<PAGE>   1

                                                                    EXHIBIT 13.1


                      SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with Management's Discussion and Analysis and the Consolidated
Financial Statements and accompanying Notes thereto appearing elsewhere herein.

<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                                   -----------------------
                                      1997       1996(1)     1995(1)     1994(1)     1993(1)
                                      ----       ----        ----        ----        ----
--------------------------------------------------------------------------------------------
                                             (In thousands, except per share data)
<S>                                 <C>         <C>         <C>         <C>         <C>
Net revenue                         $814,476    $554,227    $337,006    $207,022    $149,225
Income from operations                87,699      42,436      26,544      17,038      11,758
Income before income taxes            85,578      22,897      25,361      16,045       9,037
Net income available for common
  shareholders                        55,316       7,097      15,349      10,271       4,740
Basic net income per share              0.76        0.11        0.25        0.18        0.10
Diluted net income per share        $   0.75    $   0.10    $   0.24    $   0.18    $   0.10
Weighted average shares
outstanding(2):
   Basic                              72,394      67,377      61,995      56,961      48,514
   Diluted                            73,931      70,013      63,770      57,345      49,024




<CAPTION>
                                                       As of December 31,
                                                       ------------------
                                      1997       1996(1)     1995(1)     1994(1)     1993(1)
                                      ----       ----        ----        ----        ----
--------------------------------------------------------------------------------------------
                                                (In thousands, except employees)
<S>                                 <C>         <C>         <C>         <C>         <C>
Cash and cash equivalents           $ 78,007    $ 68,730    $ 85,693    $ 50,936    $ 17,241
Working capital                      164,858      99,310      72,575      47,642      18,366
Total assets                         798,898     532,577     343,762     202,195     129,593
Long-term debt including current
   portion                           185,231     182,463      52,026      21,954      21,420
Shareholders' equity                $387,105    $150,545    $165,182    $ 89,015    $ 41,979
Employees                             10,858       7,513       4,435       2,650       1,953
</TABLE>



(1)      Prior to the Company's November 29, 1996 share exchange with Innovex
         Limited (Innovex), Innovex had a fiscal year end of March 31 and the
         Company had (and continues to have) a fiscal year end of December 31.
         As a result, the pooled data presented above for 1993 through 1995
         include Innovex's March 31 fiscal year data in combination with the
         Company's December 31 fiscal year data. In connection with the share
         exchange, Innovex changed its fiscal year end to December 31.
         Accordingly, the pooled data presented above for 1996 include both
         Innovex's and the Company's data on a December 31 year end basis.
         Because of the difference between Innovex's fiscal year end in 1995
         compared with 1996, Innovex's quarter ended March 31, 1996 data are
         included in the Company's pooled data for both 1995 and 1996.
(2)      Restated to reflect the two-for-one stock splits of the Company's
         Common Stock effected as a 100% stock dividend in November 1995 and
         December 1997.




                                       22
<PAGE>   2

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

Overview

Quintiles Transnational Corp. ("Quintiles" or "the Company") is a market leader
in providing full-service contract research, sales, marketing and healthcare
policy consulting and health information management services to the global
pharmaceutical, biotechnology, medical device and healthcare industries.

During 1997, the Company completed several strategic acquisitions that
complemented its existing operations and expanded its array of services.
Specifically:

On February 27, 1997, the Company acquired Debra Chapman Consulting Group Pty
Limited and the Medical Alliances Australia Pty Limited group of companies
(collectively "DCCG/MAA") located in Sydney and Melbourne, Australia. The
Company purchased 100% of the DCCG/MAA group of companies' outstanding stock for
an undisclosed amount of cash.

On June 2, 1997, the Company acquired Butler Communications Inc. ("Butler") and
its affiliated companies, including Butler Clinical Recruitment, Inc., which
specialize in communication programs to accelerate the recruitment of patients
for clinical trials. The Company acquired the Butler businesses in exchange for
428,610 shares of the Company's Common Stock. In addition, the Company assumed
approximately $2.8 million in existing Butler debt. The acquisition of Butler
was accounted for as a pooling of interests, and all consolidated financial data
for periods subsequent to January 1, 1997 have been restated to include the
results of the pooled company. The financial data of the pooled companies prior
to January 1, 1997 were not materially different from that previously reported
by the Company, and thus have not been restated.

On June 11, 1997, the Company acquired Action International Marketing Services
Limited and its subsidiaries, including Medical Action Communications Limited
(collectively "MAC"), a leading international strategic medical communications
consultancy. The Company acquired MAC in exchange for 1,131,394 shares and
granted stock options exercisable for an additional 125,700 shares of the
Company's Common Stock. The acquisition was accounted for as a pooling of
interests, and as such, all historical financial data have been restated to
include the historical financial data of MAC.

On June 21, 1997, the Company acquired the operating assets of Pharmacology Data
Management Corporation ("PDMC"), a software services company, for an undisclosed
amount of cash.

On July 2, 1997, the Company acquired CerebroVascular Advances, Inc. ("CVA"), a
leader in stroke clinical trials. The Company acquired CVA in exchange for
467,936 shares and stock options exercisable for an additional 34,038 shares of
the Company's Common Stock. The acquisition was accounted for as a pooling of
interests, and accordingly, the Company restated all historical financial data
to include the historical financial data of CVA.

On August 29, 1997, the Company acquired Intelligent Imaging, Inc. ("Intelligent
Imaging"), an information management company specializing in providing digital
medical imaging services for clinical trials and the healthcare industry, in
exchange for 171,880 shares of the Company's Common Stock. The acquisition of
Intelligent Imaging was accounted for as a pooling of interests, and all
consolidated financial data for periods subsequent to January 1, 1997 have been
restated to include the results of the pooled company. The financial data of the
pooled companies prior to January 1, 1997 were not materially different from
that previously reported by the Company, and thus have not been restated.

On August 29, 1997, the Company acquired Clindepharm International (Pty) Limited
("Clindepharm"), South Africa's leading contract research organization, in
exchange for 477,966 shares of the Company's Common Stock. The acquisition was
accounted for as a pooling of interests, and as such, all historical financial
data have been restated to include the historical financial data of Clindepharm
since its inception in 1996.

On August 29, 1997, the Company acquired Rapid Deployment Services and its
affiliated companies ("RDS"), South Africa's leading contract sales
organization, in exchange for 121,668 shares of the Company's Common Stock. The
acquisition of RDS was accounted for as a pooling of interests, and all
consolidated financial data for periods subsequent to January 1, 1997 have been
restated to include the results of the pooled company. The financial data of
the pooled companies prior to January 1, 1997 were not materially diff-


                                       23
<PAGE>   3

                MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)

erent from that previously reported by the Company, and thus have not been
restated.

In addition, on September 10, 1997, the Company officially opened its 171,000 -
square foot clinical trials material packaging and distribution facility in
Bathgate, Scotland. The facility, which includes a data management center,
opened with a staff of about 115, and it is expected to eventually employ
approximately 300 people.

Also, on December 1, 1997, the Company effected a two-for-one split of the
Company's Common Stock in the form of a 100% stock dividend. All references to
number of shares and per share amounts have been restated to reflect the stock
split.

Contract Revenue

Most of the Company's contracts are fixed price, with some variable components,
and range in duration from a few months to several years. Generally, a portion
of the contract fee is paid at the time the project is initiated with
performance-based installments payable over the contract duration. Most
contracts are terminable upon 15-90 days' notice by the customer, and typically
provide for termination or winding down fees. Also, some contracts call for the
customer to reimburse the Company at cost for certain items such as investigator
payments and travel. The Company recognizes net revenue from its contracts,
which excludes reimbursed costs, on a percentage-of-completion or per diem basis
as work is performed. The Company considers net revenue its primary measure of
revenue growth.

The Company reports 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, 1997, 1996
and 1995 the backlog was approximately $1.06 billion, $708 million and $415
million, respectively. The Company believes 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 study.

Results of Operations
Year Ended December 31, 1997 Compared with
Year Ended December 31, 1996

Net revenue for the year ended December 31, 1997 was $814.5 million, an increase
of $260.2 million or 47.0% over fiscal 1996 net revenue of $554.2 million.
Growth occurred across each of the Company's three geographic regions. Factors
contributing to the growth included an increase of contract service offerings,
the provision of increased services rendered under existing contracts and the
initiation of services under contracts awarded subsequent to January 1, 1997.

Direct costs, which include compensation and related fringe benefits for
billable employees and other expenses directly related to contracts, were $421.9
million or 51.8% of 1997 net revenue versus $279.0 million or 50.3% of 1996 net
revenue. The increase in direct costs as a percentage of net revenue was
primarily attributable to the increase in net revenue generated from contract
sales and marketing services, which incur a higher level of direct costs (but
lower general and administrative expenses) relative to net revenue than contract
research services.

General and administrative expenses, which include compensation and fringe
benefits for administrative employees, non-billable travel, professional
services, advertising, computer and facility expenses, were $267.5 million or
32.8% of 1997 net revenue versus $192.2 million or 34.7% of 1996 net revenue.
The $75.3 million increase in general and administrative expenses was primarily
due to an increase in personnel, facilities and locations and outside services
resulting from the Company's growth.

Depreciation and amortization were $37.5 million or 4.6% of 1997 net revenue
versus $25.2 million or 4.5% of 1996 net revenue.

Income from operations was $87.7 million or 10.8% of 1997 net revenue versus
$42.4 million or 7.7% of 1996 net revenue. Excluding non-recurring

                                       24
<PAGE>   4

costs incurred in 1996 as described below, income from operations was $57.9
million or 10.4% of net revenue.

Other expense decreased to $2.1 million in 1997 from $19.5 million in 1996.
Excluding acquisition costs and non-recurring transaction costs, other income
was $100,000 in 1997 and other expense was $2.4 million in 1996. The $2.5
million change was primarily due to decreases in net interest expense of
approximately $2.3 million and other expense of approximately $100,000.

The effective tax rate for 1997 was 35.4% versus a 61.2% rate in 1996. Excluding
non-recurring transaction and restructuring costs which were not deductible for
tax purposes, the 1996 effective tax rate would have been 33.9%. Since the
Company conducts operations on a global basis, its effective tax rate may vary.
See "--Taxes."

Year Ended December 31, 1998 Compared with
Year Ended December 31, 1995

Prior to the Company's November 29, 1996 share exchange with Innovex Limited
("Innovex"), Innovex had a fiscal year end of March 31, and the Company had (and
continues to have) a fiscal year end of December 31. As a result, the pooled
data prior to January 1, 1996 includes Innovex's March 31 fiscal year data in
combination with the Company's December 31 fiscal year data. In connection with
the share exchange, Innovex changed its fiscal year end to December 31.
Accordingly, the pooled data presented for 1996 include both Innovex's and the
Company's data on a December 31 year end basis. Because of the difference
between Innovex's fiscal year end in 1995 compared with 1996, Innovex's quarter
ended March 31, 1996 data are included in the Company's pooled data for both
1995 and 1996.

Net revenue for the year ended December 31, 1996 was $554.2 million, an increase
of $217.2 million or 64.5% over fiscal 1995 net revenue of $337.0 million. In
general, growth occurred across each of the Company's three geographic regions
and within each contract service sector. Factors contributing to both the
regional and service growth included the provision of increased services
rendered under existing contracts, the initiation of services under contracts
awarded subsequent to January 1, 1996 and the Company's acquisitions (excluding
BRI International, Inc. ("BRI") and Innovex) completed during 1996 and 1995
which contributed approximately $44.8 million in 1996 versus $11.7 million in
1995. Without these acquisitions, the Company's 1996 net revenue increased by
$184.1 million or 56.6% over comparable 1995 net revenue. One customer accounted
for 11.5% of the Company's 1996 net revenue.

Direct costs, which include compensation and related fringe benefits for
billable employees and other expenses directly related to contracts, were $279.0
million or 50.3% of 1996 net revenue versus $171.6 million or 50.9% of 1995 net
revenue. The decrease in direct costs as a percentage of net revenue was
primarily attributable to efficiency realized through the use of information
technology in the Company's provision of services related to global, long-term
contracts, offset by increased costs attributable to the increase in net revenue
generated from contract sales and marketing services, which incur a higher level
of direct costs (but lower general and administrative expenses) relative to net
revenue than contract research services.

General and administrative expenses, which include compensation and fringe
benefits for administrative employees, non-billable travel, professional
services, advertising, computer and facility expenses, were $192.2 million or
34.7% of 1996 net revenue versus $116.9 million or 34.7% of 1995 net revenue.
The $75.2 million increase in general and administrative expenses was primarily
due to an increase in personnel, facilities and locations, business development
and marketing activities, and outside services resulting from the Company's
growth.

Depreciation and amortization were $25.2 million or 4.5% of 1996 net revenue
versus $17.2 million or 5.1% of 1995 net revenue.

Income from operations was $42.4 million or 7.7% of 1996 net revenue versus
$26.5 million or 7.9% of 1995 net revenue. Net of non-recurring costs, income
from operations was $57.9 million or 10.4% of 1996 net revenue versus $31.2
million or 9.3% of 1995 net revenue. During the quarter ended March 31, 1996,
Innovex recognized two non-recurring charges: a $2.4 million expense for an
Innovex internal reorganization and a related $2.3 mil-

                                       25
<PAGE>   5

                MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)

lion special pension contribution. Accordingly, the Company's pooled,
consolidated financial results include such charges, totaling $4.7 million, in
both the fiscal years ended December 31, 1996 and 1995. In the fourth quarter of
1996, the Company recognized approximately $10.7 million in non-recurring
restructuring costs related to the BRI and Innovex transactions.

Other expense increased to $19.5 million in 1996 from $1.2 million in 1995.
Other expense includes approximately $17.1 million of non-recurring transaction
costs for the year ended December 31, 1996, most of which were not deductible
for tax purposes. Net of such non-recurring transaction costs, other expense was
$2.4 million for 1996 and $1.2 million in 1995. This increase of approximately
$1.2 million was primarily due to an increase of interest and miscellaneous
expense of $5.8 million which was offset by an increase in interest income of
approximately $4.5 million.

The effective tax rate for 1996 was 61.2% versus a 36.6% rate in 1995. The
increase in the 1996 effective tax rate was primarily attributable to the
non-tax deductible, non-recurring transaction costs incurred and a portion of
the non-recurring costs relating to the Innovex internal reorganization prior to
its pooling of interests with the Company. The lack of tax relief for the
Innovex internal reorganization costs was reflected in both the effective tax
rates for 1996 and 1995. The effective tax rate for 1996 was 33.9% versus a
34.6% rate in 1995 excluding the non-recurring costs. Since the Company conducts
operations on a global basis, its effective tax rate may vary. See "-- Taxes."

Liquidity and Capital Resources

Cash flows generated from operations were $77.4 million in 1997 versus $32.7
million and $35.8 million in 1996 and 1995, respectively. Cash flows from
investing activities in 1997 were $150.0 million, versus $144.9 million and
$38.3 million in 1996 and 1995, respectively. The change in the amount of cash
from investing activities from 1995 to 1996 was primarily due to the investment
of the Company's net proceeds from the May 1996 private placement of its 4.25%
Convertible Subordinated Notes due May 31, 2000. Capital asset purchases
required $78.7 million in 1997 versus $39.7 million and $26.0 million in 1996
and 1995, respectively. Capital asset expenditures in 1997 and 1996 included
(pound)15.8 million (approximately $26.5 million) and (pound)2.7 million
(approximately $5.0 million), respectively, related to the Company's purchase of
land and construction of a facility in Bathgate, Scotland. 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 was $164.9 million at December 31, 1997 compared to $99.3
million at December 31, 1996. Including long-term cash investments of $69.1
million and $25.1 million at December 31, 1997 and 1996, respectively, in total
working capital, the increase was $109.6 million. Total accounts receivable and
unbilled services increased 14.8% to $210.4 million at December 31, 1997 from
$183.2 million at December 31, 1996, as a result of the growth in net revenue.
The number of days revenue outstanding in accounts receivable and unbilled
services, net of unearned income, was 42 and 48 days at December 31, 1997 and
December 31, 1996, respectively.

During 1995, the Company acquired a drug development facility in Edinburgh,
Scotland. Related to this acquisition, the Company entered into a purchase
commitment valued at (pound)13.0 million (approximately $21.0 million) with
payment due in December 1999. The Company has hedged this commitment by
purchasing forward contracts. The Company's forward contracts mature on December
29, 1999, and as of December 31, 1997, the Company had committed to purchasing
approximately (pound)1.5 million (approximately $2.3 million) under such
contracts. The Company is obligated to purchase up to an additional (pound)5.9
million through December 28, 1999 in varying amounts as the daily
dollar-to-pound exchange rate ranges between $1.5499 and $1.6800.

The Company has available to it a (pound)15.0 million unsecured line of credit
with a U.K. bank and a (pound)5.0 million unsecured line of credit with a
second U.K. bank. At December 31, 1997, the Company had(pound)13.8 million
available under these credit agreements.

On March 12, 1997, the Company completed a public offering of



                                       26
<PAGE>   6

11,040,000 shares of its Common Stock at a price of $31.4375 per share. Of the
11,040,000 shares sold, 2,830,000 shares were sold by the Company and 8,210,000
shares were sold by selling shareholders. Net proceeds to the Company amounted
to approximately $84.3 million.

All foreign currency denominated amounts due, subsequent to December 31, 1997,
have been translated using the Friday, December 26, 1997 foreign exchange rates
as published in the December 29, 1997 edition of the Wall Street Journal.

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

Foreign Currency

Approximately 50.0%, 57.0% and 60.1% of the Company's net revenue for the years
ended December 31, 1997, 1996, and 1995, respectively, were derived from the
Company's operations outside the United States. The Company's 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 such subsidiaries' financial results into U.S. dollars for
purposes of reporting the Company's consolidated financial results.

The Company may be subject to foreign currency transaction risk when the
Company's service contracts are denominated in a currency other than the
currency in which the Company earns fees or incurs expenses related to such
contracts. The Company limits its foreign currency transaction risk through
exchange rate fluctuation provisions stated in its contracts with customers, or
the Company may hedge its transaction risk with foreign currency exchange
contracts or options. The Company recognizes changes in value in income only
when foreign currency exchange contracts or options are settled or exercised,
respectively. There were several foreign exchange contracts relating to service
contracts open at December 31, 1997, all of which are immaterial to the Company.

Taxes

Since the Company conducts operations on a global basis, the Company's effective
tax rate has depended and will continue to depend on the amount of profits in
locations with varying tax rates. The Company's results of operations will be
impacted by changes in the tax rates of the various jurisdictions and by changes
in any applicable tax treaties. In particular, as the portion of the Company's
non-U.S. business increases, the Company's effective tax rate may vary
significantly from period to period. The Company's effective tax rate may also
depend upon the extent to which the Company is allowed (and is able to use under
applicable limitations) U. S. foreign tax credits in respect of taxes paid on
its foreign operations.

Inflation

The Company believes the effects of inflation generally do not have a material
adverse impact on its operations or financial condition.

Impact of Year 2000

The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or data corruption causing disruptions of operations, including, among
other things, a temporary inability to process transactions or engage in similar
business activities.

The Company's computing infrastructure is based upon industry standard systems.
The Company is not dependent on large legacy systems and

                                       27
<PAGE>   7

                MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)

does not use mainframes. Many of the specially developed systems the Company
uses have been developed within the past few years and are Year 2000 compliant.

The Company has appointed a Year 2000 Project Team to conduct an assessment of
the Company's operations worldwide from an internal, supplier and customer
perspective. The assessment, which is currently in progress, addresses all
computer systems, applications and any other systems that may be vulnerable to
the Year 2000 Issue. As part of the assessment, the Company is preparing
detailed plans to address Year 2000 issues. The Company is utilizing both
internal and external resources to implement the plans. The Company currently
anticipates addressing all business critical systems during 1998 and will
address follow-up issues and all remaining systems during 1999. While the
Company currently does not believe that the costs associated with addressing
Year 2000 Issues will be material to the Company's financial statements,
business or operations, the Company's assessment of Year 2000 Issues is ongoing
and there can be no assurance that Year 2000 Issues or the costs of addressing
them will not have a material impact on the Company's financial statements,
business or operations.

Recent Events

On February 2, 1998, the Company acquired Pharma Networks N.V. ("Pharma"), a
leading contract sales organization in Belgium. The Company acquired Pharma in
exchange for 132,000 shares of the Company's Common Stock. The acquisition of
Pharma will be accounted for as a pooling of interests.

On February 4, 1998, the Company acquired Technology Assessment Group ("TAG"),
an international health outcomes assessment firm that specializes in patient
registries and in evaluating the economic, quality-of-life and clinical effects
of drug therapies and disease management programs. The Company acquired TAG in
exchange for 460,366 shares of the Company's Common Stock. The acquisition of
TAG will be accounted for as a pooling of interests.

On February 26, 1998, the Company acquired T2A S.A. ("T2A"), a leading French
contract sales organization. The Company acquired T2A in exchange for 311,899
shares of the Company's Common Stock. The acquisition of T2A will be accounted
for as a pooling of interests.

On February 27, 1998, the Company acquired More Biomedical Contract Research
Organization Ltd. ("More Biomedical"), a contract research organization based in
Taiwan. The Company acquired More Biomedical in exchange for 16, 600 shares of
the Company's Common Stock. The acquisition will be accounted for as a pooling
of interests.

Recently Issued Accounting Standards

In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income" which is effective for fiscal years beginning
after December 15, 1997. Statement No. 130 establishes standards for reporting
and displaying comprehensive income and its components in financial statements.
The Company will adopt Statement No. 130 in the first quarter 1998 and will
provide the financial statement disclosures as required. The application of the
new rules will not have an impact on the Company's financial position or results
from operations.

In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information" which is
effective for fiscal years beginning after December 15, 1997. Statement No. 131
changes the way public companies report segment information in annual financial
statements and also requires those companies to report selected segment
information in interim financial statements to shareholders. Statement No. 131
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. The Company will adopt Statement No. 131
in 1998, which may result in additional disclosures. The application of the new
rules will not have an impact on the Company's financial position or results
from operations.




                                       28
<PAGE>   8
                        CONSOLIDATED STATEMENTS OF INCOME


<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                           -----------------------
                                                       1997         1996          1995
                                                       ----         ----          ----
                                                    (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                 <C>           <C>           <C>
Net revenue....................................      $814,476     $554,227      $337,006
Costs and expenses:
  Direct.......................................       421,855      278,981       171,571
  General and administrative...................       267,463      192,184       116,948
  Depreciation and amortization................        37,459       25,195        17,241
  Non-recurring costs:
     Restructuring.............................            --       13,102         2,373
     Special pension contribution..............            --        2,329         2,329
                                                     --------     --------      --------
                                                      726,777      511,791       310,462
                                                     --------                   --------
Income from operations.........................        87,699       42,436        26,544
Other income (expense):
  Interest income..............................         8,434        7,089         2,548
  Interest expense.............................        (8,566)      (9,526)       (3,765)
  Non-recurring transaction costs..............            --      (17,118)           --
  Other........................................        (1,989)          16            34
                                                     --------     --------      --------
                                                       (2,121)     (19,539)       (1,183)
                                                     --------     --------      --------
Income before income taxes.....................        85,578       22,897        25,361
Income taxes...................................        30,262       14,015         9,293
                                                     --------     --------      --------
Net income.....................................        55,316        8,882        16,068
Non-equity dividend............................            --       (1,785)         (719)
                                                     --------     --------      --------
Net income available for common shareholders...      $ 55,316     $  7,097      $ 15,349
                                                     ========     ========      ========
Basic net income per share                           $   0.76     $   0.11      $   0.25
Diluted net income per share                         $   0.75     $   0.10      $   0.24

Shares used in computing net income per share:
   Basic                                               72,394       67,377        61,995
   Diluted                                             73,931       70,013        63,770
</TABLE>

                             SEE ACCOMPANYING NOTES.




                                       29
<PAGE>   9
                           CONSOLIDATED BALANCE SHEETS



<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                               ------------
                                                            1997          1996
                                                            ----          ----
                                                              (IN THOUSANDS)
<S>                                                       <C>           <C>
                     ASSETS
Current assets:
  Cash and cash equivalents ........................      $ 78,007      $ 68,730
  Accounts receivable and unbilled services ........       210,444       183,288
  Investments ......................................        44,372        37,623
  Prepaid expenses .................................        22,261         9,956
  Other current assets .............................        22,596         2,912
                                                          --------      --------
          Total current assets .....................       377,680       302,509
Property and equipment:
  Land, buildings and leasehold improvements .......        82,350        50,187
  Equipment and software ...........................       115,663        68,708
  Furniture and fixtures ...........................        28,733        31,275
  Motor vehicles ...................................        39,105        30,353
                                                          --------      --------
                                                           265,851       180,523
  Less accumulated depreciation ....................        80,479        55,289
                                                          --------      --------
                                                           185,372       125,234
Intangibles and other assets:
  Intangibles ......................................        71,976        68,595
  Investments ......................................        69,089        25,083
  Deferred income taxes ............................        68,651            --
  Deposits and other assets ........................        26,130        11,156
                                                          --------      --------
                                                           235,846       104,834
                                                          --------      --------
          Total assets .............................      $798,898      $532,577
                                                          ========      ========
</TABLE>


                             SEE ACCOMPANYING NOTES.




                                       30
<PAGE>   10



<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                                   ------------
                                                                1997          1996
                                                                 (IN THOUSANDS)
<S>                                                          <C>           <C>
          Liabilities and Shareholders' Equity
Current liabilities:
  Lines of credit .......................................    $  10,335     $   9,048
  Accounts payable ......................................       35,207        36,074
  Accrued expenses ......................................       60,852        54,392
  Unearned income .......................................       85,327        78,962
  Income taxes payable ..................................           --         4,978
  Current portion of obligations held under capital
     leases .............................................       14,844        11,816
  Current portion of long-term debt .....................           23         1,897
  Other current liabilities .............................        6,234         6,032
                                                             ---------     ---------
          Total current liabilities .....................      212,822       203,199
Long-term liabilities:
  Obligations held under capital leases, less current
     portion ............................................        8,164         5,465
  Long-term debt and obligation, less current portion ...      162,200       163,285
  Deferred income taxes .................................       25,548         4,747
  Other liabilities .....................................        3,059         5,336
                                                             ---------     ---------
                                                               198,971       178,833
                                                             ---------     ---------
          Total liabilities .............................      411,793       382,032
Commitments and contingencies
Shareholders' Equity:
  Preferred stock, none issued and outstanding ..........           --            --
  Common Stock and additional paid-in capital, 73,853,867
     and 68,377,220 shares issued and outstanding in 1997
     and 1996, respectively .............................      335,312       139,710
  Retained earnings .....................................       60,008        11,513
  Other equity ..........................................       (8,215)         (678)
                                                             ---------     ---------
          Total shareholders' equity ....................      387,105       150,545
                                                             ---------     ---------
          Total liabilities and shareholders' equity ....    $ 798,898     $ 532,577
                                                             =========     =========
</TABLE>

                             SEE ACCOMPANYING NOTES.




                                       31
<PAGE>   11
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                                 -----------------------
                                                             1997          1996          1995
                                                             ----          ----          ----
                                                                     (IN THOUSANDS)
<S>                                                       <C>           <C>           <C>
OPERATING ACTIVITIES:
Net income ...........................................    $  55,316     $   8,882     $  16,068
Adjustments to reconcile net income to net cash
  provided by operating activities
  Depreciation and amortization ......................       37,459        25,812        17,241
  Non-recurring transaction costs ....................           --        17,118            --
  Net loss (gain) on sale of property and equipment ..          672          (134)         (172)
  Provision for deferred income tax expense ..........       10,002           731         1,904
  Change in operating assets and liabilities:
    Accounts receivable and unbilled services ........      (28,718)      (68,525)      (36,201)
    Prepaid expenses and other assets ................      (15,924)      (11,389)         (838)
    Accounts payable and accrued expenses ............       10,431        23,682        17,299
    Unearned income ..................................          738        42,460        20,013
    Income taxes payable and other current liabilities        7,945         3,491           547
  Change in fiscal year of pooled entity .............         (581)       (9,378)           --
  Other ..............................................           71           (27)          (25)
                                                          ---------     ---------     ---------
Net cash provided by operating activities ............       77,411        32,723        35,836
Investing activities
  Proceeds from disposition of property and equipment         4,254         1,434         4,311
  Purchase of investments held-to-maturity ...........           --       (95,939)           --
  Maturities of investments held-to-maturity .........       35,579        43,345            --
  Purchase of investments available-for-sale .........     (137,573)      (19,003)           --
  Proceeds from sale of investments available-for-sale       51,246         8,936            --
  Purchase of other investments ......................      (12,011)           --            --
  Acquisition of property and equipment ..............      (78,693)      (39,744)      (25,964)
  Acquisition of businesses, net of cash acquired ....       (7,130)      (35,109)      (16,571)
  Payment of non-recurring transaction costs .........       (5,648)      (11,440)           --
  Change in fiscal year of pooled entity .............          (17)        2,606            --
  Other ..............................................           --            --          (108)
                                                          ---------     ---------     ---------
Net cash used in investing activities ................    $(149,993)    $(144,914)    $ (38,332)
</TABLE>




                                       32
<PAGE>   12

<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                                -------------------------------------
                                                                    1997         1996          1995
                                                                -------------------------------------
<S>                                                             <C>           <C>           <C>
Financing activities
  Increase in lines of credit, net .........................    $     513     $   2,570     $   3,917
  Proceeds from issuance of debt ...........................           --       139,650           568
  Repayment of debt ........................................       (7,727)      (56,792)       (1,371)
  Principal payments on capital lease obligations ..........      (16,470)       (9,516)       (6,621)
  Issuance of common stock .................................      108,834         3,678        56,746
  Issuance of debt for capitalization of pooled entity .....           --        45,197            --
  Recapitalization of pooled entity ........................           --       (29,230)           --
  Non-equity dividend ......................................           --        (1,756)         (677)
  Dividend paid by pooled entity ...........................       (1,632)           --        (9,162)
  Change in fiscal year of pooled entity ...................           58         1,399            --
  Other ....................................................           64          (249)       (6,047)
                                                                ---------     ---------     ---------
Net cash provided by financing activities ..................       83,640        94,951        37,353
Effect of foreign currency exchange rate changes on cash ...       (1,781)          277          (100)
                                                                ---------     ---------     ---------
Increase (decrease) in cash and cash equivalents                    9,277       (16,963)       34,757
Cash and cash equivalents at beginning of year                     68,730        85,693        50,936
                                                                ---------     ---------     ---------
Cash and cash equivalents at end of year                        $  78,007     $  68,730     $  85,693
                                                                =========     =========     =========
Supplemental Cash Flow Information
  Interest paid                                                 $   8,909     $   9,468     $   2,660
  Income taxes paid                                                16,374        12,781         9,819
Non-cash Investing and Financing Activities
  Capitalized leases                                               22,688        12,979        11,774
  Equity impact of mergers and acquisitions                         1,134       (23,253)       11,803
  Equity impact from exercise of non-qualified stock options       24,049         2,920            --
  Tax effect of pooled transactions                             $  62,700     $      --     $      --
</TABLE>



                             SEE ACCOMPANYING NOTES.




                                       33
<PAGE>   13
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                EMPLOYEE
                                                                                 STOCK
                                                                                OWNERSHIP
                                                    ADDITIONAL                  PLAN LOAN     CURRENCY
                                        COMMON       PAID-IN       RETAINED     GUARANTEE   TRANSLATION
                                         STOCK       CAPITAL       EARNINGS      & OTHER     ADJUSTMENTS      TOTAL
                                         -----       -------       --------      -------     -----------      -----
                                                                      (IN THOUSANDS)
<S>                                    <C>          <C>           <C>           <C>         <C>             <C>
Balance, December 31, 1994 ........    $     209    $  63,138     $  26,294     $  (1,958)    $   1,332     $  89,015
Issuance of common stock ..........           10       56,893            --            --            --        56,903
Principal payments on ESOP
  loan ............................           --           --            --           401            --           401
Common stock issued for
  acquisitions ....................            4       11,799            31            --            --        11,834
Reduction of liability under
  stock option plan, net of
  tax .............................           --          693            --            --            --           693
Dividends paid by pooled
  entity ..........................           --           --        (9,162)           --            --        (9,162)
Non-equity dividend ...............           --           --          (719)           --            --          (719)
Two-for-one stock split ...........          107         (107)           --            --            --            --
Other equity transactions .........           --         (135)           --            --           284           149
Net income ........................           --           --        16,068            --            --        16,068
                                       ---------    ---------     ---------     ---------     ---------     ---------
Balance, December 31, 1995 ........          330      132,281        32,512        (1,557)        1,616       165,182
Common stock issued for
  acquisitions ....................            3          516           608            --            --         1,127
Issuance of common stock ..........            9        3,838            --            --            --         3,847
Principal payments on ESOP
  loan ............................           --           --            --           420            --           420
Effect due to change in fiscal
  year of pooled company ..........           --           --           324            --            --           324
Recapitalization of pooled
  entity ..........................           --         (202)      (29,028)           --            --       (29,230)
Tax benefit from the exercise
  of non-qualified stock
  options .........................           --        2,920            --            --            --         2,920
Non-equity dividend ...............           --           --        (1,785)           --            --        (1,785)
Other equity transactions .........           --           15            --            45        (1,202)       (1,142)
Net income ........................           --           --         8,882            --            --         8,882
                                       ---------    ---------     ---------     ---------     ---------     ---------
Balance, December 31, 1996 ........          342      139,368        11,513        (1,092)          414       150,545
Issuance of common stock ..........           24      112,741            --            --            --       112,765
Principal payments on ESOP loan ...           --           --            --           536            --           536
Common stock issued for
   acquisitions ...................            4            2        (1,414)           --            --        (1,408)
Effect due to change in fiscal year
  of pooled entity ................           --           --        (3,775)           --           117        (3,658)
Two-for-one stock split ...........          369         (369)           --            --            --             0
Tax effect of pooling of interests            --       62,700            --            --            --        62,700
Tax benefit from the exercise of
   non-qualified stock options ....           --       20,118            --            --            --        20,118
Dividend  paid by pooled entity ...           --           --        (1,632)           --            --        (1,632)
Other equity transactions .........           --           13            --          (104)       (8,086)       (8,177)
Net income ........................           --           --        55,316            --            --        55,316
                                       ---------    ---------     ---------     ---------     ---------     ---------
Balance, December 31, 1997 ........    $     739    $ 334,573     $  60,008     $    (660)    $  (7,555)    $ 387,105
                                       =========    =========     =========     =========     =========     =========
</TABLE>


                             SEE ACCOMPANYING NOTES.




                                       34
<PAGE>   14
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1997

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

         The Company is a leader in providing full-service contract research,
sales, marketing and healthcare policy consulting and health information
management services to the worldwide pharmaceutical, biotechnology, medical
device and healthcare industries.

PRINCIPLES OF CONSOLIDATION

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

USE OF ESTIMATES

         The preparation of financial statements in conformity with 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).

REVENUE RECOGNITION

         The Company recognizes net revenue from its contracts on a
percentage-of-completion or per diem basis as work is performed. The Company's
exposure to credit loss is equal to the outstanding accounts receivable and
unbilled services balance. Although the Company does not require collateral for
unpaid balances, credit losses have consistently been within management's
expectations. Certain contracts contain provisions for price redetermination for
cost overruns. Such redetermined amounts are included in service revenue when
realization is assured and the amounts can be reasonably determined. In the
period in which it is determined that a loss will result from the performance of
a contract, the entire amount of the estimated ultimate loss is charged against
income. One customer accounted for 11.5% of consolidated net revenue in 1996.

UNBILLED SERVICES AND UNEARNED INCOME

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




                                       35
<PAGE>   15

                               NOTES (continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 clients for investigator
payments in the amount of $9.5 million and $4.6 million at December 31, 1997 and
1996, respectively, that pursuant to agreements with these clients, remains the
property of the clients.

         The Company's investments in debt and marketable equity securities are
classified as held-to-maturity and available-for-sale. Investments classified as
held-to-maturity are recorded at amortized cost. Investments classified as
available-for-sale are measured at market value and net unrealized gains and
losses are recorded as a component of stockholders' equity until realized. In
addition, the Company has $13.1 million and $1.5 million in deposits and other
assets at December 31, 1997 and 1996, respectively, that represents investments
in equity securities for which there are not readily available market values.
Any gains or losses on sales of investments are computed by specific
identification.

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 ranging from three to 50 years.

INTANGIBLE ASSETS

         Intangibles consist principally of the excess cost over the fair value
of net assets acquired ("goodwill") and are being amortized on a straight-line
basis over periods not exceeding 40 years. Accumulated amortization totaled
$12.8 million and $10.5 million at December 31, 1997 and 1996, respectively.

         The carrying values of intangible assets are reviewed if the facts and
circumstances suggest impairment. If this review indicates that carrying values
will not be recoverable, as determined based on undiscounted cash flows over the
remaining amortization period, the Company would reduce carrying values by the
estimated shortfall of discounted cash flows.

NET INCOME PER SHARE

         In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement No. 128, "Earnings per Share" which established new standards
for computing and presenting net income per share information. As required, the
Company adopted the provisions of Statement No. 128 in its 1997 financial
statements and has restated all prior year net income per share information.
Basic net income per share was determined by dividing net income available for
common shareholders 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 net income
available for common shareholders and number of shares used in computing basic
and diluted net income per share is in Note 4.

INCOME TAXES

         Income tax expense includes U.S. and international income taxes.
Certain items of income and expense are not reported in tax returns and
financial statements in the same year. The tax effects of these differences are
reported as deferred income taxes. Tax credits are accounted for as a reduction
of tax expense in the year in which the credits reduce taxes payable.




                                       36
<PAGE>   16
RESEARCH AND DEVELOPMENT COSTS

         Research and development costs relating principally to new software
applications and computer technology are charged to expense as incurred. These
expenses totaled $2.8 million, $2.3 million and $1.9 million in 1997, 1996 and
1995, respectively.

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 FASB Statement No. 123,
"Accounting for Stock-Based Compensation", 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.

FOREIGN CURRENCY HEDGING

         The Company uses 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 client in another currency. The Company recognizes changes in value
in income only when contracts are settled or options are exercised. There were
several foreign exchange contracts relating to service contracts open at
December 31, 1997, all of which are immaterial to the Company.

RECLASSIFICATIONS

         Certain amounts in the 1996 financial statements have been reclassified
to conform with the 1997 financial statement presentation. The reclassifications
had no effect on previously reported net income available to common
shareholders, shareholders' equity or net income per share.

RECENTLY ISSUED ACCOUNTING STANDARDS

         In June 1997, FASB issued Statement No. 130, "Reporting Comprehensive
Income" which is effective for fiscal years beginning after December 15, 1997.
Statement No. 130 establishes standards for reporting and displaying
comprehensive income and its components in financial statements. The Company
will adopt Statement No. 130 in the first quarter of 1998 and will provide the
financial statement disclosures as required. The application of the new rules
will not have an impact on the Company's financial position or results from
operations.

         In June 1997, FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" which is effective for fiscal
years beginning after December 15, 1997. Statement No. 131 changes the way
public companies report segment information in annual financial statements and
also requires those companies to report selected segment information in interim
financial statements to shareholders. Statement No. 131 also establishes
standards for related disclosures about products and services, geographic areas
and major customers. The Company will adopt Statement No. 131 in 1998, which may
result in additional disclosures. The application of the new rules will not have
an impact on the Company's financial position or results from operations.




                                       37
<PAGE>   17

                               NOTES (continued)

2. SHAREHOLDERS' EQUITY

         The Company is authorized to issue 25 million shares of preferred
stock, $.01 per share par value. At December 31, 1997, 200 million common shares
of $.01 par value were authorized.

         In October 1997, the Board of Directors authorized a two-for-one split
of the Company's Common Stock in the form of a 100% stock dividend. A total of
36,920,627 shares of Common Stock were issued in connection with the split. The
stated par value of each share was not changed from $.01. A total of $369,000
was reclassified from additional paid in capital to Common Stock. All references
in the financial statements to number of shares, per share amounts, stock option
data and market prices of Common Stock have been restated to reflect the stock
split.

         In March 1997, the Company completed a stock offering of 11,040,000
shares of its Common Stock. Of the shares sold, 2,830,000 shares were sold by
the Company and 8,210,000 shares by certain selling shareholders. The offering
provided the Company with approximately $84.3 million, net of expenses.

         In April 1996, in anticipation of a planned initial public offering,
Innovex was recapitalized by the purchase of the entire issued share capital of
Innovex Holdings Limited (the former holding company of the Innovex Group) from
its shareholders in exchange for a combination of newly issued Ordinary Shares,
Preferred Ordinary Shares (the "Preferred Shares"), loan notes and cash. In
exchange for its holdings in Innovex Holdings Limited, the principal shareholder
received 67,994,225 newly issued Ordinary Shares of Innovex Limited,
approximately $26.0 million of loan notes and approximately $2.4 million of
cash. In exchange for their respective holdings, certain investors received
14,285,720 newly issued Preferred Shares, and certain members of management
received 4,637,080 Ordinary Shares. Pursuant to an investment agreement, Innovex
also issued 28,533,345 additional preferred shares and created and issued 11
million 7.5% preference shares (the "Preference Shares") and approximately $10.7
million of loan stock. In connection with the Preference Shares, the Company
paid $846,000 of non-equity dividends in 1996. Prior to the recapitalization,
Innovex paid a dividend of $9.2 million to the principal shareholder and made a
special pension contribution of $2.3 million. In connection with the Innovex
merger, the Company has paid $56.8 million of Innovex obligations.

3. MERGERS AND ACQUISITIONS

         On June 11, 1997, the Company acquired 100% of the stock of MAC, a
leading international strategic medical communications consultancy, for
1,131,394 shares of the Company's Common Stock. On July 2, 1997, the Company
acquired CVA, a contract research organization that is a leader in stroke
clinical trials, through an exchange of 100% of CVA's stock for 467,936 shares
of the Company's Common Stock. On August 29, 1997, the Company acquired
Clindepharm in exchange for 477,966 shares of the Company's Common Stock. These
transactions were accounted for by the pooling of interests method.

         The following is a summary of the net revenue and net income available
for common shareholders from the beginning of the year through the date of
combination for companies acquired in transactions accounted for as poolings of
interests in 1997:


<TABLE>
<CAPTION>
                   (IN THOUSANDS)              MAC          CVA       CLINDEPHARM       OTHERS
                   --------------              ---          ---       -----------       ------
         <S>                                 <C>          <C>         <C>               <C>
         Net revenue.......................  $5,733       $2,382         $3,437         $9,034
         Net income available for common
           shareholders....................  $1,013       $  332         $1,062         $1,153
</TABLE>

         On November 29, 1996, the Company acquired 100% of the outstanding
stock of Innovex, an international contract pharmaceutical organization based in
Marlow, U.K., for 18,428,478 shares of the Company's Common Stock and the
exchange of options to purchase 1,572,452 shares of the Company's Common Stock.
On November 22, 1996, the Company acquired BRI, a global contract research
organization, through an exchange of 100% of BRI's stock for 3,229,724 shares of
the Company's Common Stock. Related to the Innovex and BRI transactions, the
Company recognized approximately $17.1 million in non-recurring transaction
costs and approximately $10.7 million in non-recurring restructuring costs.
These transactions were accounted for by the pooling of interests method.




                                       38
<PAGE>   18
         On May 13, 1996, the Company acquired the operating assets of
Lewin-VHI, Inc., a healthcare consulting company, for approximately $30 million
in cash. The Company recorded approximately $20 million related to the excess
cost over the fair value of net assets acquired. The acquisition was accounted
for as a purchase and accordingly, the financial statements include the results
of operations of the business from the date of acquisition.

         In addition to the above mergers and acquisitions, the Company has
completed other mergers and acquisitions all of which are immaterial to the
financial statements.

4. NET INCOME PER SHARE

         The following table sets forth the computation of basic and diluted net
income per share (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                                         YEAR ENDED DECEMBER 31,
                                                                                      1997        1996         1995
               <S>                                                                  <C>         <C>          <C>
               Net income available for common shareholders:
                 Net income                                                         $ 55,316    $  8,882     $ 16,068
                 Non-equity dividend                                                      --      (1,785)        (719)
                                                                                    --------    --------     --------
                 Net income available for common shareholders -
                    basic and diluted net income per share                          $ 55,316    $  7,097     $ 15,349
                                                                                    ========    ========     ========

               Weighted average shares:
                 Basic net income per share - weighted average shares                 72,394      67,377       61,995
                 Effect of dilutive securities:
                   Stock options                                                       1,537       2,636        1,775
                                                                                    --------    --------     --------
                 Diluted net income per share - adjusted weighted-average shares
                   and assumed conversions                                            73,931      70,013       63,770
                                                                                    ========    ========     ========
                 Basic net income per share                                         $   0.76    $   0.11     $   0.25
                                                                                    ========    ========     ========
                 Diluted net income per share                                       $   0.75    $   0.10     $   0.24
                                                                                    ========    ========     ========
</TABLE>

         Options to purchase 1.8 million shares of common stock with exercise
prices ranging between $35.25 and $41.375 per share were outstanding during 1997
but were not included in the computation of diluted net income per share because
the options' exercise price was greater than the average market price of the
common shares and, therefore, the effect would be antidilutive.

         The conversion of the Company's 4.25% Convertible Subordinated Notes
("Notes") into approximately 3.5 million shares of common stock was not included
in the computation of diluted net income per share because the effect would be
antidilutive.

         For additional disclosures regarding the outstanding stock options and
the Notes, see "Employee Benefit Plans" and "Credit Arrangements and
Obligations."

5. CREDIT ARRANGEMENTS AND OBLIGATIONS

         On May 23, 1996, the Company completed a private placement of $143.75
million of 4.25% Convertible Subordinated Notes ("Notes") due May 31, 2000. Net
proceeds to the Company amounted to approximately $139.7 million. The Notes are
convertible into 3,474,322 shares of Common Stock, at the option of the holder,
at a conversion price of $41.37 per share, subject to adjustment under certain
circumstances, at any time after August 21, 1996. The Notes are redeemable, at
the option of the Company, beginning May 31, 1999. Interest is payable on the
notes semi-annually on May 31 and November 30 each year.

         The Company has a (pound)15.0 million (approximately $25.2 million)
line of credit which is guaranteed by certain of the Company's U.K.
subsidiaries. Interest is charged at the bank's base rate (7.25% at December 31,
1997), plus 1%, with a minimum of 5.5%. The line of credit had an outstanding
balance of (pound)1.5 million (approximately $2.5 million) and (pound)4.7
million (approximately $6.6 million) at December 31, 1997 and 1996,
respectively.




                                       39
<PAGE>   19

                               NOTES (continued)

5. CREDIT ARRANGEMENTS AND OBLIGATIONS (continued)

         The Company has a (pound)5.0 million (approximately $8.4 million) line
of credit with a second U.K. bank. The line of credit is charged interest at the
bank's published base rate (7.25% at December 31, 1997) plus 1.5%. The line of
credit had an outstanding balance of (pound)4.7 million (approximately $7.8
million) and (pound)1.4 million (approximately $2.4 million) at December 31,
1997 and 1996, respectively.

         In March 1995, Quintiles Scotland Limited, a wholly-owned subsidiary of
the Company, acquired assets of a drug development facility in Edinburgh,
Scotland from Syntex Pharmaceuticals Limited, a member of the Roche group based
in Basel, Switzerland for a purchase commitment valued at (pound)13.0 million
(approximately $21.0 million), with payment due in December 1999. As of December
31, 1997 and 1996, the Company has committed to purchasing approximately
(pound)1.5 million (approximately $2.3 million) and (pound)600,000
(approximately $852,000 ), respectively, under foreign exchange contracts. The
Company is obligated to purchase up to an additional (pound)5.9 million through
December 28, 1999 in varying amounts as the daily dollar-to-pound exchange rate
ranges between $1.5499 and $1.6800.

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

<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                                                              ------------
                                                                         1997            1996
                                                                         ----            ----
                  <C>                                                  <C>             <C>
                  4.25% Convertible Subordinated Notes due 2000 ....   $143,750        $143,750
                  Employee Stock Ownership Plan notes payable due
                       1997.........................................         --           1,138
                  Other notes payable...............................         23           1,953
                  Long-term obligation..............................     20,985          21,823
                                                                       --------        --------
                                                                        164,758         168,664
                       Less: current portion........................         23           1,897
                                unamortized issuance costs..........      2,535           3,482
                                                                       --------        --------
                                                                       $162,200        $163,285
</TABLE>

         Maturities of long-term debt and obligation at December 31, 1997 are as
follows (in thousands):

<TABLE>
                           <S>      <C>
                           1998     $     23
                           1999       20,985
                           2000      143,750
                                    --------
                                    $164,758
                                    ========
</TABLE>

6. INVESTMENTS

         The following is a summary as of December 31, 1997 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
               HELD-TO-MATURITY SECURITIES:                COST      GAINS       LOSSES     VALUE
               ----------------------------                ----      -----       ------     -----
               <S>                                      <C>        <C>         <C>         <C>
               U.S. Government Securities --
                 Maturing in one year or less            $ 5,892    $    15     $    --    $ 5,907
                 Maturing between one and three years      2,814         16          --      2,830
               State and Municipal Securities --
                 Maturing in one year or less              2,688          9          --      2,697
                 Maturing between one and three years      2,329         17          --      2,346
                Other                                      2,312         97          --      2,409
                                                         -------    -------     -------    -------
                                                         $16,035    $   154     $    --    $16,189
                                                         =======    =======     =======    =======
</TABLE>




                                       40
<PAGE>   20
<TABLE>
<CAPTION>
               AVAILABLE-FOR-SALE                                        GROSS        GROSS
               ------------------                           AMORTIZED  UNREALIZED   UNREALIZED     MARKET
               SECURITIES:                                    COST        GAINS       LOSSES        VALUE
               -----------                                    ----        -----       ------        -----
               <S>                                          <C>        <C>          <C>           <C>
               U.S. Government Securities --
                  Maturing in one year or less              $  2,499    $     --     $     --     $  2,499
                  Maturing between one and three years        52,061          --          (57)      52,004
                  Maturing between three and five years        7,000           5           --        7,005
               State and Municipal Securities --
                  Maturing in one year or less                 3,060          --           --        3,060
                  Maturing between one and three years            --          --           --           --
                  Maturing between three and five years        2,595          30           --        2,625
               Money Funds                                    30,301          --          (68)      30,233
                                                            --------    --------     --------     --------

                                                            $ 97,516    $     35     $   (125)    $ 97,426
                                                            ========    ========     --------     --------
</TABLE>

         The following is a summary as of December 31, 1996 of held-to-maturity
securities and available-for-sale securities by contractual maturity where
applicable (in thousands):

<TABLE>
<CAPTION>
                                                                          GROSS       GROSS
               HELD-TO-MATURITY                             AMORTIZED  UNREALIZED   UNREALIZED     MARKET
               SECURITIES:                                    COST        GAINS       LOSSES       VALUE
               -----------                                    ----        -----       ------       -----
               <S>                                          <C>        <C>          <C>           <C>
               U.S. Government Securities --
                  Maturing in one year or less              $  5,707    $     --     $     --     $  5,707
                  Maturing between one and three years         9,951          --           --        9,951
               State and Municipal Securities --
                  Maturing in one year or less                22,327          --           --       22,327
                  Maturing between one and three years         5,065          --           --        5,065
               Other                                           8,564          --           --        8,564
                                                            --------    --------     --------     --------
                                                            $ 51,614    $     --     $     --     $ 51,614
                                                            ========    ========     ========     ========
</TABLE>


<TABLE>
<CAPTION>
                                                                          GROSS       GROSS
               AVAILABLE-FOR-SALE                           AMORTIZED  UNREALIZED   UNREALIZED     MARKET
               SECURITIES:                                    COST        GAINS       LOSSES       VALUE
               -----------                                    ----        -----       ------       -----
               <S>                                          <C>        <C>          <C>           <C>

               U.S. Government Securities --
                 Maturing between one and three years       $ 10,008    $     59     $     --     $ 10,067
               Money Funds                                     1,019           6           --        1,025
                                                            --------    --------     --------     --------
                                                            $ 11,027    $     65           --     $ 11,092
                                                            ========    ========     ========     ========
</TABLE>




                                       41
<PAGE>   21

                               NOTES (continued)

7. ACCOUNTS RECEIVABLE AND UNBILLED SERVICES

         Accounts receivable consist of the following (in thousands):


<TABLE>
<CAPTION>
                                               DECEMBER 31,
                                               ------------
                                            1997          1996
                                            ----          ----
               <S>                       <C>           <C>
               Trade:
                 Billed                  $ 122,898     $ 121,803
                 Unbilled services          77,613        52,772
                                         ---------     ---------
                                           200,511       174,575
               Other                        11,753        10,759
               Allowance for doubtful
                  accounts                  (1,820)       (2,046)
                                         ---------     ---------
                                         $ 210,444     $ 183,288
                                         =========     =========
</TABLE>

         The Company provides professional services involved in the development,
testing, approval, sale and marketing of new drugs. Substantially all of the
Company's accounts receivable are due from companies in the pharmaceutical and
biotechnology industries located in the Americas and Europe. The percentage of
accounts receivable and unbilled services by region is as follows:

<TABLE>
<CAPTION>
                                            DECEMBER 31,
                                            ------------
                       REGION               1997    1996
                       ------               ----    ----
                       <S>                  <C>     <C>
                       Americas              48%     45%
                       Europe and Africa     50      53
                       Asia-Pacific           2       2
                                            ---     ---
                                            100%    100%
</TABLE>

8. ACCRUED EXPENSES

         Accrued expenses consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                           ------------
                                                         1997       1996
                                                         ----       ----
              <S>                                      <C>        <C>
              Compensation and payroll taxes ......    $29,818    $22,621
              Transaction and restructuring costs..      2,751     16,047
              Other ...............................     28,283     15,724
                                                       -------    -------
                                                       $60,852    $54,392
                                                       =======    =======
</TABLE>

9. LEASES

         The Company leases certain office space and equipment under operating
leases. The leases expire at various dates through 2049 with options to cancel
certain leases at five-year increments. Some leases contain renewal options.
Annual rental expenses under these agreements were approximately $24.3 million,
$21.0 million and $10.4 million for the years ended December 31, 1997, 1996 and
1995, 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.




                                       42
<PAGE>   22
         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, 1997 (in thousands):

<TABLE>
<CAPTION>
                                                   CAPITAL    OPERATING
                                                   LEASES       LEASES
                                                   ------       ------
         <S>                                      <C>         <C>
         1998 .................................   $ 16,600    $ 28,441
         1999 .................................      8,156      22,887
         2000 .................................          9      18,530
         2001 .................................         --      13,958
         2002 .................................         --      12,223
         Thereafter ...........................         --      47,512
                                                  --------    --------
         Total minimum lease payments .........     24,765    $143,551
                                                              ========

         Amounts representing interest ........      1,757
                                                  --------

         Present value of net minimum payments      23,008
         Current portion ......................     14,844
                                                  --------
         Long-term capital lease obligations ..   $  8,164
                                                  ========
</TABLE>

10. INCOME TAXES

         The components of income tax expense are as follows (in thousands):

<TABLE>
<CAPTION>
                                            YEAR ENDED DECEMBER 31,
                                            -----------------------
                                         1997        1996         1995
                                         ----        ----         ----
        <S>                            <C>         <C>          <C>
        Current:
          FEDERAL .................    $ 11,153    $  5,185     $  4,313
          STATE ...................       2,655       1,735          856
          FOREIGN .................       6,452       5,839        2,345
                                       --------    --------     --------
                                         20,260      12,759        7,514
        DEFERRED EXPENSE (BENEFIT):
          FEDERAL .................       7,506        (682)         598
          FOREIGN .................       2,496       1,938        1,181
                                       --------    --------     --------
                                       $ 30,262    $ 14,015     $  9,293
                                       ========    ========     ========
</TABLE>

    Tax benefits of $62.7 million from goodwill arising in connection with a
taxable pooling of interests business combination and $20.1 million from
non-qualified stock options exercised were allocated directly to contributed
capital.

    The Company's consolidated effective tax rate differed from the statutory
rate as set forth below (in thousands):

<TABLE>
<CAPTION>
                                                                          YEAR ENDED DECEMBER 31,
                                                                          -----------------------
                                                                      1997         1996         1995
                                                                      ----         ----         ----
         <S>                                                        <C>          <C>          <C>
         Federal taxes at statutory rate                            $ 29,952     $  7,992     $  8,636
         State and local income taxes net of federal benefit           1,726        1,040          653
         Non-deductible transaction costs                                 --        4,761           --
         Foreign earnings taxed at different rates                       418         (191)         (14)
         Foreign losses for which no benefit has been recognized          --           --          646
         Utilization of net operating loss carryforwards                (636)          --       (1,520)
         Non-taxable income                                           (1,521)          --           --
         Other                                                           323          413          892
                                                                    --------     --------     --------
                                                                    $ 30,262     $ 14,015     $  9,293
                                                                    ========     ========     ========
</TABLE>




                                       43
<PAGE>   23

                               NOTES (continued)

10. INCOME TAXES (continued)

         Income before income taxes from foreign operations was approximately $4
million, $24 million and $11 million for the years 1997, 1996 and 1995,
respectively. Income from foreign operations was approximately $35 million, $25
million and $14 million for the years 1997, 1996 and 1995, respectively. The
difference between income from operations and income before income taxes is due
primarily to intercompany charges which eliminate upon consolidation.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $38 million at December 31, 1997. 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 tax effects of temporary differences that give rise to significant
portions of deferred tax (assets) liabilities are presented below (in
thousands):

<TABLE>
<CAPTION>
                                                                        YEAR ENDED
                                                                       DECEMBER 31,
                                                                       ------------
                                                                    1997          1996
                                                                    ----          ----
                  <S>                                            <C>           <C>
                  Deferred tax liabilities:
                    Depreciation and amortization                $  24,031     $  16,359
                    Prepaid expenses                                 1,335         1,034
                    Other                                            2,318           213
                                                                 ---------     ---------
                  Total deferred tax liabilities                    27,684        17,606
                  Deferred tax assets:
                    Net operating loss carryforwards               (17,532)       (7,028)
                    Accrued expenses and unearned income            (7,104)       (5,345)
                    Goodwill net of amortization                  (101,095)         (675)
                    Non-deductible transaction costs                    --        (2,206)
                    Other                                           (4,783)       (2,445)
                                                                 ---------     ---------
                  Total deferred tax assets                       (130,514)      (17,699)
                  Valuation allowance for deferred tax assets       54,879         4,840
                                                                 ---------     ---------
                  Net deferred tax assets                          (75,635)      (12,859)
                                                                 ---------     ---------
                  Net deferred tax (assets) liabilities          $ (47,951)    $   4,747
                                                                 =========     =========
</TABLE>

         The increase in the Company's valuation allowance for deferred tax
assets to $54.9 million at December 31, 1997 from $4.8 million at December 31,
1996 is primarily due to projected foreign tax credit limitations.

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

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                                         -----------------------
                                                                     1997         1996         1995
                                                                     ----         ----         ----
           <S>                                                     <C>          <C>          <C>
           Excess (deficiency) of tax over financial reporting:
           Depreciation and amortization                           $ 14,936     $  9,414     $  1,681
           Net operating loss carryforwards                          (6,693)      (1,907)       1,025
           Accrued expenses and unearned income                      (1,084)      (4,417)         110
           Benefit plans                                                 --           --         (656)
           Other items, net                                           2,843       (1,834)        (381)
                                                                   --------     --------     --------
                                                                   $ 10,002     $  1,256     $  1,779
                                                                   ========     ========     ========
</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 1997, 1996 and 1995, these allowances were $28 million,
$11 million and $6 million, respectively, which helped to generate net operating
loss carryforwards of $26 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 tax liability
relating to the U.K. subsidiaries may be deferred indefinitely. Innovex has
German net operating loss carryforwards that do not expire of $3 million to be
used to offset taxable income in that country. Quintiles Transnational has U.S.
state net operating loss carryforwards of approximately $8 million which will be
available through 2002. In addition, Innovex, Inc. has U.S. federal net
operating loss carryforwards of approximately $4 million which will expire
beginning 2005.




                                       44
<PAGE>   24
11. EMPLOYEE BENEFIT PLANS

         The Company has numerous employee benefit plans which cover
substantially all eligible employees in the countries in which 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 which are funded with Company stock, a
defined contribution plan funded by Company stock in Australia, Belgium and
Canada, defined contribution plans in Belgium, Holland, Sweden, 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.

         The Company has a leveraged Employee Stock Ownership Plan ("ESOP")
which provides benefits to eligible employees. Contributions and related
compensation expenses for this plan totaled $568,000, $585,000 and $734,000 in
1997, 1996 and 1995, respectively. Interest paid by the Company on the ESOP loan
was approximately $80,000, $130,000 and $157,000 for 1997, 1996 and 1995,
respectively. Shares allocated to participants totaled 1,773,000 at December 31,
1997. Unallocated shares totaled 152,100 as of December 31, 1997 with a fair
market value of $5.8 million.

         The Company has an employee savings and investment plan (401(k) Plan)
available to all eligible employees meeting certain specified criteria. The
Company matches employee deferrals at varying percentages, set at the discretion
of the Board of Directors. For the years ended December 31, 1997, 1996 and 1995,
the Company expensed $1.5 million, $539,000 and $177,000, respectively as
matching contributions.

         On July 25, 1996, the Company's Board of Directors adopted the
Quintiles Transnational Corp. Employee Stock Purchase Plan (the "Purchase Plan")
which is intended to provide eligible employees an opportunity to acquire the
Company's Common Stock. Participating employees 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. The Board of Directors has reserved 200,000
shares of common stock for issuance under the Purchase Plan. During 1997 and
1996, 81,024 shares and 9,576 shares, respectively, were purchased under the
Purchase Plan. At December 31, 1997, 109,400 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 of incentive options) at the date of grant. The majority of
options, granted under the Executive Compensation Plan, typically vest 25% per
year over four years, and expire ten years from the date of grant. Other options
including options granted and exchanged as a result of acquisitions have various
vesting schedules and expiration periods.




                                       45
<PAGE>   25

                               NOTES (continued)

11. EMPLOYEE BENEFIT PLANS (CONTINUED)

         Information with respect to these option plans is as follows:

<TABLE>
<CAPTION>
                                                                        WEIGHTED AVERAGE
                                                              NUMBER     EXERCISE PRICE
                                                              ------     --------------
                    <S>                                    <C>          <C>
                    Options outstanding January 1, 1995     1,762,730        $ 3.91
                      Granted                               1,162,476         13.42
                      Exercised                              (311,740)         2.58
                      Canceled                                (39,160)         5.17
                                                           ----------
                    Outstanding at December 31, 1995        2,574,306          8.09
                      Granted                               4,146,568         34.27
                      Exercised                            (1,334,836)         2.49
                      Canceled                               (416,264)        35.92
                                                           ----------
                    Outstanding at December 31, 1996        4,969,774         15.52
                      Granted                               2,234,387         36.82
                      Exercised                            (1,565,827)         7.78
                      Canceled                               (269,550)        24.34
                                                           ----------
                    Outstanding at December 31, 1997        5,368,784        $26.21
                                                           ==========
</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 fair value for each option was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions:

<TABLE>
<CAPTION>
                                             EMPLOYEE STOCK OPTIONS             EMPLOYEE STOCK PURCHASE PLAN
                                             ----------------------             ----------------------------
                                             1997      1996    1995             1997         1996       1995
                                             ----      ----    ----             ----         ----       ----
  <S>                                        <C>       <C>     <C>              <C>          <C>        <C>
  Expected dividend yield                      0%        0%      0%                0%          --         --

  Risk-free interest rate                      6%        6%      6%              5.1%          --         --

  Expected volatility                         40%       40%     40%             34.4%          --         --

  Expected life (in years from vest)           1         1       1              0.25           --         --
</TABLE>

         For options outstanding and exercisable at December 31, 1997 the
following number of options, range of exercise prices, weighted average exercise
prices and weighted average contractual lives existed:

<TABLE>
<CAPTION>
                       OPTIONS OUTSTANDING                                     OPTIONS EXERCISABLE
                       -------------------                                     -------------------
   NUMBER OF                      WEIGHTED AVERAGE    WEIGHTED AVERAGE     NUMBER OF      WEIGHTED AVERAGE
    OPTIONS     EXERCISE PRICE     EXERCISE PRICE     CONTRACTUAL LIFE      OPTIONS        EXERCISE PRICE
    -------     --------------     --------------     ----------------      -------        --------------
  <S>          <C>                <C>                 <C>                  <C>            <C>
    646,196    $ 0.20 - $ 4.75        $ 3.31                 4.6             635,696           $ 3.29
    557,886    $ 4.88 - $ 9.50          7.92                 6.5             342,886             6.95
    762,060    $10.69 - $20.68         18.64                 7.1             274,174            17.46
    721,574    $22.61 - $32.69         31.19                 7.1             271,794            31.34
    684,062    $33.13 - $33.13         33.13                 9.0             311,628            33.13
    616,469    $33.88 - $36.63         35.66                 8.6               8,387            35.87
    239,693    $36.75 - $38.19         37.91                 9.1             212,953            37.98
  1,002,162    $38.25 - $38.25         38.25                10.0                   0             N.A.
    130,682    $38.50 - $41.13         38.88                 6.3              54,712            38.52
      8,000    $41.38 - $41.38         41.38                 9.7               5,000            41.38
  ---------                                                                ---------
  5,368,784                           $26.21                 7.8           2,117,230           $18.33
  =========                                                                =========
</TABLE>

         The Black-Scholes valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
transferable. In addition, the option valuation 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.


                                       46
<PAGE>   26
         For purposes of pro forma disclosures, the estimated fair values of the
Purchase Plan and stock option plans are amortized to expense over the vesting
period. The grant date Black-Scholes weighted-average value was $13.37, $4.41
and $4.38 per share for 1997, 1996 and 1995.

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

<TABLE>
<CAPTION>
                                                                            YEAR ENDED
                                                                           DECEMBER 31,
                                                                           ------------
                                                                    1997       1996       1995
                                                                    ----       ----       ----
                  <S>                                             <C>        <C>        <C>
                  Net income available for common shareholders    $55,316    $ 7,097    $15,349
                  Pro forma  net income (loss) available for
                    common shareholders                            40,280     (3,142)    14,595
                  Pro forma basic net income (loss) per share        0.56      (0.05)      0.24

                  Pro forma diluted net income (loss) per share   $  0.54    $ (0.05)   $  0.23
</TABLE>

12. OPERATIONS

         The following table presents the Company's operations by geographical
location (in thousands):

<TABLE>
<CAPTION>
                                                           1997         1996         1995
                                                           ----         ----         ----
                      <S>                               <C>          <C>          <C>
                      Net revenue:
                        Americas......................  $ 414,401    $ 240,118    $ 134,350
                        Europe and Africa.............    377,382      301,398      195,669
                        Asia-Pacific..................     22,693       12,711        6,987
                                                        ---------    ---------    ---------
                                                        $ 814,476    $ 554,227    $ 337,006
                                                        =========    =========    =========
                      Income (loss) from operations:
                        Americas......................  $  52,541    $  17,158    $  12,469
                        Europe and Africa.............     34,905       25,262       14,515
                        Asia-Pacific..................        253           16         (440)
                                                        ---------    ---------    ---------
                                                        $  87,699    $  42,436    $  26,544
                                                        =========    =========    =========
                      Identifiable assets:
                        Americas......................  $ 529,915    $ 270,770    $ 154,273
                        Europe and Africa.............    252,100      252,863      184,313
                        Asia-Pacific..................     16,883        8,944        5,176
                                                        ---------    ---------    ---------
                                                        $ 798,898    $ 532,577    $ 343,762
                                                        =========    =========    =========
</TABLE>




                                       47
<PAGE>   27

                               NOTES (continued)

13. 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, 1997
                                                                            ----------------------------
                                                         FIRST               SECOND              THIRD              FOURTH
                                                        QUARTER             QUARTER             QUARTER             QUARTER
                                                        -------             -------             -------             -------
                  <S>                              <C>                 <C>                 <C>                 <C>
                  Net revenue                      $        179,885    $        194,180    $        206,697    $        233,714
                  Income from operations                     18,931              21,111              22,494              25,163
                  Net income available for
                   common shareholders                       11,479              12,863              14,207              16,767
                  Basic net income per share                   0.16                0.18                0.19                0.23
                  Diluted net income per share     $           0.16    $           0.17    $           0.19    $           0.22
                  Range of stock prices            $26.625 - 39.000    $21.500 - 35.000    $35.032 - 43.688    $31.000 - 43.500


<CAPTION>
                                                                            YEAR ENDED DECEMBER 31, 1996
                                                                            ----------------------------
                                                         FIRST               SECOND              THIRD              FOURTH
                                                        QUARTER             QUARTER             QUARTER             QUARTER
                                                        -------             -------             -------             -------
                  <S>                              <C>                 <C>                 <C>                 <C>
                  Net revenue                      $        113,813    $        131,328    $        141,916    $        167,170
                  Income from operations                      7,979              12,900              14,659               6,898
                  Net income available for
                   common shareholders                        4,798               7,551               8,562             (13,814)
                  Basic net income per share                   0.07                0.11                0.13               (0.21)
                  Diluted net income per share     $           0.07    $           0.11    $           0.12    $          (0.21)
                  Range of stock prices            $18.500 - 34.625    $28.250 - 41.000    $26.250 - 41.625    $29.125 - 41.625
</TABLE>

         The following pro forma quarterly financial information reflects
results of operations excluding non-recurring costs (in thousands):

<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31, 1997
                                                                        ----------------------------
                                                     FIRST               SECOND              THIRD              FOURTH
                                                    QUARTER             QUARTER             QUARTER             QUARTER
                                                    -------             -------             -------             -------
                  <S>                              <C>                 <C>                 <C>                 <C>
                  Net revenue                      $179,885            $194,180            $206,697            $233,714
                  Income from operations             18,931              21,111              22,494              25,163
                  Net income available for
                   common shareholders             $ 11,479            $ 12,863            $ 14,207            $ 16,767


<CAPTION>
                                                                        YEAR ENDED DECEMBER 31, 1996
                                                                        ----------------------------
                                                     FIRST               SECOND              THIRD              FOURTH
                                                    QUARTER             QUARTER             QUARTER             QUARTER
                                                    -------             -------             -------             -------
                  <S>                              <C>                 <C>                 <C>                 <C>
                  Net revenue                      $113,813            $131,328            $141,916             $167,170
                  Income from operations             12,681              12,900              14,659               17,627
                  Net income available for
                   common shareholders             $  8,386            $  7,551            $  8,562             $ 10,354
</TABLE>




                                       48
<PAGE>   28
14. SUBSEQUENT EVENTS

         On February 2, 1998, the Company acquired Pharma Networks N.V.
("Pharma"), a leading contract sales organization in Belgium. The Company
acquired Pharma in exchange for 132,000 shares of the Company's Common Stock.
The acquisition of Pharma will be accounted for as a pooling of interests.

         On February 4, 1998, the Company acquired Technology Assessment Group
("TAG"), an international health outcomes assessment firm that specializes in
patient registries and in evaluating the economic, quality-of-life and clinical
effects of drug therapies and disease management programs. The Company acquired
TAG in exchange for 460,366 shares of the Company's Common Stock. The
acquisition of TAG will be accounted for as a pooling of interests.

         On February 26, 1998, the Company acquired T2A S.A. ("T2A"), a leading
French contract sales organization. The Company acquired T2A in exchange for
311,899 shares of the Company's Common Stock. The acquisition of T2A will be
accounted for as a pooling of interests.






                                       49
<PAGE>   29

REPORT OF INDEPENDENT AUDITORS


THE BOARD OF DIRECTORS AND SHAREHOLDERS OF QUINTILES TRANSNATIONAL CORP.

         We have audited the accompanying consolidated balance sheets of
Quintiles Transnational Corp. and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
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 did not audit the 1995 consolidated financial statements of
BRI International, Inc. and Innovex Limited, each of which was combined with the
Company in 1996 in transactions accounted for as poolings of interests. The two
businesses represent 33.0% and 49.6% of the consolidated assets and net revenues
for 1995, respectively. Those statements were audited by other auditors whose
reports have been provided to us, and our opinion, insofar as it relates to
amounts included for BRI International, Inc. and Innovex Limited for 1995, is
based on the reports of the other auditors.

         We conducted our audits in accordance with generally accepted auditing
standards. 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 and the reports of other auditors provide a
reasonable basis for our opinion.

         In our opinion, based on our audits and the report of other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Quintiles Transnational Corp.
and subsidiaries at December 31, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.



                                                      /s/ Ernst & Young LLP


RALEIGH, NORTH CAROLINA
JANUARY 26, 1998






                                       50
<PAGE>   30
CORPORATE INFORMATION



CORPORATE OFFICES
Quintiles Transnational Corp.

Location address:
4709 Creekstone Drive
Riverbirch Building
Suite 200
Durham, North Carolina 27703-8411

Mailing address:
Post Office Box 13979
Research Triangle Park
North Carolina 27709-3979

Telephone:  (919) 941-2000
Facsimile:  (919) 941-9113


SECURITIES INFORMATION
The Company's Common Stock commenced trading on April 20, 1994, on the NASDAQ
National Market System under the symbol QTRN. At January 31, 1998, there were
approximately 7,500 beneficial shareholders.

The Company has never declared or paid any cash dividends on its Common Stock.
The Company does not anticipate paying any cash dividends in the foreseeable
future, and it intends to retain future earnings for the development and
expansion of its business.


SEC FORM 10-K AVAILABLE TO SHAREHOLDERS
A copy of the Company's Form 10-K and additional investor materials may be
obtained without charge by contacting Investor Relations.

INVESTOR RELATIONS
Quintiles Transnational Corp.
Greg Connors
Vice President, Corporate Development
(919) 941-2009
e-mail: invest@quintiles.com

ANNUAL MEETING
The annual meeting of shareholders will be held on May 6, 1998 at the Marriott
at Research Triangle Park, North Carolina, at 5:30 p.m.

TRANSFER AGENT AND REGISTRAR
First Union National Bank of North Carolina
Charlotte, North Carolina
Telephone: (704) 590-7382

INDEPENDENT AUDITORS
Arthur Andersen LLP
Raleigh, North Carolina

LEGAL COUNSEL
Smith, Anderson, Blount, Dorsett, Mitchell &
Jernigan, L.L.P.
Raleigh, North Carolina

SHAREHOLDER SERVICES
Quintiles Transnational Corp.
Vincent T. Morgus
Vice President, Finance and Treasurer
(919) 941-2010
email: shares@quintiles.com

FORWARD LOOKING STATEMENTS
Information in this annual report may contain "forward-looking statements."
These statements involve risks and uncertainties that could cause actual results
to differ materially, including without limitation, the ability of the combined
businesses to be integrated with Quintiles' historical operations, the actual
costs of the combining of the businesses, actual operating performance, the
ability to maintain large client contracts or to enter into new contracts and
the level of demand for services. Additional factors that could cause actual
results to differ materially are discussed in the Company's recent filings with
the Securities and Exchange Commission, including but not limited to its S-3 and
S-4 Registration Statements and its periodic reports.




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