                                                     $   92,567   $   82,292   $   57,191
                                                     ==========   ==========   ==========
</TABLE>

                                        50
<PAGE>   53
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

18. QUARTERLY FINANCIAL DATA (UNAUDITED)

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

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31, 2000
                                           -----------------------------------------------------------------
                                               FIRST            SECOND           THIRD            FOURTH
                                              QUARTER          QUARTER          QUARTER          QUARTER
                                           --------------   --------------   --------------   --------------
<S>                                        <C>              <C>              <C>              <C>
Net revenue..............................  $      414,845   $      423,107   $      412,344   $      409,614
(Loss) income from operations............         (57,407)         (15,465)             791            3,911
(Loss) income from continuing
  operations.............................         (37,159)          (8,222)           4,565            6,642
Income from discontinued operation, net
  of income taxes........................          10,594            6,176               --               --
Extraordinary gain from sale of
  discontinued operation, net of income
  taxes..................................              --          436,327               --               --
Net (loss) income........................  $      (26,565)  $      434,281   $        4,565   $        6,642
                                           ==============   ==============   ==============   ==============
Basic net (loss) income per share:
  (Loss) income from continuing
    operations...........................  $        (0.32)  $        (0.07)  $         0.04   $         0.06
  Income from discontinued operation.....            0.09             0.05               --               --
  Extraordinary gain from sale of
    discontinued operation...............              --             3.78               --               --
                                           --------------   --------------   --------------   --------------
  Basic net (loss) income per share......  $        (0.23)  $         3.76   $         0.04   $         0.06
                                           ==============   ==============   ==============   ==============
Diluted net (loss) income per share:
  (Loss) income from continuing
    operations...........................  $        (0.32)  $        (0.07)  $         0.04   $         0.06
  Income from discontinued operation.....            0.09             0.05               --               --
  Extraordinary gain from sale of
    discontinued operation...............              --             3.78               --               --
                                           --------------   --------------   --------------   --------------
  Diluted net (loss) income per share....  $        (0.23)  $        $3.76   $         0.04   $         0.06
                                           ==============   ==============   ==============   ==============
Range of stock prices....................  $15.313-35.000   $12.000-17.438   $12.563-20.250   $12.500-22.500
</TABLE>

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31, 1999
                                       -----------------------------------------------------------------
                                           FIRST            SECOND           THIRD            FOURTH
                                          QUARTER          QUARTER          QUARTER          QUARTER
                                       --------------   --------------   --------------   --------------
<S>                                    <C>              <C>              <C>              <C>
Net revenue..........................  $      359,705   $      402,276   $      402,497   $      442,609
Income from operations...............          38,517           42,455           27,997           27,386
Income from continuing operations....           3,364           25,139           20,500           24,165
Income from discontinued operation,
  net of taxes.......................           5,250           10,041           10,679           10,153
Net income...........................  $        8,614   $       35,180   $       31,179   $       34,318
                                       ==============   ==============   ==============   ==============
Basic net income per share:
  Income from continuing
    operations.......................  $         0.03   $         0.22   $         0.18   $         0.21
  Income from discontinued
    operation........................            0.05             0.09             0.09             0.09
                                       --------------   --------------   --------------   --------------
  Basic net income per share.........  $         0.08   $         0.31   $         0.27   $         0.30
                                       ==============   ==============   ==============   ==============
Diluted net income per share:
  Income from continuing
    operations.......................  $         0.03   $         0.21   $         0.18   $         0.21
  Income from discontinued
    operation........................            0.05             0.09   $         0.09             0.09
                                       --------------   --------------   --------------   --------------
  Diluted net income per share.......  $         0.08   $         0.30   $         0.27   $         0.30
                                       ==============   ==============   ==============   ==============
Range of stock prices................  $34.625-53.375   $34.750-45.500   $16.875-41.938   $16.000-25.031
</TABLE>

                                        51
<PAGE>   54

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Quintiles Transnational Corp.:

     We have audited the accompanying consolidated balance sheets of Quintiles
Transnational Corp. (a North Carolina corporation) and subsidiaries as of
December 31, 2000 and 1999, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Quintiles
Transnational Corp. and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.

                                          Arthur Andersen LLP

Raleigh, North Carolina,
January 26, 2001, except
with respect to the matter discussed in
the first paragraph of Note 6, as to
which the date is February 6, 2001

                                        52
<PAGE>   55

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     Not applicable.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

<TABLE>
<CAPTION>
                   NAME                     AGE            POSITION WITH THE COMPANY
                   ----                     ---            -------------------------
<S>                                         <C>    <C>
James L. Bierman..........................  48     Chief Financial Officer
Robert C. Bishop, Ph.D....................  58     Director
E.G.F. Brown..............................  56     Director
Vaughn D. Bryson..........................  62     Director
Santo J. Costa............................  55     Vice Chairman and Director
Chester W. Douglass, DMD, Ph.D............  60     Director
Dennis B. Gillings, Ph.D..................  56     Chairman and Chief Executive Officer
Jim D. Kever..............................  48     Director
Pamela J. Kirby, Ph.D.....................  47     Chief Executive Officer-Elect
Arthur M. Pappas..........................  53     Director
John S. Russell...........................  46     Senior Vice President, General Counsel and
                                                     Head Global Human Services
Eric J. Topol, M.D........................  46     Director
Virginia W. Weldon, M.D...................  65     Director
</TABLE>

     JAMES L. BIERMAN became Chief Financial Officer in February 2000 and served
as our Senior Vice President, Corporate Development since 1998. Previously, Mr.
Bierman spent 22 years with Arthur Andersen L.L.P. As a partner of this
international professional services organization, he worked with a diversified
broad-base of companies solving complex business problems. His experience ranges
from applying knowledge of complex business processes to improve operational
efficiency and effectiveness while reducing risk to researching and developing
leading-edge accounting issues. He has been a frequent speaker at various
industry trade group-sponsored symposiums on various financial and accounting
topics. He has authored several articles, the latest of which was published in
Bank Director White Paper Mergers and Acquisitions: Strategies and Trends
Shaping the Industry. The article is titled "Mergers of Equals vs. Acquisition:
Strategies for Success." Mr. Bierman is a director of Mediconsult Inc., a
provider of online health information. Mr. Bierman received his B.A. degree in
Economics/History from Dickinson College in Carlisle, Pennsylvania, and attended
Cornell University's Johnson Graduate School of Management, where he received
his M.B.A.

     ROBERT C. BISHOP, PH.D. has served as a director since April 1994. Since
June 1999, Dr. Bishop has served as Chairman of the Board for AutoImmune, Inc.,
a biotechnology company. From May 1992 to December 1999, Dr. Bishop served as
President, Chief Executive Officer and director of AutoImmune, Inc. From
February 1991 to April 1992, Dr. Bishop served as President of Allergan
Therapeutics Group, a division of Allergan, Inc., an eye and skin care company.
From August 1989 to February 1991, Dr. Bishop served as President of Allergan
Pharmaceuticals, a division of Allergan, Inc. Dr. Bishop serves as a director of
Millipore Corporation, a multinational company that applies its purification
technology to research and manufacturing applications in the microelectronics
and biopharmaceutical industries. Dr. Bishop received an M.B.A. from the
University of Miami and a Ph.D. in Biochemistry from the University of Southern
California.

     E. G. F. BROWN has served as a director since January 1998. Mr. Brown was
Chairman -- Mainland Europe of Tibbett & Britten Group plc. Mr. Brown was
previously an Executive Director of T.D.G. PLC, a European logistics company,
and a director of Datrontech PLC, a distributor of personal computer components.
Prior to joining TDG in 1996, Mr. Brown served as Operations Director for NFC
PLC, a supply

                                        53
<PAGE>   56

chain logistics company. Mr. Brown was educated at Exeter and Reading
Universities and the London Business School.

     VAUGHN D. BRYSON has served as a director since March 1997. Mr. Bryson is
President of Life Science Advisors, LLC, a consulting firm focused on assisting
biopharmaceutical and medical device firms in building shareholder value. Mr.
Bryson is also the President and founder of Clinical Products, a medical foods
company. Mr. Bryson was a 32 year employee of Eli Lilly & Co. ("Lilly"), a
global research-based pharmaceutical corporation, where he served as President
and Chief Executive Officer from 1991 until June 1993; he was Executive Vice
President from 1986 until 1991. He served as a director of Lilly from 1984 until
his retirement in 1993. From April 1994 to December 1996, Mr. Bryson served as
Vice Chairman of Vector Securities International, Inc., an investment banking
firm. Mr. Bryson is a director of Ariad Pharmaceuticals, Inc., a company
dedicated to the development of gene, cell and protein therapy products
featuring dose dependent regulation by small molecule drugs, as well as small
molecule inhibitors of signal transduction; AtheroGenics Inc., a
biopharmaceutical company focused on research and development of genes that
regulate atherosclerosis and cancer; Chiron Corporation, a global healthcare
company participating in biopharmaceuticals, vaccines and blood testing; and
Amylin Pharmaceuticals, Inc., a developmental stage biopharmaceutical company
focusing on metabolic disorders.

     SANTO J. COSTA became Vice Chairman in November 1999 and has been a
director since April 1994. Mr. Costa served as our President and Chief Operating
Officer from April 1994 to November 1999. From July 1993 to March 1994, Mr.
Costa directed the affairs of his own consulting firm, Santo J. Costa &
Associates, which focused on pharmaceutical and biotechnology companies. Prior
to July 1993, Mr. Costa served seven years at Glaxo, Inc., a pharmaceutical
company, as Senior Vice President Administration and General Counsel and a
member of the Board of Directors. Mr. Costa serves as a director of NPS
Pharmaceuticals Inc., a pharmaceutical company engaged in the discovery and
development of small molecule drugs that address a variety of diseases. Mr.
Costa received a law degree from St. John's University.

     CHESTER W. DOUGLASS, DMD, PH.D. has served as a director since 1983. Dr.
Douglass is Professor and Chairman of the Department of Oral Health Policy and
Epidemiology, Harvard University School of Dental Medicine and Professor,
Department of Epidemiology, Harvard University School of Public Health. Dr.
Douglass has served over 30 years in various academic appointments at Temple
University, the University of North Carolina at Chapel Hill and Harvard
University. Dr. Douglass received a D.M.D. from the Temple University School of
Dentistry, an M.P.H. from the University of Michigan School of Public Health and
a Ph.D. from the University of Michigan Rackham School of Graduate Studies.

     DENNIS B. GILLINGS, PH.D. founded Quintiles in 1982 and has served as Chief
Executive Officer and Chairman of the Board of Directors since its inception.
Effective April 2, 2001, Dr. Gillings will resign as Chief Executive Officer.
From 1972 to 1988, Dr. Gillings served as a professor in the Department of
Biostatistics at the University of North Carolina at Chapel Hill. During his
tenure as a professor, he was active in statistical consulting for the
pharmaceutical industry. Dr. Gillings currently serves on the Dean's Advisory
Council of the University of North Carolina School of Public Health. Dr.
Gillings has been published widely in scientific and medical journals. Dr.
Gillings serves as a director of Triangle Pharmaceuticals, Inc., a company
engaged in the development of new drug candidates primarily in the antiviral
area; WebMD Corporation, a company providing online services to the healthcare
industry; and the Medicines Company, a company that develops and commercializes
selected pharmaceutical products in late stages of development. Dr. Gillings
received a Diploma in Mathematical Statistics from the University of Cambridge
and a Ph.D. in Mathematics from the University of Exeter.

     JIM D. KEVER has served as a director since June 1999. Mr. Kever currently
serves as Co-Chief Executive Officer of the Transaction Services Division of
WebMD. Mr. Kever served as Chief Executive Officer of ENVOY Corporation
("ENVOY") from the Company's acquisition of ENVOY in March 1999 as a wholly-
owned subsidiary until its sale in May 2000. Mr. Kever served as President and
Co-Chief Executive Officer of ENVOY from August 1995 until March 1999 and as a
director of ENVOY from its incorporation in August 1994 until March 1999. Prior
to such time, he served as ENVOY's Executive Vice President, Secretary and
General Counsel from the date of incorporation. Mr. Kever previously served as a
director and Secretary,

                                        54
<PAGE>   57

Treasurer and General Counsel of ENVOY's former parent corporation since 1981
and as Executive Vice President since 1984. Mr. Kever also is a director of
Transaction System Architects, Inc., a supplier of electronic payment software
products and network integration solutions; 3D Systems Corporation, a
manufacturer of technologically advanced solid imaging systems and prototype
models; and Tyson Foods, a food production company, where he also serves on the
audit and ethics committees.

     PAMELA J. KIRBY, PH.D. will become the Company's Chief Executive Officer on
April 2, 2001. Previously, she served as Head of Global Strategic Marketing and
Business Development of the Pharmaceuticals Division of F. Hoffmann-La Roche
Ltd. in Basel, Switzerland. Dr. Kirby served from 1996 until 1998 as global
commercial director with British Biotech plc, a drug development company. Prior
to that, Dr. Kirby held several positions with Astra AB, a pharmaceuticals
company, including serving as corporate vice president for Strategy, Marketing
and Business Development. She also served as managing director of Astra's
subsidiaries in the United Kingdom and Ireland. She has held several board
positions in the pharmaceutical industry. Dr. Kirby holds a doctoral degree in
clinical pharmacology and an undergraduate degree in pharmacology from the
University of London.

     ARTHUR M. PAPPAS has served as a director since September 1994. Mr. Pappas
is Chairman and Chief Executive Officer of A. M. Pappas & Associates, LLC, an
international consulting, investment and venture company that works with life
science companies, products and related technologies. Prior to founding A. M.
Pappas & Associates in 1994, Mr. Pappas was a director on the main board of
Glaxo Holdings plc with executive responsibilities for operations in Asia
Pacific, Latin America, and Canada. In this capacity, he served as Chairman and
Chief Executive Officer of Glaxo Far East (Pte) Ltd. and Glaxo Latin America
Inc., as well as Chairman of Glaxo Canada Inc. Mr. Pappas has held various
senior executive positions with Abbott Laboratories International Ltd., Merrell
Dow Pharmaceuticals, and the Dow Chemical Company, in the United States and
internationally. Mr. Pappas is a director of Valentis Inc., a gene therapy
research company; Embrex Inc., a research and development company specializing
in poultry in-the-egg delivery systems; KeraVision, Inc., a company developing
products for reversible vision correction surgery; and AtheroGenics Inc., a
biopharmaceutical company focused on research and development of genes that
regulate atherosclerosis and cancer. He is also a director of privately-held
ArgoMed, Inc., EBM Solutions, Inc. and Elitra Pharmaceuticals. Mr. Pappas
received a B.S. in biology from Ohio State University and an M.B.A. in finance
from Xavier University.

     JOHN S. RUSSELL serves as Senior Vice President and General Counsel and
Head Global Human Resources. He is also the Corporate Secretary. Mr. Russell
joined the Company in 1998 after 12 years in private practice as a partner in
the Raleigh office of the Moore and Van Allen law firm, where he was head of the
Corporate Practice group. Prior to that time, he was an editor in the trade
books division of Houghton Mifflin Company in New York City. Mr. Russell has
served as Director of the North Carolina Railroad Company as well as several
nonprofit concerns. He has spoken and published widely on legal and literary
topics. His novel, Favorite Sons, was published by Algonquin Books in 1992. Mr.
Russell received a B.A. degree from the University of North Carolina at Chapel
Hill, his M.A. from Columbia University and a J.D. degree from Harvard Law
School.

     ERIC J. TOPOL, M.D. has served as a director since November 1997. Dr. Topol
is the Chairman of the Department of Cardiology and co-director of the Heart
Center at The Cleveland Clinic Foundation. He has served as Study Chairman for
clinical trials of well over 100,000 patients over the past decade. Dr. Topol
was a faculty member of the University of Michigan from 1985 until 1991 before
moving to his current post. He has authored more than 500 publications in
leading peer-review medical journals and is the editor of more than 10 books.
Dr. Topol has been elected to the American Society of Clinical Investigation and
the American Association of Physicians. He previously served as a director for
Rhone Poulenc Rorer, a leading life sciences company specializing in innovations
in human, plant and animal health. Dr. Topol received his M.D. at the University
of Rochester and completed post-doctoral training at the University of
California, San Francisco and the Johns Hopkins Medical Center.

     VIRGINIA V. WELDON, M.D. has served as a director since November 1997. Dr.
Weldon served as Senior Vice President, Public Policy, Monsanto Company, an
agro-chemicals and biotechnology (life sciences)

                                        55
<PAGE>   58

company, from October 1993 until her retirement in March 1998. Previously, she
was Professor of Pediatrics, Vice Chancellor for Medical Affairs and Vice
President of the Medical Center at Washington University in St. Louis. Dr.
Weldon has received recognition from numerous medical, scientific and
educational organizations, among them the Association of American Medical
Colleges, of which she served as Chairman. In 1994, Dr. Weldon was one of 18
individuals appointed to the President's Committee of Advisors on Science and
Technology. More recently, she became a member of the California Institute of
Technology Board of Trustees. Dr. Weldon received her medical degree from the
State University of New York at Buffalo. She also completed post-doctoral
studies at the Johns Hopkins University.

ITEM 11.  EXECUTIVE COMPENSATION

     This information is incorporated by reference from our definitive proxy
statement to be filed with respect to the Annual Meeting of Shareholders to be
held on May 2, 2001.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     This information is incorporated by reference from our definitive proxy
statement to be filed with respect to the Annual Meeting of Shareholders to be
held on May 2, 2001.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     This information is incorporated by reference from our definitive proxy
statement to be filed with respect to the Annual Meeting of Shareholders to be
held on May 2, 2001.

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

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

<TABLE>
<CAPTION>
FINANCIAL STATEMENTS                                          FORM 10-K PAGE
--------------------                                          --------------
<S>                                                           <C>
Consolidated Statements of Operations for the years ended
  December 31, 2000, 1999 and 1998..........................        29
Consolidated Balance Sheets as of December 31, 2000 and
  1999......................................................        30
Consolidated Statements of Cash Flows for the years ended
  December 31, 2000, 1999 and 1998..........................        31
Consolidated Statements of Shareholders' Equity for the
  years ended December 31, 2000, 1999 and 1998..............        32
Notes to Consolidated Financial Statements..................        33
Report of Independent Public Accountants....................        52
</TABLE>

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

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

<TABLE>
<CAPTION>
EXHIBIT                                    DESCRIPTION
-------                                    -----------
<C>           <C>  <S>
 3.01(1)       --  Amended and Restated Articles of Incorporation, as amended
 3.02(2)       --  Amended and Restated Bylaws, as amended
 4.01          --  Amended and Restated Articles of Incorporation, as amended
                   (see Exhibit 3.01)
 4.02          --  Amended and Restated Bylaws, as amended (see Exhibit 3.02)
 4.03(3)       --  Specimen certificate for Common Stock, $0.01 par value per
                   share
</TABLE>

                                        56
<PAGE>   59

<TABLE>
<CAPTION>
EXHIBIT                                    DESCRIPTION
-------                                    -----------
<C>           <C>  <S>
 4.04(4)       --  Amended and Restated Rights Agreement, dated as of November
                   5, 1999 and amended and restated as of May 4, 2000 between
                   Quintiles Transnational Corp. and First Union National Bank,
                   including form of Articles of Amendment of Amended and
                   Restated Articles of Incorporation, form of Rights
                   Certificate and the Summary of Rights to Purchase Preferred
                   Stock
10.01(5)(6)    --  Employment Agreement, dated February 22, 1994, by and
                   between Dr. Dennis B. Gillings and Quintiles Transnational
                   Corp.
10.02(6)(7)    --  Amendment to Contract of Employment, dated October 26, 1999,
                   by and between Dr. Dennis B. Gillings and Quintiles
                   Transnational Corp.
10.03(6)(7)    --  Amended and Restated Executive Employment Agreement, dated
                   November 30, 1999, by and between Santo J. Costa and
                   Quintiles Transnational Corp.
10.04(6)(7)    --  Amended and Restated Executive Employment Agreement, dated
                   March 17, 2000, by and between Dr. Ludo Reynders and
                   Quintiles, Inc.
10.05(6)(7)    --  Amended and Restated Employment Agreement, dated March 30,
                   1999 by and between Jim D. Kever and Envoy Corporation
10.06(6)(7)    --  Amendment to Executive Employment Agreement, dated November
                   23, 1999, by and between Jim D. Kever and Envoy Corporation
10.07(6)(7)    --  Executive Employment Agreement, dated June 16, 1998, by and
                   between James L. Bierman and Quintiles Transnational Corp.
10.08(6)(7)    --  Executive Employment Agreement, dated December 3, 1998, by
                   and between John S. Russell and Quintiles Transnational
                   Corp.
10.09(6)(7)    --  Amendment to Executive Employment Agreement, dated October
                   26, 1999, by and between John S. Russell and Quintiles
                   Transnational Corp.
10.10(5)(6)    --  Quintiles Transnational Corp. Non-Qualified Employee
                   Incentive Stock Option Plan
10.11(6)(7)    --  Quintiles Transnational Corp. Equity Compensation Plan, as
                   amended and restated on November 4, 1999
10.12(6)(7)    --  Quintiles Transnational Corp. Elective Deferred Compensation
                   Plan, as amended and restated
10.13(6)(7)    --  Quintiles Transnational Corp. Nonqualified Stock Option Plan
10.14(8)       --  Underlease, dated November 28, 1997, by and between PDFM
                   Limited and Quintiles (UK) Limited and guaranteed by the
                   Company
10.15(7)       --  Consulting Agreement dated as of January 1, 2000 between
                   Quintiles Transnational Corp. and A.M. Pappas & Associates,
                   LLC. Confidential treatment of portions of this exhibit was
                   granted by the Securities and Exchange Commission on June
                   15, 2000.
10.16(9)       --  Agreement for the Provision of Research Services and Lease
                   of Business Assets dated as of March 3, 1995, between Syntex
                   Pharmaceuticals Limited, Quintiles Scotland Limited,
                   Quintiles (UK) Limited, and Roche Products Limited
10.17(10)      --  Credit Agreement dated as of August 7, 1998
10.18          --  Amendment, dated November 8, 2000, to Credit Agreement
10.19(11)      --  Agreement for the Provision of Research Services and
                   Purchase of Business Assets, dated as of January 1, 1999,
                   between Hoescht Marion Roussel, Inc. and Quintiles, Inc.
10.20(12)      --  Agreement and Plan of Merger, dated as of January 22, 2000,
                   among Quintiles Transnational Corp., Healtheon/WebMD
                   Corporation, Pine Merger Corp., Envoy Corp. and Qfinance,
                   Inc.
</TABLE>

                                        57
<PAGE>   60

<TABLE>
<CAPTION>
EXHIBIT                                    DESCRIPTION
-------                                    -----------
<C>           <C>  <S>
10.21(13)      --  Data Rights Agreement, dated as of May 26, 2000, by and
                   between Healtheon/WebMD Corporation and Quintiles
                   Transnational Corp. Confidential treatment of portions of
                   this exhibit was granted by the Securities and Exchange
                   Commission on November 22, 2000.
21             --  Subsidiaries
23.01          --  Consent of Arthur Andersen LLP
24.01          --  Power of Attorney (included on the signature page hereto)
</TABLE>

---------------

 (1) Exhibit to our Quarterly Report on Form 10-Q for the period ended September
     30, 1999, as filed with the Securities and Exchange Commission, on November
     15, 1999, and incorporated herein by reference.
 (2) Exhibit to our Current Report on Form 8-K dated November 5, 1999, as filed
     with the Securities and Exchange Commission on November 5, 1999 and
     incorporated herein by reference.
 (3) Exhibit to our Registration Statement on Form S-8 as filed with the
     Securities and Exchange Commission (File No. 333-92987) effective December
     17, 1999, and incorporated herein by reference.
 (4) Exhibit to our Registration Statement on Form 8-A/A, Amendment No. 1 (File
     No. 000-23520), as filed with the Securities and Exchange Commission on May
     10, 2000, and incorporated herein by reference.
 (5) Exhibit to our Registration Statement on Form S-1, as amended, as filed
     with the Securities and Exchange Commission (File No. 33-75766) effective
     April 20, 1994, and incorporated herein by reference.
 (6) Executive compensation plans and arrangements.
 (7) Exhibit to our Annual Report on Form 10-K for the fiscal year ended
     December 31, 1999, as filed with the Securities and Exchange Commission on
     March 30, 2000, and incorporated herein by reference.
 (8) Exhibit to our Annual Report on Form 10-K for the fiscal year ended
     December 31, 1997, as filed with the Securities and Exchange Commission on
     March 30, 1998, and incorporated herein by reference.
 (9) Exhibit to our Current Report on Form 8-K dated March 6, 1995, as filed
     with the Securities and Exchange Commission on March 20, 1995, and
     incorporated herein by reference.
(10) Exhibit to our Quarterly Report on Form 10-Q for the period ended September
     30, 1998, as filed with the Securities and Exchange Commission on November
     16, 1998, and incorporated herein by reference.
(11) Exhibit to our Current Report on Form 8-K dated March 3, 1999, as filed
     with the Securities and Exchange Commission on March 3, 1999, and
     incorporated herein by reference.
(12) Exhibit to our Current Report on Form 8-K, dated January 25, 2000, as filed
     with the Securities and Exchange Commission on January 25, 2000, and
     incorporated herein by reference.
(13) Exhibit to our Quarterly Report on Form 10-Q for the period ended June 30,
     2000, as filed with the Securities and Exchange Commission on August 14,
     2000, and incorporated herein by reference.

     (b) Reports on Form 8-K.

     We filed a Current Report on Form 8-K dated October 19, 2000, including as
an exhibit a press release regarding our financial results for the period ended
September 30, 2000.

                                        58
<PAGE>   61

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Durham, North
Carolina, on the 30th day of March, 2001.

                                          QUINTILES TRANSNATIONAL CORP.

                                          By: /s/ DENNIS B. GILLINGS, PH.D.
                                            ------------------------------------
                                                 Dennis B. Gillings, Ph.D.
                                            Chairman and Chief Executive Officer

                                        59
<PAGE>   62

                        SIGNATURES AND POWER OF ATTORNEY

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

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

<TABLE>
<CAPTION>
                      SIGNATURE                                     TITLE                    DATE
                      ---------                                     -----                    ----
<C>                                                    <S>                              <C>

            /s/ DENNIS B. GILLINGS, PH.D.              Chairman and Chief Executive     March 30, 2001
-----------------------------------------------------    Officer
              Dennis B. Gillings, Ph.D.

                /s/ JAMES L. BIERMAN                   Chief Financial Officer          March 30, 2001
-----------------------------------------------------
                  James L. Bierman

                /s/ ROBERT C. BISHOP                   Director                         March 30, 2001
-----------------------------------------------------
               Robert C. Bishop, Ph.D.

                  /s/ E.G.F. BROWN                     Director                         March 30, 2001
-----------------------------------------------------
                   E. G. F. Brown

                /s/ VAUGHN D. BRYSON                   Director                         March 30, 2001
-----------------------------------------------------
                  Vaughn D. Bryson

                 /s/ SANTO J. COSTA                    Vice-Chairman and Director       March 30, 2001
-----------------------------------------------------
                   Santo J. Costa

               /s/ CHESTER W. DOUGLASS                 Director                         March 30, 2001
-----------------------------------------------------
             Chester W. Douglass, Ph.D.

                  /s/ JIM D. KEVER                     Director                         March 30, 2001
-----------------------------------------------------
                    Jim D. Kever

                /s/ ARTHUR M. PAPPAS                   Director                         March 30, 2001
-----------------------------------------------------
                  Arthur M. Pappas

               /s/ ERIC J. TOPOL, M.D.                 Director                         March 30, 2001
-----------------------------------------------------
                 Eric J. Topol, M.D.

            /s/ VIRGINIA V. WELDON, M.D.               Director                         March 30, 2001
-----------------------------------------------------
              Virginia V. Weldon, M.D.
</TABLE>

                                        60
<PAGE>   63

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT                                    DESCRIPTION
-------                                    -----------
<C>           <C>  <S>
 3.01(1)       --  Amended and Restated Articles of Incorporation, as amended
 3.02(2)       --  Amended and Restated Bylaws, as amended
 4.01          --  Amended and Restated Articles of Incorporation, as amended
                   (see Exhibit 3.01)
 4.02          --  Amended and Restated Bylaws, as amended (see Exhibit 3.02)
 4.03(3)       --  Specimen certificate for Common Stock, $0.01 par value per
                   share
 4.04(4)       --  Amended and Restated Rights Agreement, dated as of November
                   5, 1999 and amended and restated as of May 4, 2000 between
                   Quintiles Transnational Corp. and First Union National Bank,
                   including form of Articles of Amendment of Amended and
                   Restated Articles of Incorporation, form of Rights
                   Certificate and the Summary of Rights to Purchase Preferred
                   Stock
10.01(5)(6)    --  Employment Agreement, dated February 22, 1994, by and
                   between Dr. Dennis B. Gillings and Quintiles Transnational
                   Corp.
10.02(6)(7)    --  Amendment to Contract of Employment, dated October 26, 1999,
                   by and between Dr. Dennis B. Gillings and Quintiles
                   Transnational Corp.
10.03(6)(7)    --  Amended and Restated Executive Employment Agreement, dated
                   November 30, 1999, by and between Santo J. Costa and
                   Quintiles Transnational Corp.
10.04(6)(7)    --  Amended and Restated Executive Employment Agreement, dated
                   March 17, 2000, by and between Dr. Ludo Reynders and
                   Quintiles, Inc.
10.05(6)(7)    --  Amended and Restated Employment Agreement, dated March 30,
                   1999 by and between Jim D. Kever and Envoy Corporation
10.06(6)(7)    --  Amendment to Executive Employment Agreement, dated November
                   23, 1999, by and between Jim D. Kever and Envoy Corporation
10.07(6)(7)    --  Executive Employment Agreement, dated June 16, 1998, by and
                   between James L. Bierman and Quintiles Transnational Corp.
10.08(6)(7)    --  Executive Employment Agreement, dated December 3, 1998, by
                   and between John S. Russell and Quintiles Transnational
                   Corp.
10.09(6)(7)    --  Amendment to Executive Employment Agreement, dated October
                   26, 1999, by and between John S. Russell and Quintiles
                   Transnational Corp.
10.10(5)(6)    --  Quintiles Transnational Corp. Non-Qualified Employee
                   Incentive Stock Option Plan
10.11(6)(7)    --  Quintiles Transnational Corp. Equity Compensation Plan, as
                   amended and restated on November 4, 1999
10.12(6)(7)    --  Quintiles Transnational Corp. Elective Deferred Compensation
                   Plan, as amended and restated
10.13(6)(7)    --  Quintiles Transnational Corp. Nonqualified Stock Option Plan
10.14(8)       --  Underlease, dated November 28, 1997, by and between PDFM
                   Limited and Quintiles (UK) Limited and guaranteed by the
                   Company
10.15(7)       --  Consulting Agreement dated as of January 1, 2000 between
                   Quintiles Transnational Corp. and A.M. Pappas & Associates,
                   LLC. Confidential treatment of portions of this exhibit was
                   granted by the Securities and Exchange Commission on June
                   15, 2000.
10.16(9)       --  Agreement for the Provision of Research Services and Lease
                   of Business Assets dated as of March 3, 1995, between Syntex
                   Pharmaceuticals Limited, Quintiles Scotland Limited,
                   Quintiles (UK) Limited, and Roche Products Limited
10.17(10)      --  Credit Agreement dated as of August 7, 1998
10.18          --  Amendment, dated November 8, 2000, to Credit Agreement
</TABLE>

                                        61
<PAGE>   64

<TABLE>
<CAPTION>
EXHIBIT                                    DESCRIPTION
-------                                    -----------
<C>           <C>  <S>
10.19(11)      --  Agreement for the Provision of Research Services and
                   Purchase of Business Assets, dated as of January 1, 1999,
                   between Hoescht Marion Roussel, Inc. and Quintiles, Inc.
10.20(12)      --  Agreement and Plan of Merger, dated as of January 22, 2000,
                   among Quintiles Transnational Corp., Healtheon/WebMD
                   Corporation, Pine Merger Corp., Envoy Corp. and Qfinance,
                   Inc.
10.21(13)      --  Data Rights Agreement, dated as of May 26, 2000, by and
                   between Healtheon/WebMD Corporation and Quintiles
                   Transnational Corp. Confidential treatment of portions of
                   this exhibit was granted by the Securities and Exchange
                   Commission on November 22, 2000.
21             --  Subsidiaries
23.01          --  Consent of Arthur Andersen LLP
24.01          --  Power of Attorney (included on the signature page hereto)
</TABLE>

---------------

 (1) Exhibit to our Quarterly Report on Form 10-Q for the period ended September
     30, 1999, as filed with the Securities and Exchange Commission, on November
     15, 1999, and incorporated herein by reference.
 (2) Exhibit to our Current Report on Form 8-K dated November 5, 1999, as filed
     with the Securities and Exchange Commission on November 5, 1999 and
     incorporated herein by reference.
 (3) Exhibit to our Registration Statement on Form S-8 as filed with the
     Securities and Exchange Commission (File No. 333-92987) effective December
     17, 1999, and incorporated herein by reference.
 (4) Exhibit to our Registration Statement on Form 8-A/A, Amendment No. 1 (File
     No. 000-23520), as filed with the Securities and Exchange Commission on May
     10, 2000, and incorporated herein by reference.
 (5) Exhibit to our Registration Statement on Form S-1, as amended, as filed
     with the Securities and Exchange Commission (File No. 33-75766) effective
     April 20, 1994, and incorporated herein by reference.
 (6) Executive compensation plans and arrangements.
 (7) Exhibit to our Annual Report on Form 10-K for the fiscal year ended
     December 31, 1999, as filed with the Securities and Exchange Commission on
     March 30, 2000, and incorporated herein by reference.
 (8) Exhibit to our Annual Report on Form 10-K for the fiscal year ended
     December 31, 1997, as filed with the Securities and Exchange Commission on
     March 30, 1998, and incorporated herein by reference.
 (9) Exhibit to our Current Report on Form 8-K dated March 6, 1995, as filed
     with the Securities and Exchange Commission on March 20, 1995, and
     incorporated herein by reference.
(10) Exhibit to our Quarterly Report on Form 10-Q for the period ended September
     30, 1998, as filed with the Securities and Exchange Commission on November
     16, 1998, and incorporated herein by reference.
(11) Exhibit to our Current Report on Form 8-K dated March 3, 1999, as filed
     with the Securities and Exchange Commission on March 3, 1999, and
     incorporated herein by reference.
(12) Exhibit to our Current Report on Form 8-K, dated January 25, 2000, as filed
     with the Securities and Exchange Commission on January 25, 2000, and
     incorporated herein by reference.
(13) Exhibit to our Quarterly Report on Form 10-Q for the period ended June 30,
     2000, as filed with the Securities and Exchange Commission on August 14,
     2000, and incorporated herein by reference.

                                        62