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                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                             ---------------------
                                   FORM 10-K

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

                        COMMISSION FILE NUMBER 000-23520

                         QUINTILES TRANSNATIONAL CORP.
             (Exact name of registrant as specified in its charter)

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<S>                                             <C>
                NORTH CAROLINA                                    56-1714315
           (State of incorporation)                            (I.R.S. Employer
                                                            Identification Number)
</Table>

<Table>
<S>                                             <C>
       4709 CREEKSTONE DRIVE, SUITE 200
            DURHAM, NORTH CAROLINA                                27703-8411
   (Address of principal executive office)                        (Zip Code)
</Table>

              REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
                                 (919) 998-2000

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                     NONE.

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

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

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

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

     The aggregate market value of the registrant's Common Stock at January 31,
2002 held by those persons deemed by the registrant to be non-affiliates was
approximately $1,756,481,571.

     As of January 31, 2002 (the latest practicable date), there were
118,605,385 shares of the registrant's Common Stock, $.01 par value per share,
outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the definitive Proxy Statement to be delivered to shareholders
in connection with the Annual Meeting of Shareholders to be held May 1, 2002 are
incorporated by reference into Part III.

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                         QUINTILES TRANSNATIONAL CORP.

                            FORM 10-K ANNUAL REPORT

                                     INDEX

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<S>         <C>                                                           <C>
PART I
  Item 1.   Business....................................................    2
  Item 2.   Properties..................................................   16
  Item 3.   Legal Proceedings...........................................   17
  Item 4.   Submission of Matters to a Vote of Security Holders.........   18

PART II
  Item 5.   Market for Registrant's Common Equity and Related
            Stockholder Matters.........................................   18
  Item 6.   Selected Consolidated Financial Data........................   19
  Item 7.   Management's Discussion and Analysis of Financial Condition
            and Results of Operation....................................   20
  Item 7a.  Quantitative and Qualitative Disclosures about Market
            Risk........................................................   40
  Item 8.   Financial Statements and Supplementary Data.................   41

PART III
  Item 9.   Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure....................................   73
  Item 10.  Directors and Executive Officers of the Registrant..........   73
  Item 11.  Executive Compensation......................................   73
  Item 12.  Security Ownership of Certain Beneficial Owners and
            Management..................................................   73
  Item 13.  Certain Relationships and Related Transactions..............   73

PART IV
  Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form
            8-K.........................................................   73
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                                     PART I

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

     We caution you that any such forward looking statements are further
qualified by important factors that could cause our actual operating results to
differ materially from those in the forward looking statements, including
without limitation, our ability to distribute backlog among project management
groups and match demand to resources, our actual operating performance, the
actual savings and operating improvements resulting from our restructuring
activities, our ability to maintain large customer contracts or to enter into
new contracts, changes in trends in the pharmaceutical industry, the risk that
our PharmaBio transactions will not generate revenues, profit or return on
investment at the rate or levels we expect, risks associated with entering into
a new line of business such as those being entered into by PharmaBio, the risk
that our Informatics business will not be able to operate as expected using new
and multiple data sources, the risk that our proposed joint venture with
McKesson Corporation relating to the Informatics business will not be
consummated, or if consummated, will not be successful, liability risks
associated with our business which could result in losses or indemnity to others
not covered by insurance, risks associated with data use and use of our data
products which are regulated by state and federal laws and contracts, and other
risks described under "Risk Factors" and elsewhere in this report.

ITEM 1.  BUSINESS

GENERAL

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

     Since our formation in 1982, we have continued to expand the scope of our
services and our geographic presence to support the needs of our customers on a
worldwide basis. As part of this strategy, we completed approximately 35
acquisitions over the past six years to expand or strengthen our services.
Although our acquisition rate slowed over the last three years, with 10
acquisitions completed in 1999, none in 2000 and two completed in 2001, we have
focused our efforts on reorganizing our operating units, creating new ways of
marketing and selling our services and developing and restructuring our
informatics business, both for stand alone service offerings and to provide
support services for our other business units. In addition, we have begun to
pursue strategic alliances with our customers which pair the services of our
commercial services and product development groups with funding support for our
customers. As part of our normal course of business, we also evaluate
opportunities to acquire specific products and/or marketing rights to products.

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     During 2001, we began implementing a global strategic plan that we believe
will allow us to meet the changing needs of our customers and increase our
opportunity for growth. Our strategy is built on the following initiatives:

     - Implementing strategic alliances.  Through our PharmaBio Development
       group, we are pursuing strategic alliances with customers in which we
       combine the services of our commercial services and product development
       groups with funding support for our customer. In appropriate
       circumstances, we may also acquire the rights to receive royalties or
       commissions based on sales of the customer's product.

     - Leveraging technology and information.  We are focusing on leveraging our
       technology to increase the value of our services to our customers and to
       increase our own efficiency. For example, our commercial services group
       is using our iQLearning Network to deliver Internet based programs as
       eCME and E-detailing products to supplement office visits and allow us to
       reach doctors who are not easily accessed, while at the same time,
       leveraging our recruitment services across the iQLearning Network to
       drive down our costs. Our product development group is focusing on
       gaining operating efficiency in data management by eliminating duplicate
       offices and shifting capabilities to low-cost, high quality regions and
       eventually through the use of secure Internet links.

     - Realigning business development.  We are moving towards a business
       development strategy which focuses on specific customers to acquire a
       better understanding of the whole of that customer's needs. We may
       achieve this understanding by acquiring some of the customer's
       infrastructure, bringing along with it a relationship with the customer.
       In other cases, we may expand existing customer relationships into
       preferred provider relationships, such as by forming long-term clinical
       development alliances designed to enable the customer to boost
       efficiencies in its drug development programs.

     - Hiring and retaining quality employees.  Our employees are our business,
       and we are dedicated to strengthening and stabilizing our workforce.

     - Creating efficiencies through shared service centers and near real-time
       human resources management. We believe we can create operational
       efficiencies by centralizing our finance and human resources functions in
       professional services centers that we established regionally in the
       United States and Europe.

     In 2000, we sold our electronic data interchange subsidiary, ENVOY
Corporation, to WebMD Corporation. In connection with the sale of ENVOY, we
entered into an agreement with WebMD to form a strategic alliance with WebMD to
develop and market a Web-based integrated suite of products and services for the
pharmaceutical industry. We also entered into a data rights agreement under
which WebMD agreed to provide us with de-identified ENVOY and other WebMD data.
We initiated a lawsuit against WebMD on February 25, 2001 after it unilaterally
suspended delivery of data to us. On October 12, 2001, the companies entered
into a settlement agreement resolving their disputes. As part of the settlement,
WebMD agreed to pay us $185 million in cash for all of the 35 million shares of
WebMD Common Stock we had held since WebMD's acquisition of ENVOY and to resolve
our disputes. We also will receive additional payment from WebMD if, on or
before June 30, 2004, WebMD is acquired for a price greater than $4.00 per share
or its ENVOY subsidiary is acquired for a price greater than $500 million. Under
the terms of the settlement, any obligations to pay WebMD for development of
Web-based products and share informatics revenues terminated, and we continued
to receive de-identified data from WebMD until February 28, 2002.

STRATEGIC ALLIANCES

     Our PharmaBio Development group, created in 2000, continues to help
facilitate non-traditional customer alliances. PharmaBio Development works with
our service groups to enter into strategic alliances and make strategic
investments that we believe will position us to explore new opportunities and
areas for potential growth. PharmaBio has entered into a series of similarly
structured transactions that typically involve providing funding to the
customer, either through direct milestone payments or loans. We may invest
directly in the customer's common stock, and sometimes we receive warrants to
purchase shares of our customer's

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common stock. In some cases, the loans are convertible into capital stock of the
customer. This funding is typically used by the customer to help pay for the
services provided by us. In addition, the customer may agree to pay us royalties
or commissions based on sales of the customer's product. We believe this
business model adds value for both pharmaceutical and biotechnology companies.
Pharmaceutical companies gain additional resources in support of their new
and/or existing products, and biotechnology companies gain capital and services.
This model allows us to expand on the traditional fee-for-service model of our
core business by using available cash to create the potential for a greater
return on a customer relationship by direct investment, allowing us to take
advantage of our customer's growth, or participating in a product revenue stream
that may depend in part on how successful we are in providing our services with
regard to the product.

     As of December 31, 2001, we have entered into five of these transactions
involving commercial rights and royalties. For example, in January 2001 we
entered into an agreement under which we are providing funding for the sales and
marketing of Scios Inc.'s recently launched lead product for acute congestive
heart failure, Natrecor(R), in exchange for a percentage of the drug's future
sales. Also, in December 2001 we entered into an agreement under which we are
providing funding for the commercialization of Discovery Laboratories, Inc.'s
lung surfactant, Surfaxin(R), in exchange for a percentage of future sales.
Overall, our expected revenues and operating income from these transactions
depends on the performance or success of the customer's product, which in some
cases has not yet been approved by the U.S. Food and Drug Administration, or
FDA.

     We have recently expanded this business model to include the acquisition of
rights to market products directly. In December 2001, PharmaBio Development
acquired the North American license to market and sell Solaraze(TM), a topical
gel approved by the FDA for the treatment of actinic keratosis, a pre-cancerous
skin condition linked to over-exposure to the sun. We obtained this license from
Bioglan Pharma Plc, which subsequently became insolvent and is managed by an
administrator effective as of February 20, 2002. Until March 22, 2002, its
affiliate, Bioglan Pharma Inc., or Bioglan, provided the marketing and sales
support for the product. On March 22, 2002, we acquired certain assets of
Bioglan, including its management team and sales force. As part of the
transaction, we also acquired Bioglan's rights to certain other dermatology
products now on the market in the United States, including ADOXA(TM) for the
treatment of severe acne. This acquisition provides us with the infrastructure
and capabilities to help support our commercial rights strategies.

     We review many candidates for strategic alliances under our PharmaBio
Development business model, and in addition to the transactions already under
way, we are continually evaluating new strategic possibilities, including
opportunities to acquire rights to market additional pharmaceutical products,
and we may enter into additional transactions in the future.

JOINT VENTURE

     On March 15, 2002, we entered into a joint venture agreement with McKesson
Corporation pursuant to which we agreed to form a joint venture company that
would combine our Informatics business with de-identified healthcare data flow
from McKesson. McKesson also is contributing its Kelly/Waldron business, which
provides sales and marketing information and services, with a focus on primary
market research and data integration. The agreement contemplates that we would
be co-equal owners of the joint venture company with McKesson, with a portion of
the equity in the joint venture company to be allocated to key providers of
de-identified healthcare data. The formation of the joint venture company is
contingent upon at least one provider of de-identified healthcare data, other
than McKesson, agreeing to take an equity interest in the joint venture company
in exchange for its contribution of de-identified healthcare data flow to the
joint venture company. We currently are in discussions with several major data
providers regarding joining the joint venture company and/or contributing
de-identified healthcare data to the joint venture company.

     The agreement also provides for the joint venture company to license data
products to us and McKesson for use in our core businesses. Under the license
arrangement with the joint venture company, our product development and
commercial services groups will continue to have access to the joint venture's
market information and products to enhance delivery of their services to
pharmaceutical and biotechnology customers.

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SERVICES

     We provide globally integrated contract research, sales, marketing and
healthcare policy consulting and health information management services to the
worldwide pharmaceutical, biotechnology, medical device and healthcare
industries. We also provide market research and strategic analysis services to
support healthcare decisions. We manage our operations through three segments,
namely the product development group, the commercial services group and the
informatics group. Management has distinguished these segments based on our
normal operations. The product development group is primarily responsible for
all phases of preclinical and clinical research. The commercial services group
is primarily responsible for sales force deployment and strategic marketing
services, as well as healthcare policy research and consulting services. The
informatics group provides market research and healthcare information to
pharmaceutical and healthcare customers. Note 21 of the notes to our
consolidated financial statements includes financial information regarding each
segment.

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

PRODUCT DEVELOPMENT OFFERINGS

     Through our product development group, we provide a full range of drug
development services focused on helping our customers achieve regulatory
success, from strategic planning and preclinical services to regulatory
submission and approval.

  EARLY DEVELOPMENT AND LABORATORY SERVICES

     PRECLINICAL SERVICES.  Our preclinical unit provides customers with a wide
array of early development services. These services are designed to produce the
data required to identify, quantify and evaluate the risks to humans resulting
from the manufacture or use of pharmaceutical and biotechnology products, and
include general toxicology, carcinogenicity testing, pathology, efficacy and
safety pharmacology, bioanalytical chemistry, drug metabolism and
pharmacokinetics. During 2001, we opened a safety pharmacology unit in Kansas
City, Missouri. The opening of the unit in combination with our Edinburgh,
Scotland unit will allow us to provide full service safety pharmacology to our
U.S. customers while further strengthening our global position.

     FORMULATION, MANUFACTURING AND PACKAGING SERVICES.  We offer services in
the design, development, analytical testing and commercial manufacture of
pharmaceutical dose forms. We provide study medications for preclinical and
clinical studies along with necessary good manufacturing practice, or GMP, and
chemistry, manufacturing and controls, or CMC, regulatory documentation.
Medications for use in clinical studies are packaged, labeled and distributed
globally. These services can expedite the drug development process because
clinical trials are often postponed by delays in the manufacture of study drug
materials. During 2001, we opened a new clinical trials supplies facility in
Singapore to serve companies conducting trials in Asia and the Pacific Rim
countries. We also opened a 3,200 square-foot stability storage facility in
Kansas City, Missouri, which will allow further expansion of our formulation
development and analytical testing capabilities.

     PHASE I SERVICES.  Phase I clinical trials involve testing a new drug on a
limited number of healthy individuals. Our Phase I services include dose
ranging, bioavailability/bioequivalence studies, pharmacokinetic/pharmacodynamic
modeling, first administration to humans, multiple dose tolerance, dose effect
relationship and metabolism studies.

     CENTRALIZED CLINICAL TRIAL LABORATORIES.  Our centralized laboratories
provide globally integrated clinical laboratory services to support all phases
of regional and global clinical trials with facilities in the United States,
Europe, South Africa and Singapore. Services include the provision of
protocol-specific study materials, customized lab report design and specimen
archival and management for study sponsors. In addition to

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providing comprehensive safety and efficacy testing for clinical trials, our
centralized laboratories allow for global standardization of clinical testing,
database development and electronic data transfer and provide direct electronic
integration of laboratory data into safety and efficacy reports for new drug
application, or NDA, submissions.

  CLINICAL DEVELOPMENT SERVICES

     CLINICAL TRIAL SERVICES.  We offer comprehensive clinical trial services
throughout the lifecycle of a product. In addition to Phase I through III
studies, which are the basis for obtaining initial regulatory approval for drugs
and medical devices, we provide expertise in the development and execution of
Phase IIIb and IV studies, which includes drug safety, regulatory affairs,
clinical trial supplies, central laboratory services, quality assurance, health
economics, data management and biostatistics. On a global basis, our employees
are aligned with key customers to provide a full-range of management and
scientific services tailored to their specific requirements. We have specialist
expertise in therapeutic areas of the central nervous system, cardiovascular,
infectious, allergic and respiratory diseases as well as within therapeutic
areas of endocrinological, gastroenterological, genitourinary, musculoskeletal
diseases, and stroke, with respect to clinical trials. Other specialized
offerings include oncology and development services in neonatal, pediatric and
adolescent care. Because of our global presence and ability to coordinate
clinical staff to service customers on an international basis, we are
experienced in managing trials involving several thousand patients at hundreds
of sites concurrently in the Americas, Europe, the Asia-Pacific region and South
Africa.

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

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

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

          Patient recruitment.  We assist our customers in recruiting patients
     to participate in clinical trials through investigator relationships, media
     advertising, use of web-based techniques and other methods.

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

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

     REGULATORY AFFAIRS SERVICES.  We provide comprehensive medical and
regulatory services for our pharmaceutical and biotechnology customers. Our
medical services include medical oversight of studies, review and interpretation
of adverse experiences, medical writing of reports and study protocols and
strategic planning of drug development programs. Regulatory services for product
registration include regulatory strategy design, document preparation,
consultation and liaison with various regulatory agencies. Our regulatory
affairs professionals help to define the steps necessary to obtain registration
as quickly as possible. We are able to provide such services in numerous
countries to meet our customers' needs to launch products in multiple countries
simultaneously.

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

COMMERCIAL SERVICES OFFERINGS

     We deliver integrated, strategic solutions designed to meet the diverse
needs of our customers in the United States and globally. Our extensive clinical
and marketing expertise spans the healthcare spectrum, from pharmaceutical,
biotechnology and medical device customers to hospitals, long-term care
facilities, foundations, managed care organizations, employers, the military,
and federal and state governments. For pharmaceutical, biotechnology and medical
device customers, our commercial services group provides a comprehensive range
of specialized pre-launch, launch and post-launch services, from strategic
planning early in the development of a new medicine, market research and medical
education services to build product awareness and support to sales force
recruitment, training and deployment, product marketing, clinical experience
programs and health management services. These integrated service offerings help
maximize sales throughout the product lifecycle. Our extensive clinical and
marketing expertise spans the healthcare spectrum, from pharmaceutical,
biotechnology and medical device customers to hospitals, long-term care
facilities, foundations, managed care organizations, employers, the military and
federal and state governments.

  QUINTILES INTEGRATED STRATEGIC SOLUTIONS

     LATE PHASE CLINICAL STUDIES.  Our late phase clinical services include
Phase IV clinical trials, clinical experience trials and patient registries,
which are designed to build physician awareness, drive product usage and deepen
our customer's understanding of physician practice and product adoption
patterns. We also offer post-marketing safety surveillance programs to track
safety information on a global scale and provide immediate access to safety
databases. Our late phase studies incorporate tools for measuring treatment
satisfaction and quality of life to help maximize product launch and sales
opportunities. Reimbursement support services include specialized reimbursement
hotlines and patient assistance programs to facilitate coverage and payment for
treatment using new technologies. In 2001, we launched an international effort,
called Quintiles Late Phase, to help our customers maximize sales by using
integrated late phase services that bridge clinical development and product
commercialization.

     STRATEGIC MARKETING SERVICES.  Our expert consultants support
pharmaceutical, biotechnology and medical device product commercialization
through a continuum of services. We begin in the conceptualization phase of
development with strategic market research. Through a combination of secondary
data and qualitative primary research, we assist customers in making development
decisions. Once a product proceeds to large-scale clinical trials, our group
creates product positioning, pricing and formulary access/reimbursement
strategies based on extensive primary research with providers, patients, payors
and other administrative decision-makers. Finally, in support of product
marketing at launch, we create health economic models to justify price to
formulary decision-makers, and, post-launch, we track actual product costs and
outcomes through medical claims data, medical records and patient interviews.
The combination of these services provide our customers with the marketing,
economic and reimbursement support they need to help to maximize commercial
potential at each stage of the product lifecycle.

     HEALTHCARE POLICY RESEARCH AND CONSULTING.  Our management consulting
services focus on improving the quality, availability and cost-effectiveness of
healthcare in the highly regulated and rapidly changing healthcare industry.
These services include corporate strategic planning and management, program and
policy development, financial and cost-effectiveness analysis, evaluation
design, microsimulation modeling and data

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analysis. They represent the core competencies of The Lewin Group, an
internationally recognized healthcare consulting firm.

     REGULATORY AND COMPLIANCE CONSULTING.  We supply regulatory and compliance
consulting services to the medical device, pharmaceutical and biotechnology
industries. Services include global regulatory consulting, quality systems and
engineering and validation. We assist companies in preparing for FDA
interactions, including inspections and resolution of enforcement actions;
complying with good manufacturing, good clinical practice and quality systems
regulations; meeting process validation requirements; and bringing new medical
devices to market.

     STRATEGIC MEDICAL COMMUNICATIONS.  Focused on growth strategies, our
strategic medical communications services begin in the early stages of product
development and continue through introduction of a product into the market until
it reaches its peak market penetration. Our core competencies in this area
include communications strategy and planning, product positioning and branding,
opinion leader development, faculty training, symposia, continuing medical
education programs, promotional programs, sponsored publications, patient
education, clinical experience programs, large-scale exhibitions and Internet
and new media-based programs. As early as Phase II clinical trials, we can begin
to disseminate scientific information and develop and present educational forums
to help gain opinion leader support for a new drug.

  COMMERCIALIZATION OFFERINGS

     CONTRACT SALES.  The focus of our sales and marketing services is on
accelerating the commercial success of pharmaceutical, biotechnology, veterinary
and other health-related products. We offer our customers a highly-trained,
flexible, variable sales force resource able to respond quickly to a changing
marketplace and deploy rapidly which can save costs for our customers. To
enhance our customer focus in the United States, we have divided our services
into six business lines -- primary care sales, specialty sales, innovative
promotional solutions, recruitment, training and health management services.

     Customers may contract for dedicated sales teams or syndicated sales teams.
For dedicated sales teams, who are recruited in accordance with the customer's
sales and market share objectives, we can take a primary management role or a
supporting role, thereby allowing customer field management to take the lead on
strategic and tactical implementation. In certain circumstances, we can transfer
an entire dedicated sales team to the customer for an additional placement fee,
which is agreed upon at the beginning of the contract. Syndicated sales teams,
on the other hand, can promote a number of non-competing drugs for different
customers simultaneously, and we always manage these teams directly.

     We offer rapid sales force recruitment utilizing an extensive computerized
candidate database, dedicated internal staff, regionally-based recruiting and a
proprietary screening process. Our training and development services integrate
traditional and Web-based services and support all of our commercialization
activities, as well as help our customers design or revamp their programs to
meet marketplace demands.

     In the United States, we also offer our ITMS sales force automation system,
a proprietary Web-enabled automated system for call reporting, sample
accountability, territory planning and alignment.

     MARKETING SERVICES.  We provide customized product marketing services for
pharmaceutical and biotechnology companies designed to influence the decisions
of patients and physicians and accelerate the acceptance of drugs into treatment
guidelines and formularies. We assess markets, conduct research, develop
strategies and tactics, assist in discussions with regulatory bodies, identify
distribution channels and coordinate vendors in every region of the country. Our
industry experts, with experience in many therapeutic areas, can provide
marketing insight into a wide range of geographic markets while working to
optimize commercial success.

     INTERNET-BASED SALES AND MARKETING SERVICES.  In October 2001, we launched
the Innovex e-Health Solutions Group, which provides Internet-based sales and
marketing services for the pharmaceutical, biotechnology and medical device
industries. The group's first product, iQLearning, is a Web-based system that
has the capability to provide a variety of online products and educational
programs for physicians and sales representatives. In January 2002, we launched
iQLearning.com, an Internet service portal that further
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expands our range of healthcare information resources and services to physicians
in the United States. In the United Kingdom, in partnership with Synigence Plc,
we have access to a unique service called Clinnix Pro, which sits on the
desktops of over 50% of general practitioners in the United Kingdom. Through
Clinnix Pro we can promote a wide range of e-business solutions to these general
practitioners via a secured network. For example, we use Clinnix Pro to help
healthcare professionals obtain continuing medical education, participate in
market research and access information about medicines.

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

INFORMATICS OFFERINGS

     Informatics provides a broad range of knowledge-rich products and services
that are used by the pharmaceutical, biotechnology, and medical and surgical
device industries, and healthcare providers, payors and patients to improve the
quality of care and to efficiently manage the delivery of care at multiple
points along the continuum of healthcare delivery.

     Since its inception in early 1999, Informatics has continued to expand the
scope of the products and services offered to meet the needs of our customers.
We currently compete in two key market segments: Market Research and Sales
Management and Optimization. Through the commercialization of our proprietary
database, which we believe is the healthcare industry's largest database
combining medical and pharmaceutical data, we have focused on (1) developing
innovative new Market Research and Sales Management and Optimization products
and services, (2) building upon our initial success in the Clinical Research &
Development knowledge-rich information products and services market segment and
(3) leveraging our investment into opportunities for both our product
development and commercial services offerings.

     On March 15, 2002, we entered into a joint venture agreement with McKesson
Corporation pursuant to which we agreed to form a joint venture company designed
to leverage the healthcare information business of each company. The agreement
contemplates that we would be co-equal owners of the joint venture company with
McKesson, with a portion of the equity in the joint venture company to be
allocated to key providers of de-identified healthcare data. Our primary
contribution will be the assets of our informatics group. Subject to the prior
satisfaction or waiver of applicable conditions, completion of the joint venture
is targeted for the second quarter of 2002.

     The agreement also provides for the joint venture company to license data
products to us and McKesson for use in our core businesses. Under the license
arrangement, our product development and commercial services groups will
continue to have access to the joint venture's market information and products
to enhance their service delivery to our customers.

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

     Proprietary healthcare databases and syndicated market research
audits.  Through self-administered surveys, we maintain comprehensive
proprietary databases that contain (1) information collected from physicians on
their diagnoses and prescribing activities, (2) information regarding the
incidence of, and response to, direct selling and other promotion activities,
(3) information regarding healthcare legislation and key influencers in the
United States and (4) managed care information, detailing cost containment
measures imposed by United States managed care organizations, or MCOs, that
influence or restrict physicians'

                                        9
<PAGE>

prescribing activities. Our databases hold de-identified patient-level data. In
addition, pursuant to a contract with National Data Corporation, or NDC, we
obtain prescription information that NDC collects from approximately 34,000
pharmacies located across the United States. With this prescription information,
we create projected state and national data on product-level prescription
movement.

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

     Managed health care services.  We provide a range of services designed to
enable pharmaceutical companies to assess the impact of their promotions on the
managed care and long-term care markets. These data also include managed care
formulary status as well as prescription share analysis. Other services include
three-tier co-pay analysis and tracking of pharmaceutical industry managed
healthcare sales forces.

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

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

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

     SALES MANAGEMENT AND OPTIMIZATION.  Through our domain expertise and
innovation in information technology, Informatics provides sales management and
optimization products and services to the pharmaceutical industry.

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

                                        10
<PAGE>

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

     QUINTERNET (TM) PROPRIETARY DATABASE.  Our QUINTERNET(TM) proprietary
database together with our Internet initiative provides us with opportunities to
broaden our product and service offerings. We use what we believe is the
healthcare industry's largest database combining medical and pharmaceutical data
to provide real-time information about pharmaceutical market use, medical
interventions and outcomes. The data used are aggregated from pharmacy and
medical transactions, de-identified and linked at the patient level, allowing
in-depth analysis across the continuum of patient care -- from initial diagnosis
to drug intervention and follow-up, without identifying individual patients.
Until February 28, 2002, we obtained much of this data through an agreement with
WebMD that gave us exclusive rights to de-identified ENVOY transaction data, as
well as other data received by WebMD. We have reached agreements to obtain
additional data from other sources, including de-identified prescription data
from approximately 10 pharmacy chains, enabling us to have access to more usable
prescription data than we were receiving from WebMD at the end of 2001.

     On March 15, 2002, we entered into a joint venture agreement with McKesson
Corporation pursuant to which we agreed to form a joint venture company designed
to leverage the healthcare information business of each company. Several major
data providers are to contribute de-identified prescription or medical data to
the joint venture. With McKesson's contributions, the joint venture is expected
to have annual access to more than one billion U.S. retail pharmacy
transactions, which we believe to be between 35% and 40% of all such
transactions, and more than 200 million electronic medical transactions, or
about 20% of all such transactions. The joint venture agreement also provides
for the joint venture to license data products to McKesson and us for use in our
core businesses. Under the license agreement with the joint venture, our product
development and commercial services groups will continue to have access to the
joint venture's market information and products to enhance the delivery of
services to our customers.

CUSTOMERS AND MARKETING

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

     For the year ended December 31, 2001, approximately 50.3% of our net
revenue from external customers was attributed to operations in the United
States and 49.7% to operations outside the United States. Please refer to the
notes to our consolidated financial statements included in Item 8 of this Form
10-K for further details regarding our foreign and domestic operations.
Approximately 39.1%, 34.5%, and 38.8% of our net revenue was attributed to our
clinical development services in 2001, 2000 and 1999, respectively;
approximately 34.5%, 39.4% and 37.5% of our net revenue was attributed to our
commercialization services in 2001, 2000 and 1999, respectively; and
approximately 15.4%, 14.3% and 13.6% of our net revenue was attributed to our
early development and laboratory services in 2001, 2000 and 1999 respectively.
Neither our integrated strategic services nor our informatics services accounted
for more than 10% of our net revenue in any of these years. ENVOY is accounted
for as a discontinued operation as a result of its sale to WebMD in May 2000;
therefore, the results of ENVOY through the date of sale are not included in our
net revenue and are reported separately.

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<PAGE>

     In the past, we have derived, and may in the future derive, a significant
portion of our net revenue from a relatively limited number of major projects or
customers. As pharmaceutical companies continue to outsource large projects and
studies to fewer full-service providers, the concentration of business could
increase. We may experience concentration in 2002 and in future years. Aventis
S.A. accounted for approximately 11%, 10% and 11% of our consolidated net
revenue in 2001, 2000 and 1999, respectively.

COMPETITION

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

     Competitive factors for product development services include (1) previous
experience, (2) medical and scientific experience in specific therapeutic areas,
(3) the quality of contract research, (4) speed to completion, (5) the ability
to organize and manage large-scale trials on a global basis, (6) the ability to
manage large and complex medical databases, (7) the ability to provide
statistical and regulatory services, (8) the ability to recruit investigators,
(9) the ability to integrate information technology with systems to improve the
efficiency of contract research, (10) an international presence with
strategically located facilities and (11) financial viability and price. The
primary competitive factors affecting commercial services are the proven ability
to quickly assemble, train and manage large qualified sales forces to handle
broad scale launches of new drugs and price. Competitive factors affecting
healthcare consulting and medical communications services include experience,
reputation and price. Although our informatics services have been systematically
established over many years, our market position may be affected over time by
competitors' efforts to create or acquire enhanced databases or to develop and
market new information products and services. In addition, our market position
could be adversely affected if our competitors secure exclusive rights to data
that we require for our informatics services. Notwithstanding all these
competitive factors, we believe that the synergies arising from integrating
product development services with commercial development services, supported by
global operations and information technology and supplemented by our informatics
capabilities differentiate us from our competitors.

EMPLOYEES

     As of January 31, 2002, we had approximately 17,224 employees, comprised of
approximately 6,745 in the Americas, 8,484 in Europe and Africa and 1,995 in the
Asia-Pacific region. As of January 31, 2002, our product development group had
8,325 employees, our commercial services group had 7,921 employees, and our
informatics group had 419 employees. In addition, 559 employees were in our
centralized operations/corporate office.

BACKLOG

     We report backlog based on anticipated net revenue from uncompleted
projects which have been authorized by the customer, through a written contract
or otherwise. Once work begins on a project, net revenue is recognized over the
duration of the project. Using this method of reporting backlog, at December 31,
2001, backlog was approximately $2.0 billion, as compared to approximately $1.9
billion at December 31, 2000. The backlog at December 31, 2001 includes
approximately $32.2 million of backlog related to services contracted from our
service groups, primarily commercialization, in connection with the

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<PAGE>

strategic alliances forged by our PharmaBio group. Backlog does not include any
product revenues, royalties and commissions related to our commercial rights.

     We believe that backlog may not be a consistent indicator of future results
because it can be affected by a number of factors, including the variable size
and duration of projects, many of which are performed over several years.
Additionally, projects may be terminated by the customer or delayed by
regulatory authorities. Moreover, the scope of work can change during the course
of a project. If our product revenues, royalties and commissions related to our
commercial rights increase, an increasing proportion of our revenues will not be
reflected in our reported backlog.

POTENTIAL LIABILITY

     In conjunction with our product development services, we contract with
physicians to serve as investigators in conducting clinical trials to test new
drugs on human volunteers. Such testing creates risk of liability for personal
injury to or death of volunteers, particularly to volunteers with
life-threatening illnesses, resulting from adverse reactions to the drugs
administered. Although we do not believe we are legally accountable for the
medical care rendered by third party investigators, it is possible that we could
be held liable for the claims and expenses arising from any professional
malpractice of the investigators with whom we contract or in the event of
personal injury to or death of persons participating in clinical trials. In
addition, as a result of our Phase I clinical trial facilities, we could be
liable for the general risks associated with a Phase I facility including, but
not limited to, adverse events resulting from the administration of drugs to
clinical trial participants or the professional malpractice of Phase I medical
care providers. We also could be held liable for errors or omissions in
connection with the services we perform through each of our service groups. For
example, we could be held liable for errors or omissions or breach of contract
if one of our labs inaccurately reports or fails to report lab results or if our
informatics products violate rights of third parties. We believe that some of
our risks are reduced by one or more of the following: (1) contractual
indemnification provisions with customers and investigators, (2) insurance
maintained by customers and investigators and by us and (3) various regulatory
requirements, including the use of institutional review boards and the
procurement of each volunteer's informed consent to participate in the study.
The contractual indemnifications generally do not fully protect us against
certain of our own actions such as negligence. Contractual arrangements are
subject to negotiation with customers and the terms and scope of such
indemnification vary from customer to customer and from trial to trial.
Additionally, financial performance of these indemnities is not secured.
Therefore, we bear the risk that the indemnifying party may not have the
financial ability to fulfill its indemnification obligations. We maintain
professional liability insurance that covers worldwide territories in which we
currently do business and includes drug safety issues as well as data processing
errors and omissions. We could be materially and adversely affected if we were
required to pay damages or bear the costs of defending any claim outside the
scope of or in excess of a contractual indemnification provision or beyond the
level of insurance coverage or in the event that an indemnifying party does not
fulfill its indemnification obligations. For example, we are among the
defendants in a purported class action by participants in an Alzheimer's study
seeking to hold us liable for alleged damages to the participants arising from
the study. Our insurance carrier to whom we paid premiums to cover this type of
risk has since filed suit against us seeking to rescind the insurance policies
or to have coverage denied for some or all of the claims arising from the
Alzheimer study litigation. We believe these claims are without merit and intend
to contest them vigorously. See "Legal Proceedings."

GOVERNMENT REGULATION

     Our preclinical, laboratory and clinical trial supply services are subject
to various regulatory requirements designed to ensure the quality and integrity
of the data or products of these services. The industry standard for conducting
preclinical laboratory testing is embodied in the good laboratory practice, or
GLP, regulations. The requirements for facilities engaging in clinical trial
supplies preparation, labeling and distribution are set forth in the current
good manufacturing practices, or cGMP, regulations. GLP and cGMP regulations
have been mandated by the FDA and the Department of Health in the United
Kingdom, and adopted by similar regulatory authorities in other countries. GLP
and cGMP stipulate requirements for facilities, equipment,

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<PAGE>

supplies and personnel engaged in the conduct of studies to which these
regulations apply. The regulations require adherence to written, standardized
procedures during the conduct of studies and the recording, reporting and
retention of study data and records. To help assure compliance, we have
established Quality Assurance programs at our preclinical, laboratory and
clinical trial supply facilities which monitor ongoing compliance with GLP and
cGMP regulations by auditing study data and conducting regular inspections of
testing procedures. Our clinical laboratory services, to the extent they are
carried out in the United States, are subject to the requirements of the
Clinical Laboratory Improvement Amendments of 1988.

     GCP regulations and guidelines contain the industry standard for the
conduct of clinical research and development studies. The FDA and many other
regulatory authorities require that study results and data submitted to such
authorities be based on studies conducted in accordance with GCP provisions.
These provisions include: (1) complying with specific regulations governing the
selection of qualified investigators, (2) obtaining specific written commitments
from the investigators, (3) ensuring the protection of human subjects by
verifying that Institutional Review Board or independent Ethics Committee
approval and patient informed consent are obtained, (4) instructing
investigators to maintain records and reports, (5) verifying drug or device
accountability, (6) reporting of adverse events, (7) adequate monitoring of the
study for compliance with GCP requirements and (8) permitting appropriate
regulatory authorities access to data for their review. Records for clinical
studies must be maintained for specified periods for inspection by the FDA and
other regulators. Significant non-compliance with GCP requirements can result in
the disqualification of data collected during the clinical trial. We are also
obligated to comply with regulations issued by national and supra-national
regulators such as FDA and the European Medicines Evaluation Agency, or EMEA. By
way of example these regulations include FDA's regulations on electronic records
and signatures (21 CFR Part 11) which set out requirements for data in
electronic format supporting any submissions made to FDA and EMEA's Note For
Guidance "Good Clinical Practice for Trials on Medicinal Products in the
European Community."

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

     Our commercial development services are subject to detailed and
comprehensive regulation in each geographic market in which we operate. Such
regulation relates, among other things, to the distribution of drug samples, the
qualifications of sales representatives and the use of healthcare professionals
in sales functions. In the United States our commercial development services are
subject to the Prescription Drug Marketing Act, or PDMA, with regard to the
distribution of drug samples. In the United Kingdom, they are subject to the
Association of the British Pharmaceutical Industry Code of Practice for the
Pharmaceutical Industry, which prescribes, among other things, an examination
that must be passed by sales representatives within two years of their taking up
employment. We follow similar regulations which are in effect in the other
countries where we offer commercial development services.

     Our United States laboratories are subject to licensing and regulation
under federal, state and local laws relating to hazard communication and
employee right-to-know regulations, the handling and disposal of medical
specimens and hazardous waste and radioactive materials, as well as the safety
and health of laboratory employees. All of our laboratories are subject to
applicable federal, state and national laws and regulations relating to the
storage and disposal of all laboratory specimens including the regulations of
the Environmental Protection Agency, the Nuclear Regulatory Commission, the
Department of Transportation, the National Fire Protection Agency and the
Resource Conservation and Recovery Act. The use of controlled substances in
testing for drugs of abuse is regulated by the United States Drug Enforcement
Administration, or DEA. All of our laboratories using controlled substances for
testing purposes are licensed by the DEA. The regulations of the United States
Department of Transportation, the Public Health Service and the Postal
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<PAGE>

Service apply to the surface and air transportation of laboratory specimens. Our
laboratories also are subject to International Air Transport Association
regulations, which govern international shipments of laboratory specimens.
Furthermore, when the materials are sent to a foreign country, the
transportation of such materials becomes subject to the laws, rules and
regulations of such foreign country.

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

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

     Specifically, various initiatives at the federal level could impact the
manner in which we conduct our informatics business. The Health Insurance
Portability and Accountability Act of 1996, or HIPAA, requires the use of
standard transactions, privacy and security standards and other administrative
simplification provisions and instructs the Secretary of Health and Human
Services, or HHS, to promulgate regulations implementing these standards. Final
rules requiring standardized electronic transactions of health information were
published by the Secretary in August 2000 and the initial compliance deadline of
October 16, 2002 was recently extended to October 16, 2003 (October 16, 2004 for
small health plans). Covered entities can file plans to request extensions of
this deadline to October 16, 2003 (October 16, 2004 for small health plans).

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

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

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

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<PAGE>

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

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

                      EXECUTIVE OFFICERS OF THE REGISTRANT

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

<Table>
<Caption>
NAME                                   AGE                  POSITION WITH THE COMPANY
----                                   ---                  -------------------------
<S>                                    <C>   <C>
Dennis B. Gillings...................  57    Chairman
Pamela J. Kirby......................  48    Chief Executive Officer
James L. Bierman.....................  49    Executive Vice President and Chief Financial Officer
John S. Russell......................  47    Executive Vice President, General Counsel and Head
                                             Global Human Resources
</Table>

     DENNIS B. GILLINGS, PH.D. founded the Company in 1982 and has served as
Chairman of the Board of Directors since its inception and as Chief Executive
Officer from its inception until April 2, 2001. Dr. Gillings serves as a
director of Triangle Pharmaceuticals, Inc., a company engaged in the development
of new drug candidates primarily in the antiviral area.

     PAMELA J. KIRBY, PH.D. became the Company's Chief Executive Officer in
April 2001. Previously, she served as Head of Global Strategic Marketing and
Business Development department of the Pharmaceuticals Division of F.
Hoffmann-La Roche Ltd. in Basel, Switzerland. Dr. Kirby served from 1996 until
1998 as global commercial director with British Biotech plc, a drug development
company. Dr. Kirby is a director of Smith & Nephew, plc.

     JAMES L. BIERMAN became Chief Financial Officer in February 2000, was
appointed Executive Vice President in July 2001, and served as our Senior Vice
President, Corporate Development since 1998. Previously, Mr. Bierman spent 22
years with Arthur Andersen LLP.

     JOHN S. RUSSELL serves as Executive Vice President and General Counsel and
Head Global Human Resources. He also serves as the Corporate Secretary and
directs our government relations. Mr. Russell joined us in 1998 after 12 years
in private practice as a partner in the Raleigh office of the Moore and Van
Allen law firm, where he was head of the Corporate Practice group.

ITEM 2.  PROPERTIES

     As of January 31, 2002 we had approximately 112 offices located in 44
countries. Our executive headquarters is located adjacent to Research Triangle
Park, North Carolina. We maintain substantial offices serving our product
development group in Durham, North Carolina; Kansas City, Missouri; Smyrna,
Georgia; Bracknell, England; Irene, South Africa; Tokyo, Japan; and Singapore.
We also maintain substantial offices serving our commercial services group in
Parsippany, New Jersey; Falls Church, Virginia; Hawthorne, New
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York; Marlow, England, and Tokyo, Japan. Substantial offices serving our
informatics group are located in Newtown, Pennsylvania and Chicago, Illinois. We
own facilities that serve our product development group in Lenexa, Kansas;
Kansas City, Missouri; London, England; Riccarton, Scotland; Bathgate, Scotland;
Glasgow, Scotland; Livingston, Scotland; Freiburg, Germany; and Pretoria, South
Africa. We also own a facility in Gotenba City, Japan, which is subject to a
mortgage, that serves our product development and commercial services groups.
All of our other offices are leased. We believe that our facilities are adequate
for our operations and that suitable additional space will be available when
needed.

ITEM 3.  LEGAL PROCEEDINGS

     Beginning on September 30, 1999, several purported class action lawsuits
were filed in the United States District Court for the Middle District of North
Carolina against us and several of our executive officers and directors on
behalf of all persons who purchased or otherwise acquired shares of our common
stock between July 16, 1999, and September 15, 1999. These actions were
subsequently consolidated and plaintiffs filed an amended complaint purporting
to represent a class of purchasers of our stock or call options, and sellers of
put options, during the period between April 21, 1999, and September 15, 1999.
The amended complaint alleged violations of Section 10(b) of the Securities
Exchange Act of 1934 and SEC Rule 10b-5. Plaintiffs sought unspecified damages,
plus costs and expenses, including attorneys' fees and experts' fees. We
believed that the claims were without merit and intended to defend the suit
vigorously. Accordingly, we and the named officers and directors filed a motion
to dismiss the amended complaint. Immediately prior to the hearing scheduled on
February 6, 2001, on the motion to dismiss, the parties agreed to settle the
lawsuit. The settlement amount was covered by insurance. On October 5, 2001, the
district court judge approved the settlement, ending the dispute.

     On October 12, 2001, we entered into a settlement agreement with WebMD
Corporation which settled the litigation pending in the United States District
Court for the Eastern District of North Carolina between us and WebMD and
resolved our dispute. The United States District Court for the Eastern District
of North Carolina approved the conditional voluntary dismissal on October 17,
2001. Additionally, as part of the settlement, the United States Court of
Appeals for the Fourth Circuit dismissed WebMD's appeal of the preliminary
injunction previously issued by the district court in our favor on October 18,
2001.

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

     On January 22, 2002, Federal Insurance Company and Chubb Custom Insurance
Company filed suit against us, Quintiles Pacific, Inc. and Quintiles
Laboratories Limited., two of our subsidiaries, in the United States District
Court for the Northern District of Georgia. In the suit, Chubb, our primary
commercial general liability carrier, and Federal, our excess liability carrier,
seek to rescind the policies issued to us for coverage years 2000-2001 and
2001-2002 based on an alleged misrepresentation by us on our policy application,
which we deny; contending that the information was material to their
determination to accept the risk of coverage. Alternatively, Chubb and Federal
seek a declaratory judgment that there is no coverage under the policies for
some or all of the claims asserted against us and our subsidiaries in the
litigation described in the prior paragraph, and, if one or more of such claims
is determined to be covered, Chubb and Federal request an allocation of the
defense costs between the claims they contend are covered and non-covered
claims. We believe these allegations are without merit and intend to vigorously
defend this case.

     We are also a party in certain other pending litigation arising in the
normal course of our business. While the final outcome of such litigation cannot
be predicted with certainty, it is the opinion of management that

                                        17
<PAGE>

the outcome of these matters would not materially affect our consolidated
financial position or results of operations.

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

     Not applicable.

                                    PART II

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

MARKET PRICES

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

<Table>
<Caption>
CALENDAR PERIOD                                                HIGH       LOW
---------------                                               -------   -------
<S>                                                           <C>       <C>
Quarter ended March 31, 2000................................  $35.000   $15.313
Quarter ended June 30, 2000.................................   17.438    12.000
Quarter ended September 30, 2000............................   20.250    12.563
Quarter ended December 31, 2000.............................   22.500    12.500
Quarter ended March 31, 2001................................   22.875    14.688
Quarter ended June 30, 2001.................................   26.050    15.000
Quarter ended September 30, 2001............................   25.500    12.450
Quarter ended December 31, 2001.............................   18.900    13.610
</Table>

     As of February 15, 2002, there were approximately 30,915 beneficial owners
of our common stock, including 1,715 holders of record.

DIVIDEND POLICIES

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

RECENT SALES OF UNREGISTERED SECURITIES

     Not applicable.

                                        18
<PAGE>

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

     The selected Consolidated Statement of Operations Data set forth below for
each of the years in the three-year period ended December 31, 2001 and the
Consolidated Balance Sheet Data set forth below as of December 31, 2001 and 2000
are derived from our audited consolidated financial statements and notes thereto
as included elsewhere herein. The selected Consolidated Statement of Operations
Data set forth below for the years ended December 1998 and 1997, and the
Consolidated Balance Sheet Data set forth below as of December 31, 1999, 1998
and 1997 are derived from our consolidated financial statements. During 2000, we
completed the sale of our electronic data interchange unit, ENVOY Corporation,
and as such the results of ENVOY, for all periods presented, have been reported
separately as a discontinued operation in the consolidated financial statements.
Our consolidated financial statements have been restated to reflect material
acquisitions in transactions accounted for as poolings of interests. However,
the consolidated financial statements have not been restated to reflect certain
other acquisitions accounted for as pooling of interests where we determined
that the consolidated financial data would not have been materially different if
the pooled companies had been included. For such immaterial pooling of interests
transactions, which include three transactions in 1998, our financial statements
for the year of each transaction have been restated to include the pooled
companies from January 1 of that year, but the financial statements for years
prior to the year of each transaction have not been restated because the effect
of such restatement would be immaterial. The selected consolidated financial
data presented below should be read in conjunction with our audited consolidated
financial statements and notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere herein.

<Table>
<Caption>
                                                                    YEAR ENDED DECEMBER 31,
                                                  ------------------------------------------------------------
                                                     2001         2000         1999         1998        1997
                                                  ----------   ----------   ----------   ----------   --------
<S>                                               <C>          <C>          <C>          <C>          <C>
Net revenue.....................................  $1,619,872   $1,659,910   $1,607,087   $1,221,776   $885,557
Income (loss) from operations...................      48,177      (68,170)     136,355      129,389     91,814
(Loss) income from continuing operations before
  income taxes..................................    (262,496)     (51,005)     115,910      125,567     89,439
(Loss) income from continuing operations........    (175,873)     (34,174)      73,168       85,643     58,063
Income (loss) from discontinued operation, net
  of income taxes...............................          --       16,770       36,123        2,926     (9,197)
Extraordinary gain from sale of discontinued
  operation, net of income taxes................     142,030      436,327           --           --         --
Net (loss) income available for common
  shareholders..................................  $  (33,843)  $  418,923   $  109,291   $   88,569   $ 48,866
                                                  ==========   ==========   ==========   ==========   ========
Basic net (loss) income per share:
  (Loss) income from continuing operations......  $    (1.49)  $    (0.29)  $     0.64   $     0.82   $   0.58
  Income (loss) from discontinued operation.....          --         0.14         0.32         0.03      (0.09)
  Extraordinary gain from sale of discontinued
    operation...................................        1.20         3.76           --           --         --
                                                  ----------   ----------   ----------   ----------   --------
  Basic net (loss) income per share.............  $    (0.29)  $     3.61   $     0.96   $     0.85   $   0.49
                                                  ==========   ==========   ==========   ==========   ========
Diluted net (loss) income per share:
  (Loss) income from continuing operations......  $    (1.49)  $    (0.29)  $     0.63   $     0.77   $   0.54
  Income (loss) from discontinued operation.....          --         0.14         0.31         0.03      (0.09)
  Extraordinary gain from sale of discontinued
    operation...................................        1.20         3.76           --           --         --
                                                  ----------   ----------   ----------   ----------   --------
  Diluted net (loss) income per share...........  $    (0.29)  $     3.61   $     0.94   $     0.80   $   0.46
                                                  ==========   ==========   ==========   ==========   ========
Weighted average shares outstanding:
  Basic.........................................     118,223      115,968      113,525      104,799     99,908
  Diluted.......................................     118,223      115,968      115,687      110,879    107,141
</Table>

<Table>
<Caption>
                                                                       AS OF DECEMBER 31,
                                                  ------------------------------------------------------------
                                                     2001         2000         1999         1998        1997
                                                  ----------   ----------   ----------   ----------   --------
<S>                                               <C>          <C>          <C>          <C>          <C>
Cash and cash equivalents.......................  $  565,063   $  330,214   $  191,653   $  128,621   $ 84,597
Working capital, excluding discontinued
  operation(1)..................................     617,552      308,684       78,039      197,005    166,866
Total assets....................................   1,947,740    1,961,578    1,607,565    1,171,777    960,803
Long-term debt including current portion........      37,864       38,992      185,765      193,270    189,507
Shareholders' equity............................  $1,455,088   $1,404,706   $  991,759   $  646,132   $517,283
Employees.......................................      17,639       18,060       20,496       16,732     12,717
</Table>

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

(1) Working capital of discontinued operation was $36.0 million in 1999, $42.4
    million in 1998 and $18.0 million in 1997.

                                        19
<PAGE>

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

     Unless otherwise noted, all foreign currency denominated amounts due,
subsequent to December 31, 2001, have been translated using the Friday, December
28, 2001 foreign exchange rates as published by OandA.com on December 31, 2001.

OVERVIEW

     Quintiles Transnational Corp. is a global leading provider of information,
technology and services to help bring new medicines to patients faster and
improve healthcare. Based on industry analyst reports, we are the largest
company in the pharmaceutical outsourcing services industry as ranked by 2001
net revenue. The net revenue of the second largest company was over $760 million
less than our 2001 net revenue.

     During 2001, we began implementing a global strategic plan that we believe
will allow us to meet the changing needs of our customers and increase our
opportunity for growth. Our strategy is built on the following initiatives:

     - Implementing partnering structures.  Through our PharmaBio Development
       group, we are pursuing strategic alliances with customers that pair the
       services of our commercialization group with funding support for our
       customer. We provide funding to our customer, either through direct
       milestone payments or loans. We may invest directly in the customer's
       common stock, and sometimes we receive warrants to purchase shares of our
       customer's common stock. In some cases, the loans are convertible into
       capital stock of our customer. Additionally, the customer may agree to
       pay us royalties or commissions based on sales of the customer's product.
       Overall, our revenue and operating income from these transactions depends
       on the performance or success of our customer's product, which in some
       cases has not yet been approved by the FDA. These transactions expose us
       to new risks, including the risk of investing in non-marketable
       securities and risks associated with the marketing and sale of
       pharmaceutical products, in most cases to the extent the revenue streams
       from those products may be adversely affected. We believe this strategy
       allows us to leverage the strength of our financial position to help
       drive service revenue, margins and profits through our service
       relationships with our partners. We completed four of these transactions
       during 2001.

     - Leveraging technology and information.  We are focusing on leveraging our
       technology to increase the value of our services to our customers and to
       increase our own efficiency. Our commercial services group is using our
       iQLearning Network to deliver Internet based programs such as eCME and
       E-detailing to supplement office visits and allow us to reach doctors who
       are not easily accessed, while at the same time, leveraging our
       recruitment services across the iQLearning Network to drive down our
       costs. Our product development group is focusing on gaining operating
       efficiency in data management by eliminating duplicate offices and
       shifting capabilities to low-cost, high quality regions and eventually
       through the use of secure Internet links. We believe that the conversion
       to an Internet standard will have a number of advantages to us, including
       allowing us to maintain less staff on a relative basis, reduce the number
       of data management facilities we maintain and provide flexibility as to
       where that work is conducted, for example, shifting from an office to a
       home-based strategy. We are also moving E-commerce products into our
       service groups as the products enter the implementation phase.

     - Realigning business development.  We are moving towards a business
       development strategy which focuses on specific customers to acquire a
       better understanding of the whole of that customer's needs. Sometimes, we
       are able to achieve this understanding by acquiring some of the
       customer's infrastructure, bringing along with it a relationship with the
       customer. For example, in January 2001, we acquired and assumed operation
       of Pharmacia's Stockholm-based clinical development unit, which continued
       to serve Pharmacia projects under contract with us at full capacity.
       Subsequently, Pharmacia extended the original four-year, $65 million
       agreement to a five-year alliance encompassing global clinical trials,
       laboratory and consulting services. We also are focusing on expanding
       existing customer relationships into preferred provider relationships,
       such as forming long-term clinical development alliances designed to
       enable the customer to boost efficiencies in its drug development
       programs. For example, in 2001, we expanded our relationship with Solvay
       Pharmaceuticals to a five-
                                        20
<PAGE>
       year agreement under which Solvay has committed at least 40% of its
       outsourced clinical projects to us in the first year and at least 50%
       over the next four years. This relationship will allow Solvay to achieve
       more speed, economies of scale and geographic reach than it could
       accomplish alone.

     - Hiring and retaining quality employees.  Our employees are our business,
       and, in order to achieve the highest quality in our work, we are
       maintaining our focus on strengthening and stabilizing our workforce.

     - Creating efficiencies through shared service centers and near real-time
       human resources management. We believe we can create efficiencies by
       centralizing our finance and human resources functions in professional
       service centers. We have established regional centers in each of the
       United States and Europe. To date, approximately 59% of our employees are
       covered under the services provided by our finance and human resources
       service centers, respectively. We believe our ability to support near
       real-time human resources assessment is fundamental to achieving the
       efficiencies we are seeking through our restructuring activities. Through
       our human resource centers, we have in place systems that allow us to
       match financial metrics with headcount to monitor and manage our
       resources more efficiently.

     In December 2001, we acquired the marketing rights to market SkyePharma's
Solaraze(TM) skin treatment in the United States, Canada and Mexico for 15 years
from Bioglan Pharma Plc for a total consideration of $26.7 million. Under the
terms of this agreement, we have committed to pay royalties to SkyePharma based
on a percentage of net sales of Solaraze(TM). Until March 22, 2002, Bioglan
Pharma Plc's U.S. affiliate, Bioglan Pharma Inc., or Bioglan, provided the
marketing and sales support for Solaraze(TM). On March 22, 2002, we acquired
certain assets of Bioglan, including its management team and sales force, for
L18.5 million (approximately $26.7 million). As part of the transaction, we also
acquired Bioglan's rights to certain other dermatology products now on the
market in the United States, including ADOXA(TM) for the treatment of severe
acne. This acquisition provides us with the infrastructure and capabilities to
help support our commercial rights strategies. As a result of these transactions
we have acquired products and the rights to market products, as opposed to the
rights to receive revenues or royalties relating to a product's performance.
Therefore, we are now exposed to the risks typically faced by pharmaceutical
companies, including the risk of product liability claims, and we will bear the
entire risk of the product's commercial success, without the ability to offset
those risks by the receipt of fees for performing services relating to the
product. As part of our normal course of business, we will continue to evaluate
opportunities to acquire specific products and/or marketing rights to products.

     On March 15, 2002, we entered into a joint venture agreement with McKesson
Corporation pursuant to which we agreed to form a joint venture company designed
to leverage the healthcare information business of each company. The agreement
contemplates that we would be co-equal owners of the joint venture company with
McKesson, with a portion of the equity in the joint venture company to be
allocated to key providers of de-identified healthcare data. Our primary
contribution will be the assets of our informatics group. Subject to the prior
satisfaction or waiver of applicable conditions, completion of the joint venture
is targeted for the second quarter of 2002.

     The agreement also provides for the joint venture company to license data
products to us and McKesson for use in our core businesses. Under the license
arrangement with the joint venture company, our product development and
commercial services groups will continue to have access to the joint venture's
market information and products to enhance their service delivery to our
customers.

RESULTS OF CONTINUING OPERATIONS
 YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

     Net revenue for the year ended December 31, 2001 was $1.62 billion, a
decrease of $40.0 million or (2.4%) over net revenue for the year ended December
31, 2000 of $1.66 billion. However, there was a negative impact of approximately
$49.0 million due to the effect of foreign currency fluctuations related to the
strengthening of the US Dollar relative to the euro, other European currencies
and the Japanese yen combined with the effects of the devaluation of several
currencies including the South African Rand; therefore, using a constant
exchange rate, revenues increased by approximately $8.9 million or 0.5%. Net
revenue for the
                                        21
<PAGE>

commercial services group decreased $110.2 million or (14.0%) as a result of
large contracts that were terminated or converted in-house by our customers
instead of being renewed. The decrease was partially offset by an increase of
approximately $11.7 million from our Phase I development services and an
increase of approximately $76.6 million from our clinical development services,
primarily Phase II and III services. Net revenue increased in the Asia Pacific
region $44.0 million or 36.7% to $163.8 million but decreased $104.3 million or
(10.9%) to $854.3 million in the Americas region primarily resulting from the
decline in the commercial services segment. Net revenue in the Europe and Africa
region increased $20.3 million or 3.5% to $601.8 million.

     Direct costs, which include compensation and related fringe benefits for
billable employees, and other expenses directly related to contracts, were
$956.7 million or 59.1% of 2001 net revenue versus $993.8 million or 59.9% of
2000 net revenue.

     General and administrative expenses, which include compensation and fringe
benefits for administrative employees, non-billable travel, professional
services, advertising, computer and facility expenses, were $520.8 million or
32.1% of 2001 net revenue versus $565.8 million or 34.1% of 2000 net revenue.
General and administrative expenses decreased primarily due to the effects of
reductions relating to our restructuring activities including a decrease of
approximately $15.4 million in the spending for our Internet initiative. These
reductions were partially offset by an increase in costs of approximately $7.8
million associated with the continued implementation of our shared service
center initiative and approximately $9.0 million associated with the realignment
of our business development strategy.

     Depreciation and amortization were $96.1 million or 5.9% of 2001 net
revenue versus $92.6 million or 5.6% of 2000 net revenue. Depreciation expense
increased $3.8 million due to the increase in our capitalized asset base while
amortization expense decreased $300,000 primarily as a result of the write-off
of goodwill.

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

     During the third quarter of 2001, we announced a strategic plan that we are
implementing across each service line and geographic area of our business which
we believe will allow us to meet the changing needs of our customers and to
increase our opportunity for growth by committing ourselves to innovation,
quality and efficiency.

     In connection with this plan, we recognized $54.2 million of restructuring
charges which included approximately $1.1 million relating to a 2000
restructuring plan. The restructuring charges consist of $33.1 million related
to severance payments, $8.2 million related to asset impairment write-offs and
$12.9 million of exit costs. As part of these restructurings, approximately
1,040 positions will be eliminated. As of December 31, 2001, 755 individuals
have been notified of their termination of which 485 have been paid and are no
longer employed by us. We are targeting the 2001 restructuring to result in
annualized cost savings of approximately $50 million to $55 million.

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

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

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

                                        22
<PAGE>

     Income from operations was $48.2 million for 2001 versus a loss from
operations of $68.2 million for 2000. Excluding the charges relating to the
restructurings, the write-off of goodwill and other assets, the disposal of a
business and the income from the settlement of litigation with WebMD, income
from operations was $46.3 million for 2001 versus $7.7 million for 2000.

     Other expense was $310.7 million in 2001. Included in other expense in 2001
was a $334.0 million write-down of our cost basis in our investment in WebMD due
to an other than temporary decline in its fair value and an $8.5 million gain on
our investment in WebMD as a result of the sale of all 35 million shares of
WebMD common stock to WebMD. We obtained the WebMD common stock as part of the
consideration for the sale of our electronic data interchange unit, ENVOY
Corporation, to WebMD in 2000. Excluding these transactions, other income in
2001 was $14.9 million versus $17.2 million in 2000. Included in the variance
was an increase of approximately $800,000 in net interest income offset by a
decrease of approximately $1.9 million of gains on the sale of investments, net
of impairments and an increase of approximately $2.1 million of net foreign
currency losses.

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

 ANALYSIS BY SEGMENT

     The following table summarizes the operating activities for our three
segments for the years ended December 31, 2001 and 2000. We do not include net
revenue and expenses related to the Internet initiative, charges related to
restructurings, write-off of goodwill and other assets, disposal of a business,
other income (expense) and income tax expense (benefit) in our segment analysis
(dollars in millions).

<Table>
<Caption>
                                               NET REVENUE                 INCOME/(LOSS) FROM OPERATIONS
                                      ------------------------------   -------------------------------------
                                                                                % OF NET            % OF NET
                                        2001       2000     GROWTH %    2001    REVENUE     2000    REVENUE
                                      --------   --------   --------   ------   --------   ------   --------
<S>                                   <C>        <C>        <C>        <C>      <C>        <C>      <C>
Product development.................  $  881.8   $  809.1      9.0%    $ 37.2      4.2%    $ (9.3)    (1.2)%
Commercial services.................     680.0      790.2    (14.0)      37.6      5.5       55.6      7.0
Informatics.........................      58.1       59.7     (2.7)     (14.3)   (24.7)     (14.2)   (23.8)
                                      --------   --------              ------              ------
                                      $1,619.9   $1,659.0     (2.4)%   $ 60.5      3.7%    $ 32.0      1.9%
                                      ========   ========              ======              ======
</Table>

     The improvement in the product development group's financial performance
was a result of several factors, including process enhancements and cost
reduction efforts in the American and European operations, growth in our Phase I
and clinical development services, primarily Phase II and III services, and an
improvement in the quality of our contracts.

     The commercial services group's financial performance was negatively
impacted by several factors, including the effects of large contracts converted
in-house or terminated by our customers instead of being renewed and the effects
of a collection issue with a non-pharmaceutical customer receivable. These were
partially offset by the effects of our cost reduction efforts.

     The informatics group's financial performance was impacted by several
factors, including the effects of the strategic plan and related restructuring,
the costs associated with developing new data products and a decrease in new
business as a result of the dispute with WebMD and concerns regarding our
continuing ability to receive data from WebMD.

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

     Net revenue for the year ended December 31, 2000 was $1.66 billion, an
increase of $52.8 million or 3.3% over 1999 net revenue of $1.61 billion.
However, use of constant exchange rates results in a growth of approximately
$108.7 million or 6.8%. Factors contributing to the growth included an increase
of contract service offerings, an increase in services rendered under existing
contracts, the initiation of services under contracts awarded subsequent to
December 31, 1999 and our acquisitions accounted for under purchase accounting
completed subsequent to January 1, 1999 which contributed approximately $48.4
million of 2000

                                        23
<PAGE>

net revenue as compared to $36.2 million of 1999 net revenue. These factors were
partially offset by less than expected new business and the effects of large
commercialization contracts being converted in-house instead of being renewed.
We experienced growth in the Americas and Asia Pacific regions. The decrease
that we experienced in the Europe and Africa region was primarily due to the
effect of foreign currency fluctuations related to the strengthening of the US
dollar relative to the euro and other European currencies.

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

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

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

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

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

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

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

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

     Loss from operations was $68.2 million or (4.1)% of 2000 net revenue versus
income from operations of $136.4 million or 8.5% of 1999 net revenue. Excluding
the charges for restructuring and disposal of a business totaling $75.9 million,
income from operations was $7.7 million or .5% of 2000 net revenue.

     Other income was $17.2 million in 2000 as compared to other expense of
$20.4 million in 1999. Included in other income are net realized gains from
investments in equity securities of $578,000 and $2.1 million for the year ended
December 31, 2000 and 1999, respectively. Excluding transaction costs and these
gains, other income was $16.6 million in 2000 versus $3.8 million in 1999. The
$12.8 million increase was primarily due to an increase in net interest income.
                                        24
<PAGE>

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

 ANALYSIS BY SEGMENT

     The following table summarizes the operating activities for our three
segments for the years ended December 31, 2000 and 1999. We do not include net
revenue and expenses related to the Internet initiative, charges related to
restructurings, write-off of goodwill and other assets, disposal of a business,
other income (expense) and income tax expense (benefit) in our segment analysis
(stated in millions).

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

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

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

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

 PRO FORMA RESULTS

     When evaluating our performance, we exclude certain items that we believe
are one-time in nature. These one-time items include restructuring charges,
write-off of goodwill and other assets, disposal of a business and WebMD related
transactions which include: gain from the settlement of litigation including the
sale of WebMD common stock, impairment of investment in WebMD common stock, gain
on sale of discontinued operation and 1999 transaction costs which relate
primarily to the acquisition of ENVOY Corporation.

                                        25
<PAGE>

     Below is a summary of our pro forma results (stated in thousands):

<Table>
<Caption>
                                                             FOR THE YEAR ENDED DECEMBER 31,
                                                           ------------------------------------
                                                              2001         2000         1999
                                                           ----------   ----------   ----------
<S>                                                        <C>          <C>          <C>
Net revenue..............................................  $1,619,872   $1,659,910   $1,607,087
Costs and expenses:
  Direct.................................................     956,748      993,795      883,274
  General and administrative.............................     520,753      565,801      505,166
  Depreciation and amortization..........................      96,103       92,567       82,292
                                                           ----------   ----------   ----------
Total costs and expenses.................................   1,573,604    1,652,163    1,470,732
                                                           ----------   ----------   ----------
Income from operations...................................      46,268        7,747      136,355
Impairment of investments................................     (13,992)      (5,466)          --
Gain on investments, net.................................      12,689        6,045        2,057
Other income, net........................................      16,183       16,586        3,820
                                                           ----------   ----------   ----------
Total other income.......................................      14,880       17,165        5,877
                                                           ----------   ----------   ----------
Income before income taxes...............................      61,148       24,912      142,232
Income taxes.............................................      20,189        8,220       42,742
                                                           ----------   ----------   ----------
Income from continuing operations........................  $   40,959   $   16,692   $   99,490
                                                           ==========   ==========   ==========
Summary of reconciling (income or benefit)/expense items
  excluded above:
  Restructuring charges..................................  $   54,169   $   58,592   $       --
  Write-off of goodwill and other assets.................      27,122           --           --
  Disposal of a business.................................          --       17,325           --
  Settlement of litigation...............................     (83,200)          --           --
  Impairment of investments in WebMD.....................     334,023           --           --
  Gain on investments in WebMD...........................      (8,470)          --           --
  Transaction costs......................................          --           --       26,322
  Income taxes...........................................    (106,812)     (25,051)          --
                                                           ----------   ----------   ----------
Total expenses excluded, net of income taxes.............     216,832       50,866       26,322
                                                           ----------   ----------   ----------
(Loss) income from continuing operations, as reported....  $ (175,873)  $  (34,174)  $   73,168
                                                           ==========   ==========   ==========
</Table>

     Net revenue decreased approximately $40.0 million to $1.62 billion in 2001
from $1.66 billion in 2000. Although we experienced a decrease in net revenue,
income from operations on a pro forma basis increased $38.5 million. Direct
expenses were $956.7 million or 59.1% of net revenue in 2001 as compared to
$993.8 million or 59.9% in 2000. The $37.0 million decrease is a result of a
decrease in the net revenue and a reduction in expenses primarily due to the
effects of the restructuring activities. General and administrative expenses
decreased $45.0 million to $520.8 million in 2001 from $565.8 million in 2000.
The decrease is a result of several factors, including a reduction in expenses
primarily due to the effects of our restructuring activities and a reduction in
the spending for our Internet initiative. These reductions were partially offset
by an increase in costs relating to the continued implementation of our shared
service center and the realignment of our business development strategy.

     Net revenue increased approximately $52.8 million or 3.3% to $1.66 billion
in 2000 as compared to $1.61 billion in 1999. Although we experienced an
increase in net revenue, income from operations decreased $128.6 million to $7.7
million in 2000 as compared to $136.4 million in 1999. Direct expenses increased
to $993.8 million or 59.9% of 2000 net revenue as compared to $883.3 million or
55.0% of 1999 net revenue due to a decrease in our realization rates during
2000. General and administrative expenses increased $60.6 million

                                        26
<PAGE>

to $565.8 million in 2000 from $505.2 million in 1999. This increase was a
result of several factors, including an increase of approximately $21.4 million
in the spending for our Internet initiative, $5.7 million in the implementation
of our shared service center, and $6.5 million for the implementation of our
global account teams, as well as delays in realizing the benefits of our
restructuring program.

LIQUIDITY AND CAPITAL RESOURCES

     Cash and cash equivalents were $565.1 million at December 31, 2001 as
compared to $330.2 million at December 31, 2000.

     Cash flows generated from operations were $247.4 million in 2001 versus
$10.5 million and $123.8 million in 2000 and 1999, respectively. Included in
cash flows generated from operations in 2001 was $63.2 million related to the
settlement of the litigation with WebMD and $56.2 million for net income tax
refunds. Cash flows used in investing activities in 2001 were $16.4 million and
$104.5 million in 1999, versus $270.4 million of cash flows provided by
investing activities in 2000. Investing activities for 2000 consisted primarily
of $390.7 million of net proceeds from the sale of ENVOY, partially offset by
capital asset purchases. Of these investing activities, capital asset purchases
were $134.0 million in 2001 versus $108.8 million and $158.1 million in 2000 and
1999, respectively. Capital asset expenditures in 2001 included the final
payment of $58 million in connection with the 1999 acquisition of Aventis S.A's
Drug Innovation and Approval Facility, $19.9 million for the implementation of
the shared service centers and $5.7 million for our informatics group's data
center. Capital asset expenditures in 2000 included $25.2 million for the
implementation of the shared service centers and $8.0 million for the purchase
of the training academy in Japan. Capital asset expenditures in 1999 included
the initial payment of $35 million in connection with the acquisition of
Aventis' facility.

     During December 2001, we acquired the rights to market for 15 years in the
United States, Canada and Mexico SkyePharma's Solaraze(TM), a treatment of
actinic keratosis, for $26.7 million. We will pay royalties to SkyePharma based
on a percentage of net sales of Solaraze(TM). We acquired these rights from
Bioglan Pharma Plc. Until March 22, 2002, its U.S. affiliate, Bioglan, provided
the marketing and sales support for the product. On March 22, 2002, we acquired
certain assets of Bioglan, including its management team and sales force. As
part of the transaction, we also acquired Bioglan's rights to certain other
dermatology products now on the market in the United States, including ADOXA(TM)
for the treatment of severe acne. As part of our normal course of business, we
will continue to evaluate opportunities to acquire specific products and/or
marketing rights to products.

     We have also entered into four other financial arrangements with customers
in which a portion of our net revenue and operating income will be based on the
performance of a specific product. These arrangements typically involve funding,
either by direct investment or in the form of a loan, which we commit to provide
to our customers. Any securities we may acquire as a result of our investment or
upon conversion of the loan may not be readily marketable, and we will bear the
risk of carrying these investments for an indefinite period of time. This
funding may be applied to certain pre-launch and sales and marketing activities
or it may represent payment for a royalty stream relating to a specific product.
In 2001, we entered into an agreement with Scios, Inc. whereby we will provide
commercialization services for Natrecor(R), a treatment for acute congestive
heart failure. As part of this agreement, we made a commitment to fund $30.0
million for commercialization activities related to Natrecor(R). In return, we
received warrants and rights to royalty payments for 6 1/2 years based on sales
of Natrecor(R) in the United States and Canada. We intend to continue to pursue
these types of strategic arrangements, and we are actively seeking additional
opportunities to create alliances with our customers.

     On October 12, 2001, we jointly announced with WebMD the settlement of
litigation between the companies and the resolution of our disputes. As part of
the settlement, WebMD paid us $185.0 million in cash for all 35 million shares
of WebMD common stock and to resolve the remaining disputes. We will also
receive an additional payment from WebMD if, on or before June 30, 2004, WebMD
is acquired for a price greater than $4.00 per share or its ENVOY subsidiary is
acquired for a price greater than $500 million. Also as part of the settlement,
WebMD surrendered the warrant to purchase 10 million shares of our common stock.
We continued to receive data from WebMD only through February 28, 2002. We also
no longer have any

                                        27
<PAGE>

obligation to share informatics profits with WebMD or to fund WebMD $100 million
to develop a web-based suite of integrated products.

     Net receivables from customers (trade accounts receivable and unbilled
services, net of unearned income) were $221.2 million at December 31, 2001 as
compared to $219.8 million at December 31, 2000. As of December 31, 2001, net
trade accounts receivable were $260.2 million versus $246.3 million at December
31, 2000. Unbilled services were $166.7 million at December 31, 2001 versus
$167.7 million at December 31, 2000, offset by unearned income balances of
$205.8 million and $194.2 million, respectively. The number of days revenue
outstanding in trade accounts receivable and unbilled services, net of unearned
income, were 42 and 43 days at December 31, 2001 and December 31, 2000,
respectively.

     Investments in debt securities were $37.0 million at December 31, 2001
versus $107.8 million at December 31, 2000. Our investments in debt securities
consist primarily of U.S. Government Securities, which are callable by the
issuer, at par, and money funds. The $70.8 million decrease is primarily a
result of investments being called by the issuer.

     Investments in marketable equity securities at December 31, 2001 were $78.0
million, a decrease of $306.0 million, as compared to $384.0 million at December
31, 2000. This decrease is primarily due to the sale of our investment in WebMD
common stock. We obtained the WebMD common stock as part of the consideration
for the sale of our electronic data interchange unit, ENVOY Corporation, to
WebMD in 2000. Excluding the effect of the sale of the WebMD common stock,
investments in marketable equity securities decreased approximately $28.2
million due to the sale of equity investments and unrealized losses on the
portfolio as a result of market price declines. In accordance with our policy to
continually review declines in fair value of our marketable equity securities
for declines that may be other than temporary, we recorded a loss of
approximately $348.0 million in 2001 to establish a new cost basis for certain
investments, which includes $334.0 million relating to our investment in WebMD
common stock.

     Investments in non-marketable equity securities and loans at December 31,
2001 were $37.6 million, an increase of $19.2 million, as compared to $18.4
million at December 31, 2000 primarily as a result of our PharmaBio
transactions.

     Our $150 million senior unsecured credit facility with a U.S. bank expired
in August 2001 in accordance with its terms. We have available to us a L10.0
million (approximately $14.5 million) unsecured line of credit with a U.K. bank
and a L1.5 million (approximately $2.2 million) general bank facility with the
same U.K. bank. At December 31, 2001 we did not have any outstanding balances on
these facilities.

     In March 2001, the Board of Directors authorized us to repurchase up to
$100 million of our common stock from time to time until March 1, 2002. In
February 2002, the Board extended this authorization until March 1, 2003. During
2001, we entered into agreements to repurchase approximately 1.7 million shares
for an aggregate price of $27.5 million. Shareholders' equity increased $50.4
million to $1.46 billion at December 31, 2001 from $1.40 billion at December 31,
2000.

     Below is a summary of our future payment commitments by year under
contractual obligations as of December 31, 2001 (in thousands):

<Table>
<Caption>
                                         2002      2003      2004      2005      2006     THEREAFTER    TOTAL
                                       --------   -------   -------   -------   -------   ----------   --------
<S>                                    <C>        <C>       <C>       <C>       <C>       <C>          <C>
Long-term debt.......................  $  2,969   $ 2,292   $ 2,033   $ 1,835   $ 1,606    $  2,569    $ 13,304
Obligations held under capital
  leases.............................    13,881    11,150       368       218       177         115      25,909
Operating leases.....................    56,574    40,003    29,011    20,592    20,967      75,152     242,299
Service agreement....................    20,000    20,000    20,000    20,000    20,000      35,007     135,007
Natrecor(R)..........................    13,540     6,460        --        --        --          --      20,000
                                       --------   -------   -------   -------   -------    --------    --------
                                       $106,964   $79,905   $51,412   $42,645   $42,750    $112,843    $436,519
                                       ========   =======   =======   =======   =======    ========    ========
</Table>

     Through our PharmaBio financial transactions, we have committed to provide
$45.9 million of funding in the form of an equity investment in non-marketable
securities or loans with various customers and other third parties. We have also
additional future commitments that are contingent upon satisfaction of certain
milestones by the third party such as receiving FDA approval, obtaining funding
from additional third parties,

                                        28
<PAGE>

agreement of a marketing plan and other similar milestones. Due to the
uncertainty of the amounts and timing of these commitments, they are not
included in the commitment amounts above. If all of these contingencies were
satisfied, and if this was to occur in the same time period, then we estimate
these commitments to be a minimum of approximately $40 million per year, subject
to certain limitations and varying time periods.

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

CRITICAL ACCOUNTING POLICIES

     As we believe these policies require difficult, subjective and complex
judgements, we have identified the following critical accounting policies which
we use in the preparation of our financial statements.

  CONTRACT REVENUE

     We recognize revenue for service contracts based upon (1) percentage of
completion (utilizing input or output measures as appropriate) for fixed price
contracts, (2) contractual per diem or hourly rate basis as work is performed
for fee-for-service contracts or (3) completion of units of service for
unit-of-service contracts. The percentage of completion method requires us to
estimate total expected revenue, costs, profitability, duration of the contract
and outputs. These estimates are reviewed periodically and, if any of these
estimates change or actual results differ from expected results then an
adjustment is recorded in the period in which they become reasonably estimable.
These adjustments could have a material effect on our results of operations.

     We recognize revenues and costs for our commercial rights and royalty
agreements as one of the following, based upon each agreement's specific facts
and circumstances: (1) product revenues and product costs are recognized through
earnings in the period in which they are earned or incurred, respectively, and
investments in product rights are amortized ratably over the license period or
(2) revenues are recognized as earned when payment is fixed and determinable,
and certain direct costs, which we deem to be recoverable, may be deferred and
amortized over the expected period of revenue recognition.

  ACCOUNTS RECEIVABLE, UNBILLED SERVICES AND UNEARNED INCOME

     Accounts receivable represents amounts billed to customers. Revenues
recognized in excess of billings are classified as unbilled services, while
billings in excess of revenue recognized are classified as unearned income. The
realization of these amounts is based on the customer's willingness and ability
to pay us. We have an allowance for doubtful accounts based on management's
estimate of probable incurred losses resulting from a customer failing to pay
us. If any of these estimates change or actual results differ from expected
results, then an adjustment is recorded in the period in which they become
reasonably estimable. These adjustments could have a material effect on our
results of operations.

  MARKETABLE DEBT AND EQUITY INVESTMENTS

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

                                        29
<PAGE>

  NON-MARKETABLE EQUITY INVESTMENTS AND LOANS

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

  INCOME TAXES

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

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

  FOREIGN CURRENCIES

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

  LONG-LIVED ASSETS

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

                                        30
<PAGE>

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

  GOODWILL

     Net assets of companies acquired in purchase transactions are recorded at
fair value at the date of acquisition. The recoverability of the excess of the
cost over the fair value of the net assets acquired, known as goodwill, is
evaluated if events or circumstances indicate a possible impairment. Prior to
January 1, 2002 such evaluation was based on various analyses, including
undiscounted cash flow projections. Effective January 1, 2002, we adopted
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 142 "Goodwill and Other Intangible Assets", or SFAS No. 142, requiring all
goodwill and indefinite-lived intangible assets be reviewed at least annually
for impairment. We have not assessed the impact of any impairment under the new
tests prescribed by SFAS No. 142; however, any future write-offs of goodwill
could have a material effect on our financial condition or results of
operations.

  EMPLOYEE STOCK COMPENSATION

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

  BACKLOG REPORTING

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

     - the variable size and duration of projects,

     - the loss or delay of projects, and

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

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

     The reporting of revenue backlog is not authoritatively prescribed,
therefore practices tend to vary among competitors and reported amounts are not
necessarily comparable.

                                        31
<PAGE>

INFLATION

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

MARKET RISK

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

  FOREIGN CURRENCY EXCHANGE RATES

     Approximately 49.7%, 44.0% and 45.8% of our net revenue for the years ended
December 31, 2001, 2000, and 1999, respectively, was derived from our operations
outside the United States. We do not have significant operations in countries in
which the economy is considered to be highly-inflationary. Our financial
statements are denominated in U.S. dollars, and accordingly, changes in the
exchange rate between foreign currencies and the U.S. dollar will affect the
translation of our subsidiaries' financial results into U.S. dollars for
purposes of reporting our consolidated financial results. Accumulated currency
translation adjustments recorded as a separate component (reduction) of
shareholders' equity were ($60.6) million at December 31, 2001 as compared to
($42.2) million at December 31, 2000.

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

  INTEREST RATES

     At December 31, 2001, our investment in debt securities portfolio consists
primarily of U.S. Government securities, of which most are callable by the
issuer at par, and money funds. The portfolio is primarily classified as
available-for-sale and therefore these investments are recorded at fair value in
the financial statements. These securities are exposed to market price risk
which also takes into account interest rate risk. As of December 31, 2001, the
fair value of the investment portfolio was $37.0 million, based on quoted market
prices. The potential loss in fair value resulting from a hypothetical decrease
of 10% in quoted market price is approximately $3.7 million.

  EQUITY PRICES

     At December 31, 2001, we had investments in marketable equity securities.
These investments are classified as available-for-sale and are recorded at fair
value in the financial statements. These securities are subject to equity price
risk. As of December 31, 2001, the fair value of these investments was $78.0
million, based on quoted equity prices. The potential loss in fair value
resulting from a hypothetical decrease of 10% in quoted equity price is
approximately $7.8 million.

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RECENTLY ISSUED ACCOUNTING STANDARDS

     In July 2001, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, No. 142, "Goodwill and
Other Intangible Assets" requiring that upon adoption all goodwill and
indefinite-lived intangible assets no longer be amortized but reviewed at least
annually for impairment. We adopted SFAS No. 142 when required to do so on
January 1, 2002. The effect of the non-amortization provisions of SFAS No. 142
on 2002 results depend on various factors including 2002 acquisitions and
therefore, cannot be estimated. If these had applied in 2001, we believe that
our amortization expense before income taxes would have decreased by
approximately $8.0 million. We have not completed the assessment of the impact
of any impairment under the new tests prescribed by the standard.

     In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment on Disposal of Long-Lived Assets." This standard supersedes SFAS No.
121, "Accounting for Long-Lived Assets to Be Disposed of" and the accounting and
reporting provisions of APB Opinion No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." We
adopted SFAS No. 144 when required to do so on January 1, 2002. We anticipate
that the adoption of SFAS No. 144 will not have a material impact on our results
of operations and financial condition.

SUBSEQUENT EVENTS

     On March 18, 2002, we announced along with McKesson Corporation the signing
of a definitive agreement to form a private joint venture designed to leverage
the operational strengths of the healthcare information businesses of each
company. Under the agreement, we would be co-equal owners of the joint venture
with McKesson, with a portion of the equity in the joint venture to be allocated
to providers of de-identified healthcare data. Our primary contribution will be
the assets of our informatics group. The agreement also provides for the joint
venture company to license data products to us and McKesson for use in our core
businesses. Under the license arrangement, our product development and
commercial services groups will continue to have access to the joint venture's
market information and products to enhance their service delivery to our
customers. Subject to the prior satisfaction or waiver of applicable conditions,
completion of the joint venture is targeted for the second quarter of 2002.

     On March 22, 2002, we acquired certain assets of Bioglan, the U.S.
subsidiary of U.K. based Bioglan Pharma Plc, in a transaction valued at L18.5
million (approximately $26.7 million). As part of the agreement, we have also
acquired Bioglan's rights to certain other dermatology products now on the
market in the United States, including ADOXA(TM), a treatment for severe acne.

RISK FACTORS

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

 CHANGES IN OUTSOURCING TRENDS IN THE PHARMACEUTICAL AND BIOTECHNOLOGY
 INDUSTRIES COULD ADVERSELY AFFECT OUR OPERATING RESULTS AND GROWTH RATE.

     Economic factors and industry trends that affect our primary customers,
pharmaceutical and biotechnology companies, also affect our business. For
example, the practice of many companies in these industries has been to hire
outside organizations like us to conduct large clinical research and sales and
marketing projects. This practice has grown substantially over the past decade,
and we have benefited from this trend. Some industry commentators believe that
the rate of growth of outsourcing will continue to trend downward. If these
industries reduce their tendency to outsource those projects, our operations,
financial condition and growth rate could be materially and adversely affected.
Recently, we also believe we have been negatively impacted by
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<PAGE>

mergers and other factors in the pharmaceutical industry, which appear to have
slowed decision making by our customers and delayed certain trials. A
continuation of these trends would have an ongoing adverse effect on our
business. In addition, numerous governments have undertaken efforts to control
growing healthcare costs through legislation, regulation and voluntary
agreements with medical care providers and pharmaceutical companies. If future
regulatory cost containment efforts limit the profits which can be derived on
new drugs, our customers may reduce their research and development spending,
which could reduce the business they outsource to us. We cannot predict the
likelihood of any of these events or the effects they would have on our
business, results of operations or financial condition.

 IF WE ARE UNABLE TO SUCCESSFULLY DEVELOP AND MARKET POTENTIAL NEW SERVICES, OUR
 GROWTH COULD BE ADVERSELY AFFECTED.

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

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

 OUR PLAN TO WEB-ENABLE OUR PRODUCT DEVELOPMENT AND COMMERCIALIZATION SERVICES
 MAY NEGATIVELY IMPACT OUR RESULTS IN THE SHORT TERM.

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

 OUR ABILITY TO PROVIDE INFORMATICS SERVICES DEPENDS ON AGREEMENTS WITH THIRD
 PARTIES TO ACCESS HEALTHCARE DATA.

     In order to provide our informatics services, we need access to healthcare
data. Prior to the sale of our ENVOY subsidiary, we obtained this data directly
from ENVOY. Following the sale of ENVOY to WebMD, we entered into a data
services agreement with WebMD to continue to provide us with the ENVOY data, as
well as other data collected by WebMD.

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<PAGE>

     On February 24, 2001, WebMD unilaterally stopped the transmission of data
to us in violation of our rights under the data rights agreement which resulted
in litigation. On October 12, 2001, we entered into a settlement agreement with
WebMD which ended the litigation and resolved the disputes between our two
companies. In connection with the settlement agreement, we continued to receive
healthcare data from WebMD, but only through February 28, 2002. While we have
been able to secure agreements for similar data from alternate sources, we
cannot assure you that access to such data will not be more costly than in the
past or that we will have continuous access to the data that we need to support
our informatics products. Furthermore, we must aggregate the volume of data from
a variety of sources, and we do not have a track record for being able to
process and use the data we receive from different sources effectively.

     On March 15, 2002, we entered into a joint venture agreement with McKesson
Corporation pursuant to which we agreed to form a joint venture company designed
to leverage the operational strengths of the healthcare information business of
each company. Several major data providers are to contribute de-identified
prescription and medical data to the joint venture company. There can be no
assurances, however, that any of the data providers with which we currently are
in discussions will join the joint venture company or otherwise provide data to
the joint venture company.

     If continued access to data is not available on acceptable terms, our
informatics group will not be able to support its contracts with existing
customers or continue development projects as currently planned, which would
have an adverse effect on our business.

 THE CONSUMMATION OF OUR PROPOSED JOINT VENTURE WITH MCKESSON MAY NOT OCCUR AND,
 IF CONSUMMATED, THE JOINT VENTURE MAY NOT SUCCEED.

     The consummation of our joint venture with McKesson may not occur and, even
if consummated, the joint venture's success will be subject to the risks of our
informatics business as well as new risks applicable to its operation as a
stand-alone entity. The proposed joint venture with McKesson is important to our
business and, if the transaction fails to close or the closing is delayed, we
may not be able to derive the benefits we hoped to achieve by leveraging our
informatics business with outside resources. If the conditions to closing are
not satisfied or the agreement is otherwise terminated prior to closing, we will
continue to own our informatics business and be subject to the risks associated
with that business.

     If the joint venture company is formed as contemplated, we may not achieve
the intended benefits of the joint venture if it is not able to secure
additional data in exchange for equity. Although we and McKesson currently are
in discussions with several major data providers to participate in the joint
venture company, it is possible that these or other data providers will prefer
to receive cash as payment for data, instead of equity in the joint venture
company, or will not want to participate at all. Such a trend could have a
material adverse effect on the joint venture's operations and financial
condition. The joint venture also could encounter other difficulties, including:

     - its ability to aggregate the volume of data received from data providers;

     - its ability to attract customers, besides Quintiles and McKesson, to
       purchase its products and services;

     - the risk of changes in healthcare information privacy regulations that
       could have an adverse impact on the joint venture's operations;

     - the risk that it will not be able to effectively and cost-efficiently
       replace services previously provided to the contributed businesses by the
       former parent corporations; and

     - other risks currently faced by our Informatics business and described
       elsewhere in these risk factors.

     Although we will have a license to the joint venture company's data
products for use by our product development and commercial services groups, if
the joint venture is unable to provide us with the quality and character of data
products that we need to support those services, we will not be able to fully
realize the benefits of the joint venture and will need to seek other strategic
alternatives to achieve our goals. Also, if the joint venture company is not
successful, it could have a material adverse effect on our results of operation
and

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<PAGE>

financial condition because it is a pass-through entity and, as such, its
results will be reflected in our financial statements to the extent of our
interest in the joint venture.

  THE POTENTIAL LOSS OR DELAY OF OUR LARGE CONTRACTS COULD ADVERSELY AFFECT OUR
RESULTS.

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

 UNDERPERFORMANCE OF OUR COMMERCIAL RIGHTS STRATEGIES COULD HAVE A NEGATIVE
 IMPACT ON OUR FINANCIAL PERFORMANCE.

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

 OUR RECENT ACQUISITION OF A LICENSE TO MARKET AND SELL CERTAIN PHARMACEUTICAL
 PRODUCTS IN THE UNITED STATES EXPOSES US TO PRODUCT RISKS TYPICALLY ASSOCIATED
 WITH PHARMACEUTICAL COMPANIES.

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

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

     Our plans to market and sell Solaraze(TM) and other pharmaceutical products
also subject us to risks associated with entering into a new line of business.
We have limited experience operating as this type of company. If we are unable
to operate this new line of business as we expect, the financial results from
this new line of business could have a negative impact on our results of
operations as a whole. The risk that our results may be affected if we are
unable to successfully operate our pharmaceutical operations may increase in
proportion with (1) the number of products we license in the future, (2) the
applicable stage of the drug

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<PAGE>

approval process of the products and (3) the levels of outsourcing involved in
the development, manufacture and commercialization of such products.

 IF WE LOSE THE SERVICES OF DENNIS GILLINGS, PAMELA KIRBY OR OTHER KEY
 PERSONNEL, OUR BUSINESS COULD BE ADVERSELY AFFECTED.

     Our success substantially depends on the performance, contributions and
expertise of our senior management team, led by Dennis B. Gillings, Ph.D., our
Chairman, and Pamela J. Kirby, Ph.D., our Chief Executive Officer. Our
performance also depends on our ability to attract and retain qualified
management and professional, scientific and technical operating staff, as well
as our ability to recruit qualified representatives for our contract sales
services. The departure of Dr. Gillings, Dr. Kirby, or any key executive, or our
inability to continue to attract and retain qualified personnel could have a
material adverse effect on our business, results of operations or financial
condition.

 OUR PRODUCT DEVELOPMENT SERVICES CREATE A RISK OF LIABILITY FROM CLINICAL TRIAL
 PARTICIPANTS AND THE PARTIES WITH WHOM WE CONTRACT.

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

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

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

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

  OUR INSURANCE MAY NOT COVER ALL OF OUR INDEMNIFICATION OBLIGATIONS AND OTHER
  LIABILITIES ASSOCIATED WITH OUR OPERATIONS.

     We maintain insurance designed to cover ordinary risks associated with our
operations and our ordinary indemnification obligations. This insurance might
not be adequate coverage or may be contested by our carriers. For example, our
insurance carrier, to whom we paid premiums to cover risks associated with our
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<PAGE>

product development services, has filed suit against us seeking to rescind the
insurance policies or to have coverage denied for some or all of the claims
arising from class action litigation involving an Alzheimer study. The
availability and level of coverage provided by our insurance could have a
material impact on our profitability if we suffer uninsured losses or are
required to indemnify third parties for uninsured losses.

  RELAXATION OF GOVERNMENT REGULATION COULD DECREASE THE NEED FOR THE SERVICES
  WE PROVIDE.

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

  FAILURE TO COMPLY WITH EXISTING REGULATIONS COULD RESULT IN A LOSS OF REVENUE.

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

 PROPOSED AND FINAL LAWS AND REGULATIONS MAY CREATE A RISK OF LIABILITY AND MAY
 INCREASE THE COST OF OUR BUSINESS OR LIMIT OUR SERVICE OFFERINGS.

     The confidentiality of individually identifiable health information and the
circumstances under which such individually identifiable health records may be
released for inclusion in our databases or used in other aspects of our business
are subject to substantial government regulation both domestically and
internationally. Additional U.S. legislation governing the possession, use and
dissemination of medical record information and other personal health
information has been proposed or adopted at both the state and federal levels.
Proposed and final U.S. and international regulations governing individually
identifiable health information may (1) require us to implement new security
measures that may require substantial expenditures or (2) limit our ability to
offer some of our products and services. These regulations may also increase
costs by creating new privacy requirements for our informatics business and
mandating additional privacy procedures for our clinical research business.
Additionally, states in the U.S. may adopt health information legislation or
regulations that contain privacy and security provisions that are more
burdensome than the proposed U.S. federal regulations. In recent litigation, a
party took the position that various state laws could be construed to require
modifications to access specifications for particular data elements in
de-identified health information that we receive. These laws or further changes
to existing laws having similar effects could limit our ability to offer some of
our products or have an impact on the business opportunities to us. There is a
risk of civil or criminal liability if we are found to be responsible for any
violations of applicable laws, regulations or duties relating to the privacy or
security of individually identifiable health information. In addition, in
connection with our settlement agreement with WebMD, we have agreed to indemnify
WebMD for losses arising out of or in connection with the settlement agreement
itself, the cancelled Data Rights Agreement with WebMD, our data business, the
collection, accumulation, storage or use of data by ENVOY for the purpose of
transmitting or delivering data to us, any transmission or delivery by ENVOY of
data to us, or violations of law or contract attributable to any such event,
action or circumstance. Under the terms of our agreement, our indemnification
obligation for the first $20 million in aggregate losses is limited to 50%,
except that this limitation does not apply to indemnity obligations we may have
to WebMD arising from the sale of ENVOY, including a class action lawsuit filed
against ENVOY prior to its purchase by us and subsequent sale to WebMD.

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<PAGE>

  INDUSTRY REGULATION MAY RESTRICT OUR ABILITY TO ANALYZE AND DISSEMINATE
  PHARMACEUTICAL AND HEALTHCARE DATA.

     We are directly subject to certain restrictions on the collection and use
of data. Laws relating to the collection and use of data are evolving, as are
contractual rights. We cannot assure you that contractual restrictions imposed
by our customers, legislation or regulations will not, now or in the future,
directly or indirectly restrict the analysis or dissemination of the type of
information we gather and therefore materially adversely affect our operations.

  OUR SERVICES ARE SUBJECT TO EVOLVING INDUSTRY STANDARDS AND RAPID
  TECHNOLOGICAL CHANGES.

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

     - enhance our existing services;

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

     - integrate new services with existing services;

     - achieve market acceptance for new services; and

     - respond to emerging industry standards and other technological changes.

  EXCHANGE RATE FLUCTUATIONS MAY AFFECT OUR RESULTS OF OPERATIONS AND FINANCIAL
  CONDITION.

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

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

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

We try to limit these risks through exchange rate fluctuation provisions stated
in our service contracts, or we may hedge our transaction risk with foreign
currency exchange contracts or options. Although we may hedge our transaction
risk, there were no open foreign exchange contracts or options relating to
service contracts at December 31, 2001. Despite these efforts, we may still
experience fluctuations in financial results from our operations outside the
United States, and we cannot assure you that we will be able to favorably reduce
our currency transaction risk associated with our service contracts.

  WE MAY BE ADVERSELY AFFECTED BY CUSTOMER CONCENTRATION.

     We have one customer that accounted for 10.8% of our net revenues for the
year ended December 31, 2001. These revenues resulted from services provided by
each of our three service groups. If any large customer decreases or terminates
its relationship with us, our business, results of operations or financial
condition could be materially adversely affected.

  NEW HEALTHCARE LEGISLATION OR REGULATION COULD RESTRICT OUR INFORMATICS
  BUSINESS.

     On December 28, 2000, the Secretary of Health and Human Services, also
referred to as HHS, issued the final rule on Standards for Privacy of
Individually Identifiable Health Information to implement the privacy
requirements for HIPAA. This rule generally (1) imposes standards for covered
entities transmitting or maintaining protected data in an electronic, paper or
oral form with respect to the rights of individuals who are

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<PAGE>

the subject of protected health information; and (2) establishes limitations on
and procedures for (a) the exercise of those individuals' rights, (b) the uses
and disclosures of protected health information and (c) language in contractual
agreements between covered entities and their business associates with regards
to protected health information. The effective date of the final rule was April
14, 2001 and the compliance date is April 14, 2003 (April 14, 2004 for small
health plans). HHS' Office for Civil Rights, the enforcement office for the
rule, issued guidance in the form of questions and answers on the rule in July
2001 and according to the Secretary, further modifications and/or guidelines to
the regulation will be forthcoming in the next few months. If state or federal
legislation or a more restrictive rule is adopted, it could inhibit third party
processors in using, transmitting or disclosing health data (even if they have
been de-identified) for purposes other than facilitating payment or performing
other clearinghouse functions which would restrict our ability to obtain data
for use in our informatics services (any such state law may be subject to
enforceability challenges based on constitutional and federal preemption
issues). In addition, it could require us to establish uniform specifications
for obtaining de-identified data, so that de-identified data obtained from
different sources could be aggregated. While the impact of developments in
legislation, regulations or the demands of third party processors is difficult
to predict, each could materially adversely affect our informatics business.

  IF WE ARE UNABLE TO SUBMIT ELECTRONIC RECORDS TO THE FDA ACCORDING TO FDA
  REGULATIONS, OUR ABILITY TO SERVICE OUR CUSTOMERS DURING THE FDA APPROVAL
  PROCESS COULD BE ADVERSELY AFFECTED.

     If we were unable to submit electronic records to the United States Food
and Drug Administration, also referred to as the FDA, according to FDA
regulations, our ability to service our customers during the FDA approval
process could be adversely affected. The FDA published 21 CFR Part 11
"Electronic Records; Electronic Signatures; Final Rule" ("Part 11") in 1997.
Part 11 became effective in August 1997 and defines the regulatory requirements
that must be met for FDA acceptance of electronic records and/or electronic
signatures in place of the paper equivalents. Part 11 requires that those
utilizing such electronic records and/or signatures employ procedures and
controls designed to ensure the authenticity, integrity and, as appropriate,
confidentiality of electronic records and, in certain circumstances, Part 11
requires those utilizing electronic records to ensure that a person appending an
electronic signature cannot readily repudiate the signed record. Pharmaceutical
and biotechnology companies are increasing their utilization of electronic
records and electronic signatures and are requiring their service providers and
partners to do likewise. Many of our customers, or potential customers, are
targeting 2003 for full compliance of all their affected systems. Becoming
compliant with Part 11 involves considerable complexity and cost. Our ability to
provide services to our customers in full compliance with applicable regulations
includes a requirement that, over time, we become compliant with the
requirements of Part 11. If we are unable to achieve this objective, our ability
to provide services to our customers which meet FDA requirements may be
adversely affected.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

                                        40
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<Table>
<Caption>
                                                                   YEAR ENDED DECEMBER 31,
                                                           ---------------------------------------
                                                              2001          2000          1999
                                                           -----------   -----------   -----------
                                                            (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                        <C>           <C>           <C>
Net revenue..............................................  $1,619,872    $1,659,910    $1,607,087
Costs and expenses:
  Direct.................................................     956,748       993,795       883,274
  General and administrative.............................     520,753       565,801       505,166
  Depreciation and amortization..........................      96,103        92,567        82,292
  Restructuring..........................................      54,169        58,592            --
  Write-off of goodwill and other assets.................      27,122            --            --
  Disposal of business...................................          --        17,325            --
  Settlement of litigation...............................     (83,200)           --            --
                                                           ----------    ----------    ----------
                                                            1,571,695     1,728,080     1,470,732
                                                           ----------    ----------    ----------
Income (loss) from operations............................      48,177       (68,170)      136,355
Other (expense) income:
  Interest income........................................      19,844        20,703        14,391
  Interest expense.......................................      (3,172)       (4,842)      (11,233)
  Gain on investments, net...............................      21,159         6,045         2,057
  Impairment of investments..............................    (348,015)       (5,466)           --
  Transaction costs......................................          --            --       (26,322)
  Other..................................................        (489)          725           662
                                                           ----------    ----------    ----------
                                                             (310,673)       17,165       (20,445)
                                                           ----------    ----------    ----------
(Loss) income from continuing operations before income
  taxes..................................................    (262,496)      (51,005)      115,910
Income tax (benefit) expense.............................     (86,623)      (16,831)       42,742
                                                           ----------    ----------    ----------
(Loss) income from continuing operations.................    (175,873)      (34,174)       73,168
Income from discontinued operation, net of income
  taxes..................................................          --        16,770        36,123
Extraordinary gain from sale of discontinued operation,
  net of income taxes....................................     142,030       436,327            --
                                                           ----------    ----------    ----------
Net (loss) income........................................  $  (33,843)   $  418,923    $  109,291
                                                           ==========    ==========    ==========
Basic net (loss) income per share:
  (Loss) income from continuing operations...............  $    (1.49)   $    (0.29)   $     0.64
  Income from discontinued operation.....................          --          0.14          0.32
  Extraordinary gain from sale of discontinued
     operation...........................................        1.20          3.76            --
                                                           ----------    ----------    ----------
  Basic net (loss) income per share......................  $    (0.29)   $     3.61    $     0.96
                                                           ==========    ==========    ==========
Diluted net (loss) income per share:
  (Loss) income from continuing operations...............  $    (1.49)   $    (0.29)   $     0.63
  Income from discontinued operation.....................          --          0.14          0.31
  Extraordinary gain from sale of discontinued
     operation...........................................        1.20          3.76            --
                                                           ----------    ----------    ----------
  Diluted net (loss) income per share....................  $    (0.29)   $     3.61    $     0.94
                                                           ==========    ==========    ==========
Shares used in computing net (loss) income per share:
  Basic..................................................     118,223       115,968       113,525
  Diluted................................................     118,223       115,968       115,687
</Table>

 The accompanying notes are an integral part of these consolidated statements.
                                        41
<PAGE>

                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                                   DECEMBER 31,
                                                              -----------------------
                                                                 2001         2000
                                                              ----------   ----------
                                                               (IN THOUSANDS, EXCEPT
                                                                    SHARE DATA)
<S>                                                           <C>          <C>
                                       ASSETS
Current assets:
  Cash and cash equivalents.................................  $  565,063   $  330,214
  Trade accounts receivable and unbilled services, net......     426,954      413,992
  Investments in debt securities............................      27,489       31,080
  Prepaid expenses..........................................      28,085       31,984
  Other receivables.........................................      19,630       16,850
  Other current assets......................................      12,517       12,555
                                                              ----------   ----------
         Total current assets...............................   1,079,738      836,675
Property and equipment:
  Land, buildings and leasehold improvements................     192,290      199,197
  Equipment and software....................................     348,527      321,844
  Furniture and fixtures....................................      44,020       45,564
  Motor vehicles............................................      33,597       36,345
                                                              ----------   ----------
                                                                 618,434      602,950
  Less accumulated depreciation.............................    (256,128)    (210,990)
                                                              ----------   ----------
                                                                 362,306      391,960
Intangibles and other assets:
  Intangibles, net..........................................     199,119      194,814
  Investments in debt securities............................       9,510       76,732
  Investments in marketable equity securities...............      77,992      384,040
  Investments in non-marketable equity securities and
    loans...................................................      37,590       18,419
  Deferred income taxes.....................................     136,686       29,175
  Deposits and other assets.................................      44,799       29,763
                                                              ----------   ----------
                                                                 505,696      732,943
                                                              ----------   ----------
         Total Assets.......................................  $1,947,740   $1,961,578
                                                              ==========   ==========
                        LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Lines of credit...........................................  $       --   $       44
  Accounts payable..........................................      54,400       65,027
  Accrued expenses..........................................     169,173      190,211
  Unearned income...........................................     205,783      194,201
  Income taxes payable......................................      14,073       51,284
  Deferred income taxes.....................................         738        4,774
  Current portion of obligations held under capital
    leases..................................................      13,147       12,640
  Current portion of long-term debt.........................       2,969        7,387
  Other current liabilities.................................       1,903        2,423
                                                              ----------   ----------
         Total current liabilities..........................     462,186      527,991
Long-term liabilities:
  Obligations held under capital leases, less current
    portion.................................................      11,415        8,496
  Long-term debt, less current portion......................      10,335       10,469
  Other liabilities.........................................       8,716        9,916
                                                              ----------   ----------
                                                                  30,466       28,881
                                                              ----------   ----------
         Total liabilities..................................     492,652      556,872
Commitments and contingencies
Shareholders' Equity:
  Preferred stock, none issued and outstanding at December
    31, 2001 and 2000, respectively.........................          --           --
  Common stock and additional paid-in capital, 118,623,669
    and 115,933,182 shares issued and outstanding at
    December 31, 2001 and 2000, respectively................     897,075      876,407
  Retained earnings.........................................     589,142      622,985
  Accumulated other comprehensive loss......................     (31,129)     (94,686)
                                                              ----------   ----------
         Total shareholders' equity.........................   1,455,088    1,404,706
                                                              ----------   ----------
         Total liabilities and shareholders' equity.........  $1,947,740   $1,961,578
                                                              ==========   ==========
</Table>

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

                                        42
<PAGE>

                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                   YEAR ENDED DECEMBER 31,
                                                              ---------------------------------
                                                                2001        2000        1999
                                                              ---------   ---------   ---------
                                                                       (IN THOUSANDS)
<S>                                                           <C>         <C>         <C>
Operating activities:
  Net (loss) income.........................................  $ (33,843)  $ 418,923   $ 109,291
  Income from discontinued operation, net of income taxes...         --     (16,770)    (36,123)
  Extraordinary gain from sale of discontinued operation,
    net of income taxes.....................................   (142,030)   (436,327)         --
                                                              ---------   ---------   ---------
  (Loss) income from continuing operations..................   (175,873)    (34,174)     73,168
Adjustments to reconcile (loss) income from continuing
  operations to net cash provided by operating activities:
  Depreciation and amortization.............................     96,103      92,567      82,292
  Non-recurring transaction costs...........................         --          --      26,322
  Restructuring accrual and write-off of other assets,
    net.....................................................     42,975      25,886          --
  Loss on disposal of business..............................         --      17,325          --
  Net loss (gain) on sale of property and equipment.........        287         190        (355)
  Loss (gain) on investments, net...........................    304,942        (578)     (2,057)
  (Benefit from) provision for deferred income taxes........    (64,360)     12,460      (1,448)
  Change in operating assets and liabilities:
    Accounts receivable and unbilled services...............    (24,495)    (48,226)    (76,156)
    Prepaid expenses and other assets.......................      6,935     (15,881)    (16,493)
    Accounts payable and accrued expenses...................     19,263      16,429      16,320
    Unearned income.........................................     15,993      28,706      13,960
    Income taxes payable and other current liabilities......     25,139     (84,285)      7,659
  Other.....................................................        447          95         585
                                                              ---------   ---------   ---------
Net cash provided by operating activities...................    247,356      10,514     123,797
Investing activities:
  Proceeds from disposition of property and equipment.......      7,548       8,591       6,535
  Proceeds from disposal of discontinued operation, net of
    expenses................................................         --     390,722          --
  Purchase of investments held-to-maturity..................         --      (1,296)     (6,215)
  Maturities of investments held-to-maturity................        437         465      86,683
  Purchase of investments available-for-sale................         --      (2,717)   (110,310)
  Proceeds from sale of investments available-for-sale......     71,422       5,296      25,296
  Purchase of marketable equity securities..................    (22,660)    (14,379)    (12,424)
  Proceeds from sale of marketable equity securities........    134,379       3,514       5,913
  Purchase of other investments.............................    (40,247)     (1,617)         --
  Proceeds from other investments...........................        103       2,959          --
  Acquisition of property and equipment.....................   (133,983)   (108,782)   (158,128)
  Acquisition of businesses, net of cash acquired...........     (6,620)    (15,169)     84,746
  Acquisition of product rights.............................    (26,735)         --          --
  Payment of non-recurring transaction costs................         --          --     (26,322)
  Payment from ESOP, net....................................         --       2,857          --
  Other.....................................................         --          (2)       (233)
                                                              ---------   ---------   ---------
Net cash provided by (used in) investing activities.........    (16,356)    270,442    (104,459)
Financing activities:
  (Decrease) increase in lines of credit, net...............        (44)         33        (909)
  Proceeds from issuance of debt............................         --      11,183          --
  Repayment of debt.........................................     (3,263)   (151,653)     (4,341)
  Principal payments on capital lease obligations...........    (10,618)    (14,419)    (13,865)
  Issuance of common stock..................................     48,439      21,748      19,724
  Repurchase of common stock................................    (22,694)    (21,883)         --
  Dividend from discontinued operation......................         --      17,086      47,070
  Dividends paid by pooled entity...........................         --          --      (1,089)
  Other.....................................................         --          --         (28)
                                                              ---------   ---------   ---------
Net cash provided by (used in) financing activities.........     11,820    (137,905)     46,562
Effect of foreign currency exchange rate changes on cash....     (7,971)     (4,490)     (2,868)
                                                              ---------   ---------   ---------
Increase in cash and cash equivalents.......................    234,849     138,561      63,032
Cash and cash equivalents at beginning of year..............    330,214     191,653     128,621
                                                              ---------   ---------   ---------
Cash and cash equivalents at end of year....................  $ 565,063   $ 330,214   $ 191,653
                                                              =========   =========   =========
Supplemental Cash Flow Information:
  Interest paid.............................................  $   2,724   $   5,435   $  12,550
  Income taxes (refunded) paid, net.........................    (56,243)     64,451      32,961
Non-cash Investing and Financing Activities:
  Acquisition of property and equipment utilizing
    capitalized leases......................................     14,578      12,948      12,871
  Equity impact of mergers, acquisitions and dispositions...    (20,952)     82,557     206,275
  Equity impact from exercise of non-qualified stock
    options.................................................     15,871       6,752       3,711
  Marketable equity securities received from sale of
    discontinued operation..................................         --     447,353          --
  Unrealized (loss) gain on marketable securities, net of
    income tax..............................................  $(124,182)  $ (69,619)  $  17,781
</Table>

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

                                        43
<PAGE>

                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<Table>
<Caption>
                                                           ACCUMULATED
                                                              OTHER                            ADDITIONAL
                               COMPREHENSIVE   RETAINED   COMPREHENSIVE   PREFERRED   COMMON    PAID-IN
                                  INCOME       EARNINGS   INCOME (LOSS)     STOCK     STOCK     CAPITAL
                               -------------   --------   -------------   ---------   ------   ----------
                                                             (IN THOUSANDS)
<S>                            <C>             <C>        <C>             <C>         <C>      <C>
Balance, December 31, 1998...    $      --     $ 95,618     $  (5,198)      $ 33      $1,057    $558,439
Issuance of common stock.....           --           --            --         --          8       19,716
Principal payments on ESOP
  loan.......................           --           --            --         --         --           --
Stock issued for
  acquisitions...............           --           --            --         --         51      206,224
Tax benefit from the exercise
  of non-qualified stock
  options....................           --           --            --         --         --        3,711
Conversion of preferred stock
  by pooled entity...........           --           --            --        (33)        33           --
Dividends paid by pooled
  entity.....................           --       (1,089)           --         --         --           --
Effect due to change in
  fiscal year of pooled
  entity.....................           --          200            --         --         --           --
Other equity transactions....           --           42          (128)        --         --         (992)
Comprehensive income:
  Net income.................      109,291      109,291            --         --         --           --
  Unrealized gain on
    marketable securities,
    net of tax...............       17,781           --        17,781         --         --           --
  Foreign currency
    adjustments..............      (10,778)          --       (10,778)        --         --           --
                                 ---------     --------     ---------       ----      ------    --------
Comprehensive income for year
  ended December 31, 1999....      116,294
                                 =========
Balance, December 31, 1999...                   204,062         1,677         --      1,149      787,098
Issuance of common stock.....           --           --            --         --         22       21,018
Repurchase of common stock...           --           --            --         --        (13)     (21,870)
Issuance of stock warrants...           --           --            --         --         --       32,300
Issuance of put option.......           --           --            --         --         --          925
Stock option charge in ENVOY
  sale.......................           --           --            --         --         --       50,040
Principal payments on ESOP
  loan.......................           --           --            --         --         --           --
Tax benefit from the exercise
  of non-qualified stock
  options....................           --           --            --         --         --        6,752
Other equity transactions....           --           --            --         --         --       (1,014)
Comprehensive income:
  Net income.................      418,923      418,923            --         --         --           --
  Unrealized loss on
    marketable securities,
    net of tax...............      (69,619)          --       (69,619)        --         --           --
  Foreign currency
    adjustments..............      (26,744)          --       (26,744)        --         --           --
                                 ---------     --------     ---------       ----      ------    --------
Comprehensive income for year
  ended December 31, 2000....      322,560
                                 =========
Balance, December 31, 2000...                   622,985       (94,686)        --      1,158      875,249
Issuance of common stock.....           --           --            --         --         46       48,393
Repurchase of common stock...           --           --            --         --        (14)     (22,680)
Cancellation of stock
  warrants...................           --           --            --         --         --      (20,000)
Tax benefit from the exercise
  of non-qualified stock
  options....................           --           --            --         --         --       15,871
Other equity transactions....           --           --            --         --         --         (948)
Comprehensive income:
  Net loss...................      (33,843)     (33,843)           --         --         --           --
  Unrealized loss on
    marketable securities,
    net of tax...............     (124,182)          --      (124,182)        --         --           --
  Reclassification
    adjustment, net of income
    taxes....................      206,151           --       206,151         --         --           --
  Foreign currency
    adjustments..............      (18,412)          --       (18,412)        --         --           --
                                 ---------     --------     ---------       ----      ------    --------
Comprehensive income for year
  ended December 31, 2001....    $  29,714
                                 =========
Balance, December 31, 2001...                  $589,142     $ (31,129)      $ --      $1,190    $895,885
                                               ========     =========       ====      ======    ========

<Caption>
                               EMPLOYEE STOCK
                               OWNERSHIP PLAN
                               LOAN GUARANTEE
                                  & OTHER         TOTAL
                               --------------   ----------
                                     (IN THOUSANDS)
<S>                            <C>              <C>
Balance, December 31, 1998...     $(3,817)      $  646,132
Issuance of common stock.....          --           19,724
Principal payments on ESOP
  loan.......................         756              756
Stock issued for
  acquisitions...............          --          206,275
Tax benefit from the exercise
  of non-qualified stock
  options....................          --            3,711
Conversion of preferred stock
  by pooled entity...........          --               --
Dividends paid by pooled
  entity.....................          --           (1,089)
Effect due to change in
  fiscal year of pooled
  entity.....................          --              200
Other equity transactions....         834             (244)
Comprehensive income:
  Net income.................          --          109,291
  Unrealized gain on
    marketable securities,
    net of tax...............          --           17,781
  Foreign currency
    adjustments..............          --          (10,778)
                                  -------       ----------
Comprehensive income for year
  ended December 31, 1999....
Balance, December 31, 1999...      (2,227)         991,759
Issuance of common stock.....          --           21,040
Repurchase of common stock...          --          (21,883)
Issuance of stock warrants...          --           32,300
Issuance of put option.......          --              925
Stock option charge in ENVOY
  sale.......................          --           50,040
Principal payments on ESOP
  loan.......................       1,214            1,214
Tax benefit from the exercise
  of non-qualified stock
  options....................          --            6,752
Other equity transactions....       1,013               (1)
Comprehensive income:
  Net income.................          --          418,923
  Unrealized loss on
    marketable securities,
    net of tax...............          --          (69,619)
  Foreign currency
    adjustments..............          --          (26,744)
                                  -------       ----------
Comprehensive income for year
  ended December 31, 2000....
Balance, December 31, 2000...          --        1,404,706
Issuance of common stock.....          --           48,439
Repurchase of common stock...          --          (22,694)
Cancellation of stock
  warrants...................          --          (20,000)
Tax benefit from the exercise
  of non-qualified stock
  options....................          --           15,871
Other equity transactions....          --             (948)
Comprehensive income:
  Net loss...................          --          (33,843)
  Unrealized loss on
    marketable securities,
    net of tax...............          --         (124,182)
  Reclassification
    adjustment, net of income
    taxes....................          --          206,151
  Foreign currency
    adjustments..............          --          (18,412)
                                  -------       ----------
Comprehensive income for year
  ended December 31, 2001....
Balance, December 31, 2001...     $    --       $1,455,088
                                  =======       ==========
</Table>

 The accompanying notes are an integral part of these consolidated statements.
                                        44
<PAGE>

                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  THE COMPANY

     Quintiles Transnational Corp. (the "Company") is a global leading provider
of information, technology and services to help bring new medicines to patients
faster and improve healthcare.

  PRINCIPLES OF CONSOLIDATION

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

  RECLASSIFICATIONS

     Certain amounts in the 2000 financial statements have been reclassified to
conform with the 2001 financial statement presentation. The reclassifications
had no effect on previously reported net income, shareholders' equity or net
income per share.

  USE OF ESTIMATES

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

  FOREIGN CURRENCIES

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

  FOREIGN CURRENCY HEDGING

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

  CASH EQUIVALENTS AND INVESTMENTS

     The Company considers all highly liquid investments with an initial
maturity of three months or less when purchased to be cash equivalents. The
Company does not report in the accompanying balance sheets cash held for
customers for investigator payments in the amount of $3.5 million and $3.1
million at December 31, 2001 and 2000, respectively, that pursuant to agreements
with these customers, remains the property of the customers.

     The Company's investments in debt and marketable equity securities are
classified as either held-to-maturity or available-for-sale. Investments
classified as held-to-maturity are recorded at amortized cost. Investments
classified as available-for-sale are measured at market value and net unrealized
gains and losses are recorded as a component of shareholders' equity until
realized. The market value is based on the closing price as quoted by the
respective stock exchanges or Nasdaq. In addition, the Company has investments
in equity securities of and advances to companies for which there are not
readily available market values and for

                                        45
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

which the Company does not exercise significant influence or control; such
investments are accounted for using the cost method. Any gains or losses on
sales of investments are computed by specific identification.

  DERIVATIVES

     On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 138. The difference between the carrying
amounts of the Company's then existing derivatives and their fair value was
estimated to be insignificant. Therefore, the adoption did not have a
significant impact on the Company's financial position or results of operations;
however, future earnings will be subject to volatility arising from changes in
valuation. This accounting change did not involve cash.

     From time to time the Company may use derivative instruments to manage
exposures to equity prices and interest rates. The Company also holds
freestanding warrants and other embedded derivatives (conversion options in
financing arrangements). Derivatives meeting the criteria established by SFAS
No. 133 are recorded in the balance sheet at fair value at each balance sheet
date. When the derivative instrument is entered into, the Company designates
whether or not the derivative instrument is an effective hedge of an asset,
liability or firm commitment which is then classified as either a cash flow
hedge or a fair value hedge. If determined to be an effective cash flow hedge,
changes in the fair value of the derivative instrument are recorded as a
component of accumulated other comprehensive loss until realized. Changes in
fair value of effective fair value hedges are recorded in earnings as an offset
to the changes in the fair value of the related hedge item. Changes in the fair
values of derivative instruments that are not an effective hedge are recognized
in earnings. The Company has, and may in the future, enter into derivative
contracts (calls or puts, for example) related to its investments in marketable
equity securities. While these contracts do not qualify for hedge accounting,
the Company utilizes these transactions to mitigate its economic exposure to
market price fluctuations.

  UNBILLED SERVICES AND UNEARNED INCOME

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

  LONG-LIVED ASSETS

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

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

     Intangibles consist principally of the excess cost over the fair value of
net assets acquired ("goodwill") and product and royalty rights. Product and
royalty rights are amortized ratably, based on estimated cash flows, over the
life of the rights, which is currently 15 years. Goodwill and other intangible
assets have been amortized on a straight-line basis over periods from five to 40
years. Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill
and Other Intangible Assets," and will no longer amortize indefinite-lived
intangible assets. Accumulated amortization totaled $33.1 million and $25.0
million at December 31, 2001 and 2000, respectively.

                                        46
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The carrying values of property, equipment and intangible assets are
reviewed if the facts and circumstances suggest that a potential impairment may
have occurred. If this review indicates that carrying values will not be
recoverable, as determined based on undiscounted cash flows over the remaining
depreciation or amortization period, the Company will reduce carrying values to
estimated fair value. During 2001, the Company recognized a $24.7 million charge
to write-off goodwill recorded in four separate acquisitions in the commercial
services segment and personal computers including desktops and laptops that are
no longer in service. The goodwill was deemed impaired due to changing business
conditions and strategic direction.

  REVENUE RECOGNITION

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

     The Company has entered into agreements with various customers, with which
the Company may have service agreements, whereby the Company may provide
services and may also fund certain activities of the customers in return for
product or royalty rights that provide for future revenues based on the
achievement of certain sales levels of the promoted product. The Company records
revenues and costs for these agreements as one of the following, based upon each
agreement's specific facts and circumstances; (1) product revenues and product
costs are recognized through earnings in the period in which they are earned or
incurred, respectively, and investments in product rights are amortized ratably
over the license period or (2) revenues are recognized as earned when payment is
fixed and determinable, and certain direct costs, which management deems to be
recoverable, may be deferred and amortized over the expected period of revenue
recognition.

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

  CONCENTRATION OF CREDIT RISK

     Substantially all net revenue is earned by performing services under
contracts with various pharmaceutical, biotechnology, medical device and
healthcare companies. The concentration of credit risk is equal to the
outstanding accounts receivable and unbilled services balances, less the
unearned income related thereto, and such risk is subject to the financial and
industry conditions of the Company's customers. The Company does not require
collateral or other securities to support customer receivables. Credit losses
have been immaterial and consistently within management's expectations. One
customer accounted for 10.8%, 10.2% and 11.3% of consolidated net revenue in
2001, 2000 and 1999, respectively. These revenues were derived from each of the
Company's segments.

  RESEARCH AND DEVELOPMENT COSTS

     Research and development costs relating principally to new software
applications and computer technology are charged to expense as incurred. These
expenses totaled $18.1 million, $29.0 million and $3.0 million in 2001, 2000 and
1999, respectively.

                                        47
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  INCOME TAXES

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

  NET INCOME PER SHARE

     The Company determines basic net income per share by dividing net income by
the weighted average number of common shares outstanding during each year.
Diluted net income per share reflects the assumed conversion or exercise of all
convertible securities and issued and unexercised stock options, unless the
effects would be anti-dilutive to results from continuing operations. A
reconciliation of the number of shares used in computing basic and diluted net
income per share is in Note 18.

  EMPLOYEE STOCK COMPENSATION

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

  COMPREHENSIVE INCOME

     The Company includes foreign currency translation adjustments and
unrealized gains and losses on the available-for sale securities in other
comprehensive income. Accumulated other comprehensive loss at December 31, 2001
was $31.1 million which consisted of $60.6 million in foreign currency
translation adjustments and $29.6 million in unrealized gains on
available-for-sale securities. During 2001, the Company reclassified $206.1
million of net holding losses to other expense as the related securities were
sold or deemed to be impaired.

  RECENTLY ADOPTED ACCOUNTING STANDARD

     In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations," that requires all business combinations
initiated after June 30, 2001 to be accounted for as purchases. The Company
adopted the provisions of SFAS No. 141 in 2001. The adoption of SFAS No. 141 did
not have a material impact on the Company's financial position or results of
operations.

  RECENTLY ISSUED ACCOUNTING STANDARDS

     In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," requiring that upon adoption all goodwill and indefinite-lived
intangible assets no longer be amortized but reviewed at least annually for
impairment. The Company adopted SFAS No. 142 as required to do so on January 1,
2002. The effect of the non-amortization provisions of SFAS No. 142 on 2002
results will be affected by various factors including 2002 acquisitions and,
therefore cannot be estimated. If these provisions had applied in 2001,
management believes that the Company's amortization expense before income taxes
would have decreased by approximately $8.0 million. The Company has not assessed
the impact of any impairment under the new tests prescribed by the standard.

                                        48
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

2.  ACCOUNTS RECEIVABLE AND UNBILLED SERVICES

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

<Table>
<Caption>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Trade:
  Billed....................................................  $271,706   $251,108
  Unbilled services.........................................   166,712    167,665
                                                              --------   --------
                                                               438,418    418,773
Allowance for doubtful accounts.............................   (11,464)    (4,781)
                                                              --------   --------
                                                              $426,954   $413,992
                                                              ========   ========
</Table>

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

<Table>
<Caption>
                                                              DECEMBER 31,
                                                              -------------
REGION                                                        2001    2000
------                                                        -----   -----
<S>                                                           <C>     <C>
Americas:
  United States.............................................    45%     59%
  Other.....................................................     3       1
                                                               ---     ---
     Americas...............................................    48      60
Europe and Africa:
  United Kingdom............................................    33      24
  Other.....................................................    10      11
                                                               ---     ---
     Europe and Africa......................................    43      35
Asia -- Pacific.............................................     9       5
                                                               ---     ---
                                                               100%    100%
                                                               ===     ===
</Table>

3.  COMMERCIAL RIGHTS AND ROYALTIES

     The Company has entered into financial transactions and other arrangements
with customers and other parties in which a portion of the Company's revenues
and operating income depends on the performance of a specific pharmaceutical
product. These transactions may include providing product development and/or
commercialization services to customers, as well as the funding of such
services, in return for royalties or

                                        49
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

commissions based on the sales of the customer's product. As of December 31,
2001, The Company has entered into five such agreements. Below is a brief
description of these agreements:

     In May 1999, the Company entered into an agreement with CV Therapeutics,
Inc. ("CVTX") to commercialize Ranolazine for angina in the United States and
Canada. Under the terms of this agreement, the Company purchased 1,043,705
shares of CVTX's common stock for $5 million of which the Company owns 681,705
shares as of December 31, 2001, and has made available a $10 million credit line
for pre-launch sales and marketing activities. Once Ranolazine, which is
currently in Phase III studies, is approved, the Company will provide a $10
million milestone payment to CVTX which will be used to pay off any outstanding
balances on the credit line. The Company will also make available an additional
line of credit to help fund a portion of the first year sales and marketing
expenses. Additionally, the Company has committed to provide a minimum of
approximately $14.4 million per year of commercialization services and to fund a
minimum of $7.8 million per year of marketing activities, for a period of five
years. In return it will receive payment for services rendered by the Company in
year one and royalties based on the net sales of Ranolazine in years two through
five subject to a cap not to exceed 300% of funding by the Company in any year
or over the life of the contract. In addition, the Company will also receive
royalties in years six and seven.

     In January 2001, the Company entered into an agreement with Scios Inc.
("SCIO") to market Natrecor(R) for acute congestive heart failure in the United
States and Canada. Under the terms of the agreement, the Company agreed to
provide $30 million in funding over a two and one-half year period for sales and
marketing activities following product launch, of which $10 million was funded
by the Company during 2001. The Company also received warrants to purchase
700,000 shares of SCIO's common stock at $20 per share, exercisable in
installments over two and one-half years. In addition to receiving payments on a
fee for service basis for providing commercialization services, the Company will
receive royalties based on net sales of the product from 2002 through 2008. The
royalty payments are subject to minimum and maximum amounts of $50 million and
$65 million, respectively, over the life of the agreement.

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

     In December 2001, the Company entered into an agreement with Discovery
Laboratories, Inc. ("DSCO") to commercialize, in the United States, DSCO's
humanized lung surfactant, Surfaxin(R), which is currently in Phase III studies.
Under the terms of the agreement, the Company acquired 791,905 shares of DSCO's
common stock and a warrant to purchase 357,143 shares of its common stock at
$3.48 per share for a total of $3 million, and has agreed to make available a
line of credit up to $10 million for pre-launch commercialization services as
certain milestones are achieved by DSCO. In addition, the Company will receive
additional warrants to purchase approximately 38,000 shares of DSCO common stock
at an exercise price of $3.03 per share for each million dollars made available
by the Company under the line of credit as milestones are achieved. The Company
has agreed to fund the sales and marketing activities of this product up to $10
million per year for seven years. In return, the Company will receive
commissions based on net sales of Surfaxin(R) for meconium aspiration syndrome,
infant respiratory distress syndrome and all "off-label" uses for 10 years.

     In December 2001, the Company acquired the license to market SkyePharma's
Solaraze(TM) skin treatment in the United States, Canada and Mexico for 15 years
from Bioglan Pharma Plc for a total consideration of $26.7 million. The Company
will amortize the rights ratably over 15 years. The Company has
                                        50
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

a commitment to pay royalties to SkyePharama based on a percentage of net sales
of Solaraze(TM). Pursuant to the license, the Company may pursue additional
indications for the compound, which will be facilitated through the Company's
ownership rights in the Solaraze(TM) New Drug Application and Investigational
New Drug.

     The Company has firm commitments under the above arrangements to provide
funding of approximately $56.7 million in exchange for various commercial
rights. As of December 31, 2001, the Company has funded approximately $36.7
million of these commitments. Further, the Company has future funding
commitments that are contingent upon satisfaction of certain milestones being
met by the third party such as receiving the United States Food and Drug
Administration ("FDA") approval, obtaining funding from additional third
parties, agreement of marketing plan and other similar milestones. Due to the
uncertainty of the amounts and timing, these commitments are not included in the
commitment amounts.

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

<Table>
<Caption>
                                                              COMMITMENTS
                                                              -----------
<S>                                                           <C>
2002........................................................    $13,540
2003........................................................      6,460
                                                                -------
                                                                $20,000
                                                                =======
</Table>

4.  INVESTMENTS -- DEBT SECURITIES

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

<Table>
<Caption>
                                                            GROSS        GROSS
                                              AMORTIZED   UNREALIZED   UNREALIZED   MARKET
                                                COST        GAINS        LOSSES      VALUE
                                              ---------   ----------   ----------   -------
<S>                                           <C>         <C>          <C>          <C>
HELD-TO-MATURITY SECURITIES:
State Securities --
  maturing in one year or less..............   $   591       $--         $  --      $   591
  maturing in over five years...............     6,016        --            --        6,016
                                               -------       ---         -----      -------
                                               $ 6,607       $--         $  --      $ 6,607
                                               =======       ===         =====      =======
AVAILABLE-FOR-SALE SECURITIES:
Money Funds.................................   $27,186       $--         $(288)     $26,898
Other.......................................     3,494        --            --        3,494
                                               -------       ---         -----      -------
                                               $30,680       $--         $(288)     $30,392
                                               =======       ===         =====      =======
</Table>

                                        51
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<Table>
<Caption>
                                                           GROSS        GROSS
                                             AMORTIZED   UNREALIZED   UNREALIZED    MARKET
                                               COST        GAINS        LOSSES      VALUE
                                             ---------   ----------   ----------   --------
<S>                                          <C>         <C>          <C>          <C>
HELD-TO-MATURITY SECURITIES:
State Securities --
  maturing in one year or less.............  $    562      $  --       $    --     $    562
  maturing in over five years..............     6,483         --            --        6,483
                                             --------      -----       -------     --------
                                             $  7,045      $  --       $    --     $  7,045
                                             ========      =====       =======     ========
AVAILABLE-FOR-SALE SECURITIES:
U.S. Government Securities:
  maturing in one year or less.............  $  2,500      $  --       $   (10)    $  2,490
  maturing between one and three years.....    43,566         --          (413)      43,153
  maturing between three and five years....    24,998         --          (222)      24,776
State and Municipal Securities --
  maturing in one year or less.............     1,521          3            --        1,524
Money Funds................................    27,186         --          (682)      26,504
Other......................................     2,320         --            --        2,320
                                             --------      -----       -------     --------
                                             $102,091      $   3       $(1,327)    $100,767
                                             ========      =====       =======     ========
</Table>

     Gross realized losses on sales of available-for-sale debt securities were
$1,000 in 1999. The net after-tax adjustment to unrealized holding gains
(losses) on available-for-sale debt securities included as a separate component
of shareholders' equity was $668,000, ($18.4) million and $18.2 million in 2001,
2000 and 1999, respectively.

5.  INVESTMENTS -- MARKETABLE EQUITY SECURITIES

     The Company has entered into financial arrangements with various customers
and other parties in which the Company provides funding in the form of an equity
investment. The equity investments may be subject to certain trading
restrictions including "lock-up" agreements. The Company's portfolio in such
transactions as of December 31, 2001 is as follows (in thousands except share
data):

<Table>
<Caption>
                                                       ESTIMATED
                               TRADING   NUMBER OF     BENEFICIAL                  FAIR MARKET
COMPANY                        SYMBOL     SHARES     OWNERSHIP %(1)   COST BASIS      VALUE
-------                        -------   ---------   --------------   ----------   -----------
<S>                            <C>       <C>         <C>              <C>          <C>
COMMON STOCK:
CV Therapeutics, Inc. .......   CVTX       681,705        2.6%         $ 3,320       $35,463
The Medicines Company........   MDCO     1,896,245        6.3%           8,462        21,977
Triangle Pharmaceuticals
  Inc. ......................   VIRS     3,775,000        4.9%          15,029        15,138
Other........................     --            --                       4,740         5,414
                                                                       -------       -------
Total Marketable Equity
  Securities.................                                          $31,551       $77,992
                                                                       =======       =======
</Table>

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

(1) The estimated beneficial ownership percentage calculation is based upon the
    investee's filings with the United States Securities and Exchange
    Commission. The beneficial ownership percentage is subject to

                                        52
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     change due to the Company's transactions in these investments and changes
     in the investee's capitalization.

     The Company's portfolio in such transactions as of December 31, 2000 is as
follows (in thousands except share data):

<Table>
<Caption>
                                            TRADING   NUMBER OF                 FAIR MARKET
COMPANY                                     SYMBOL      SHARES     COST BASIS      VALUE
-------                                     -------   ----------   ----------   -----------
<S>                                         <C>       <C>          <C>          <C>
COMMON STOCK:
WebMD Corporation.........................   HLTH     35,000,000    $447,353     $277,813
CV Therapeutics, Inc. ....................   CVTX        993,705       4,834       70,305
The Medicines Company.....................   MDCO      1,696,245       6,262       34,773
Other.....................................     --             --       5,169        1,149
                                                                    --------     --------
Total Marketable Equity Securities........                          $463,618     $384,040
                                                                    ========     ========
</Table>

     The Company may from time to time acquire equity instruments of companies
in which a current market value is not readily available. As such, these
investments are included in the Investments -- Non-marketable Equity Securities
and Loans.

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

     The Company recognized $22.9 million, $3.3 million and $2.1 million of
gains from the sale of marketable equity securities during 2001, 2000 and 1999,
respectively. The Company recorded cumulative gross unrealized gains of $46.4
million as of December 31, 2001 and $79.6 million of gross unrealized losses as
of December 31, 2000 from investments in marketable equity securities. The net
after-tax adjustment to unrealized holding gains (losses) on marketable equity
securities included as a separate component of shareholders' equity was $81.3
million, ($51.2) million and ($447,000) in 2001, 2000 and 1999, respectively. In
accordance with its policy to continually review declines in fair value of the
marketable equity securities for declines that may be other than temporary, the
Company also recognized losses due to the impairment of marketable equity
securities of $338.8 million and $5.5 million in 2001 and 2000, respectively.
Included in the 2001 amount is $334.0 million relating to the Company's
investment in WebMD common stock.

6.  INVESTMENTS -- NON-MARKETABLE EQUITY SECURITIES AND LOANS

     The Company has entered into financial arrangements with various customers
and other parties in which the Company provides funding in the form of an equity
investment in non-marketable securities or loans. These financial arrangements
are comprised of direct and indirect investments. The indirect investments are
made through six venture capital funds in which the company is an investor. The
Company's portfolio in such transactions as of December 31, 2001 is as follows
(in thousands):

<Table>
<Caption>
                                                                         REMAINING FUNDING
COMPANY                                                     COST BASIS      COMMITMENT
-------                                                     ----------   -----------------
<S>                                                         <C>          <C>
Venture capital funds.....................................   $19,702          $23,159
Equity investments (seven companies)......................    10,547               --
Convertible loans (five companies)........................     7,341            2,721
Loans (two companies).....................................        --           20,000
                                                             -------          -------
Total non-marketable equity securities and loans..........   $37,590          $45,880
                                                             =======          =======
</Table>

                                        53
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Included in the venture capital funds is $5.9 million of investments in
funds which are managed by A.M. Pappas & Associates, LLC whose chief executive
officer is a member of the Company's Board of Directors. The Company also has
remaining commitments to these funds totaling $10.6 million as of December 31,
2001.

     Below is a table representing management's best estimate as of December 31,
2001 of the amount and timing of the above commitments (in thousands):

<Table>
<Caption>
                                                               TOTAL
                                                              -------
<S>                                                           <C>
2002........................................................  $22,966
2003........................................................   17,914
2004........................................................    5,000
                                                              -------
                                                              $45,880
                                                              =======
</Table>

     The Company also has future loan commitments that are contingent upon
satisfaction of certain milestones by the third party such as receiving FDA
approval, obtaining funding from additional third parties, agreement of a
marketing plan and other similar milestones. Due to the uncertainty of the
amounts and timing, these commitments are not included in the commitment amounts
described above.

     The Company's portfolio in such transactions as of December 31, 2000 is as
follows (in thousands):

<Table>
<Caption>
COMPANY                                                       COST BASIS
-------                                                       ----------
<S>                                                           <C>
Venture capital funds.......................................   $ 5,593
Equity investments (five companies).........................     6,108
Convertible loans (one company).............................       897
Loans (three companies).....................................     5,821
                                                               -------
          Total non-marketable equity securities and
           loans............................................   $18,419
                                                               =======
</Table>

     In accordance with its policy to review each specific investment for
potential impairment of fair value, the Company recognized $9.2 million of
losses due to such impairments in 2001 relating to non-marketable equity
securities and loans mainly due to declining financial condition of investees.

     The Company has determined that it is not practicable at each reporting
date to estimate the fair value of its investments in non-marketable equity
securities and loans.

7.  DERIVATIVES

     As of December 31, 2001, the Company had the following derivative positions
in securities of other issuers: (1) conversion option positions that are
embedded in financing arrangements, (2) freestanding warrants to purchase shares
of common stock and (3) put options to sell shares of marketable equity
securities.

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

                                        54
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     As of December 31, 2001, the Company had several freestanding warrants to
purchase common stock of various customers and other third parties. These
freestanding warrants primarily were acquired as part of the financial
arrangements with such customers and third parties. No quoted price is available
for the Company's freestanding warrants to purchase shares of common stock. The
Company uses various valuation techniques including the present value of
estimated expected future cash flows, option-pricing models and fundamental
analysis. Factors affecting the valuation include the current price of the
underlying asset, strike price, time to expiration of the option, estimated
price volatility of the underlying asset over the life of the option and
restrictions on the transferability or ability to exercise the option. As of
January 1, 2001, the Company's derivative instruments included two warrants to
purchase up to 282,385 shares of common stock of The Medicines Company (NASDAQ:
MDCO). The Company estimated the fair value of these derivative instruments to
be insignificant at January 1, 2001 and December 31, 2001 because the Company
concluded that the implicit restrictions on exercisability and transferability
impaired the value of the warrants. The most significant of these restrictions
were eliminated in January 2002.

     The Company has exchange-traded put option contracts with a fair value as
of December 31, 2001 of approximately $1.3 million. These contracts expire in
January 2002 and April 2002. During 2001, the Company recorded a $1.9 million
loss in earnings related to changes in the fair value of put and call option
contracts.

8.  ACCRUED EXPENSES

     Accrued expenses consist of the following (in thousands):

<Table>
<Caption>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Compensation and payroll taxes..............................  $ 63,458   $ 58,153
Acquisition related accruals................................       388     60,261
Restructuring...............................................    30,737     14,655
Other.......................................................    74,590     57,142
                                                              --------   --------
                                                              $169,173   $190,211
                                                              ========   ========
</Table>

9.  CREDIT ARRANGEMENTS

     The following is a summary of the credit facilities available to the
Company at December 31, 2001:

<Table>
<Caption>
FACILITY                                                 INTEREST RATES
--------                                                 --------------
<S>                                         <C>
L10.0 million (approximately $14.5          Base (4.0% at December 31, 2001) plus
  million) unsecured line of credit         0.75%
L1.5 million (approximately $2.2 million)   1% per annum fee for each guarantee
  general banking facility with the same    issued
  U.K. bank used for the issuance of
  guarantees
</Table>

The Company did not have any outstanding balances on these facilities at
December 31, 2001 and 2000.

     The Company had a $150.0 million senior unsecured credit facility with a
U.S. bank which expired in August 2001 in accordance with its terms.

                                        55
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<Table>
<Caption>
                                                                DECEMBER 31,
                                                              -----------------
                                                               2001      2000
                                                              -------   -------
<S>                                                           <C>       <C>
Missouri tax incentive bonds due October 2009...............  $ 4,755   $ 5,192
  (6.7% annual interest rate)
Other notes payable.........................................    8,549     6,811
Long-term debt paid in 2001.................................       --     5,853
                                                              -------   -------
                                                               13,304    17,856
  Less: current portion.....................................    2,969     7,387
                                                              -------   -------
                                                              $10,335   $10,469
                                                              =======   =======
</Table>

Other notes payable include various notes payables, primarily in foreign
currencies, with interest rates ranging between 1.875% and 6%.

     Maturities of long-term debt and obligations at December 31, 2001 are as
follows (in thousands):

<Table>
<S>                                                           <C>
2002........................................................  $ 2,969
2003........................................................    2,292
2004........................................................    2,033
2005........................................................    1,835
2006........................................................    1,606
Thereafter..................................................    2,569
                                                              -------
                                                              $13,304
                                                              =======
</Table>

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

10.  LEASES

     The Company leases certain office space and equipment under operating
leases. The leases expire at various dates through 2074 with options to cancel
certain leases at five-year increments. Some leases contain renewal options.
Annual rental expenses under these agreements were approximately $76.3 million,
$73.9 million and $46.5 million for the years ended December 31, 2001, 2000 and
1999, 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.

                                        56
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     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, 2001 (in thousands):

<Table>
<Caption>
                                                              CAPITAL   OPERATING
                                                              LEASES     LEASES
                                                              -------   ---------
<S>                                                           <C>       <C>
2002........................................................  $13,881   $ 56,574
2003........................................................   11,150     40,003
2004........................................................      368     29,011
2005........................................................      218     20,592
2006........................................................      177     20,967
Thereafter..................................................      115     75,152
                                                              -------   --------
Total minimum lease payments................................   25,909   $242,299
                                                                        ========
Amounts representing interest...............................    1,347
                                                              -------
Present value of net minimum payments.......................   24,562
Current portion.............................................   13,147
                                                              -------
Long-term capital lease obligations.........................  $11,415
                                                              =======
</Table>

11.  COMMITMENTS AND CONTINGENCIES

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

     On October 12, 2001, the Company entered into a settlement agreement with
WebMD which settled the litigation pending in the United States District Court
for the Eastern District of North Carolina between the Company and WebMD and
resolved the dispute. The United States District Court for the Eastern District
of North Carolina approved the conditional voluntary dismissal on October 17,
2001. Additionally, as part of the settlement, the United States Court of
Appeals for the Fourth Circuit dismissed WebMD's appeal of the preliminary
injunction previously issued by the district court in the Company's favor on
October 18, 2001.

     On January 26, 2001, a purported class action lawsuit was filed in the
State Court of Richmond County, Georgia, naming Novartis Pharmaceuticals Corp.,
Pharmed Inc., Debra Brown, Bruce I. Diamond and Quintiles Laboratories Limited,
a subsidiary of the Company, on behalf of 185 Alzheimer's patients who
participated in drug studies involving an experimental drug manufactured by
defendant Novartis and their surviving spouses. The complaint alleges claims for
breach of fiduciary duty, civil conspiracy, unjust enrichment,
misrepresentation, Georgia RICO violations, infliction of emotional distress,
battery, negligence and loss of consortium as to class member spouses. The
complaint seeks unspecified damages, plus costs and

                                        57
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

expenses, including attorneys' fees and experts' fees. The Company believes the
claims to be without merit and intends to defend the suit vigorously.

     On January 22, 2002, Federal Insurance Company ("Federal") and Chubb Custom
Insurance Company ("Chubb") filed suit against the Company, Quintiles Pacific,
Inc. and Quintiles Laboratories Limited, two of the Company's subsidiaries, in
the United States District Court for the Northern District of Georgia. In the
suit, Chubb, the Company's primary commercial general liability carrier, and
Federal, the Company's excess liability carrier, seek to rescind the policies
issued to the Company for coverage years 2000-2001 and 2001-2002 based on an
alleged misrepresentation by the Company on the policy application, which the
Company denies; contending that the information was material to their
determination to accept the risk of coverage. Alternatively, Chubb and Federal
seek a declaratory judgment that there is no coverage under the policies for
some or all of the claims asserted against the Company and its subsidiaries in
the litigation described in the prior paragraph, and, if one or more of such
claims is determined to be covered, Chubb and Federal request an allocation of
the defense costs between the claims they contend are covered and non-covered
claims. The Company believes these allegations are without merit and intends to
vigorously defend this case.

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

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

12.  SHAREHOLDERS' EQUITY

     The Company is authorized to issue 25 million shares of preferred stock,
$.01 per share par value. At December 31, 2001, 200 million common shares of
$.01 par value were authorized.

     In March 2001, the Board of Directors authorized the Company to repurchase
up to $100 million of the Company's Common Stock from time to time until March
2002. During 2001, the Company entered into agreements to repurchase 1,702,500
shares of its Common Stock for an aggregate price of approximately $27.5
million.

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

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

     In November 1999, the Board of Directors declared a dividend distribution
of one preferred stock purchase right (a "Right") for each outstanding share of
the Company's Common Stock. Each Right, if activated, entitles the holder to
purchase one one-thousandth of a share of the Company's Series A Preferred Stock
at a purchase price of $150, subject to adjustment in certain circumstances.
Each one one-thousandth of a preferred share will have the same voting and
dividend rights as a share of the Company's Common Stock. The Rights become
exercisable 10 business days after (1) any person or group announces it has
acquired or

                                        58
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

obtained the right to acquire 15% or more of the outstanding shares of the
Company's Common Stock or (2) commencement of a tender offer or exchange offer
for more than 15% of the Company's Common Stock, subject to limited exceptions.
In the event that any party should acquire more than 15% of the Company's Common
Stock without the Board's approval, the rights entitle all other shareholders to
purchase shares of the Company's Common Stock at a substantial discount. In
addition, if the Company engages in certain types of mergers or business
combinations after a group or person acquires 15% or more of the Company's
Common Stock, the Rights entitle all other shareholders to purchase common stock
of the acquirer at a substantial discount. The Rights expire on November 15,
2009, unless redeemed earlier at the discretion of the Company at the redemption
price of $0.0001 per right.

13.  LOSS ON DISPOSAL

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

14.  DISCONTINUED OPERATION

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

     During 2001, the Company completed a tax basis study for ENVOY. As a result
of this study, the Company's tax basis in ENVOY was determined which resulted in
an approximate $142.0 million reduction in income taxes provided on the sale of
ENVOY.

     The Company retained exclusive rights to de-identified ENVOY transaction
data and certain other de-identified data available from WebMD, subject to
limited exceptions. The Company agreed to share with WebMD a royalty derived
from sales of products using the licensed data. The Company formed a strategic
alliance with WebMD to develop a web-based suite of integrated products and
services for the pharmaceutical industry and may provide funding for development
of the products. As a result of the settlement of litigation between the Company
and WebMD, the Company will continue to receive data from WebMD only through
February 28, 2002. In addition, as part of the settlement, the existing
contracts with WebMD have been terminated, which among other things, absolves
the Company from any obligation to fund WebMD to develop a web-based suite of
integrated products and services. Also, the outstanding warrant to purchase up
to 10 million shares of the Company's Common Stock, at $40 per share, held by
WebMD, was cancelled. The Company recorded an $83.2 million gain from the
settlement of litigation during 2001.

     On March 30, 1999, the Company acquired ENVOY in exchange for 28,465,160
shares of the Company's Common Stock. Outstanding ENVOY options became options
to acquire 3,914,583 shares of the Company's Common Stock ("Exchanged Options").
On May 26, 2000, employees of ENVOY held 3,312,200 options to acquire Company
Common Stock as a result of the Exchanged Options and ENVOY employees'
participation in Company stock option plans. In connection with the sale, all of
the options outstanding immediately vested and became exercisable over a
three-year term. Subsequently, 2,516,062 of the outstanding options were
cancelled and issued with new terms to certain ENVOY employees ("ENVOY
Options"). This transaction resulted in a charge of $50.0 million, based on the
fair value of the options at the date of grant, which reduced the extraordinary
gain from sale of discontinued operation. The ENVOY Options
                                        59
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

have an exercise price of $6.84, vested immediately, have a term of three years
and are automatically exercised if the market price of the Company's Common
Stock reaches $23.34. As of December 31, 2001, all of the stock options have
been exercised.

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

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

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                                2000          1999
                                                              ---------    ----------
<S>                                                           <C>          <C>
Net revenue.................................................   $99,041      $219,908
                                                               =======      ========
Income before income taxes..................................   $27,121      $ 61,438
Income taxes................................................    10,351        25,315
                                                               -------      --------
Net income..................................................   $16,770      $ 36,123
                                                               =======      ========
</Table>

15.  BUSINESS COMBINATIONS

     During the first quarter of 2001, the Company acquired OEC, SA, a
Switzerland-based company that provides drug safety services to the
pharmaceutical industry, and Ungerer Laboratory, a laboratory based in Pretoria,
South Africa specializing in microbiology, molecular biology and hematology.
These transactions were accounted for as purchases with an aggregate purchase
price of approximately $7.1 million.

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

     On January 1, 1999, the Company acquired substantial assets of Aventis
S.A.'s Kansas City-based Drug Innovation and Approval facility for approximately
$93 million in cash of which $58 million and $35 million was paid in 2001 and
1999, respectively. As a part of this transaction, the Company was awarded a
$436 million contract for continued support and completion of ongoing Aventis
S.A. development projects over a five-year period. The Company has recognized
approximately $333 million since inception on this portion of the contract
including adjustments for inflation. In addition, Aventis S.A. offered the
Company the opportunity to provide all U.S. clinical research services up to an
additional $144 million over the same period of which approximately $91 million,
including adjustments for inflation, is remaining at December 31, 2001. The
Company has provided services in excess of the annual opportunity specified in
the contract resulting in revenue of approximately $57 million since contract
inception.

                                        60
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<Table>
<Caption>
                                                                NUMBER OF SHARES OF THE
DATE            ACQUIRED COMPANY                             COMPANY'S COMMON STOCK ISSUED
----            ----------------                             -----------------------------
<S>             <C>                                          <C>
June 3, 1999    SMG Marketing Group, Inc. .................            1,170,291
May 19, 1999    Minerva Medical plc........................            1,143,625
March 31, 1999  Medlab Pty Ltd. and the assets of the
                Niehaus & Botha partnership................              271,146
</Table>

16.  RESTRUCTURING

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

     During the third quarter of 2001, the company recognized a $50.9 million
restructuring charge ("2001 B Plan"). In addition, the Company recognized a
restructuring charge of approximately $1.1 million as a revision of an estimate
to a 2000 restructuring plan. The restructuring charge consists of $31.1 million
related to severance payments, $8.2 million related to asset impairment
write-offs and $12.7 million of exit costs. As part of this restructuring,
approximately 1,000 positions worldwide will be eliminated and as of December
31, 2001, 485 individuals have been terminated. Positions will be eliminated in
each of the segments.

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

<Table>
<Caption>
                             2001 A    2001 B               2001 A    2001 B PLAN    BALANCE AT
                              PLAN      PLAN      TOTAL      PLAN     WRITE-OFFS/   DECEMBER 31,
                             ACCRUAL   ACCRUAL   ACCRUAL   PAYMENTS    PAYMENTS         2001
                             -------   -------   -------   --------   -----------   ------------
<S>                          <C>       <C>       <C>       <C>        <C>           <C>
Severance and related
  costs....................  $1,970    $31,134   $33,104   $(1,970)    $(11,811)      $19,323
Asset impairment
  write-offs...............      --      8,237     8,237        --       (8,237)           --
Exit costs.................     176     11,567    11,743      (176)      (2,761)        8,806
                             ------    -------   -------   -------     --------       -------
                             $2,146    $50,938   $53,084   $(2,146)    $(22,809)      $28,129
                             ======    =======   =======   =======     ========       =======
</Table>

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

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

     Also during the fourth quarter of 2000, management conducted a detailed
review of the resource levels within each business group. Based on this review,
the Company adopted a follow-on restructuring plan ("2000 Follow-On Plan")
resulting in a restructuring charge of $7.1 million. The restructuring charge
consisted of $5.8 million related to severance payments and $1.3 million related
to exit costs. As part of this plan, approximately 220 positions were to be
eliminated mostly in the commercial services group. As of December 31, 2001, 145
individuals have been terminated.

                                        61
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<Table>
<Caption>
                                          ACTIVITY TWELVE MONTHS ENDED DECEMBER 31, 2001
                       ------------------------------------------------------------------------------------
                        BALANCE AT    REVISIONS TO                JANUARY          2000         BALANCE AT
                       DECEMBER 31,     JANUARY      REVISED       2000          FOLLOW-ON     DECEMBER 31,
                           2000        2000 PLAN     ACCRUAL   PLAN PAYMENTS   PLAN PAYMENTS       2001
                       ------------   ------------   -------   -------------   -------------   ------------
<S>                    <C>            <C>            <C>       <C>             <C>             <C>
Severance and related
  costs..............    $ 8,867         $   --      $ 8,867      $(3,530)        $(4,443)        $  894
Exit costs...........      5,788          1,085        6,873       (4,351)           (808)         1,714
                         -------         ------      -------      -------         -------         ------
         Totals......    $14,655         $1,085      $15,740      $(7,881)        $(5,251)        $2,608
                         =======         ======      =======      =======         =======         ======
</Table>

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

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

17.  INCOME TAXES

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

<Table>
<Caption>
                                                          YEAR ENDED DECEMBER 31,
                                                       ------------------------------
                                                         2001        2000      1999
                                                       ---------   --------   -------
<S>                                                    <C>         <C>        <C>
Current:
  Federal............................................  $  13,130   $(46,052)  $21,351
  State..............................................      1,196      2,248     3,764
  Foreign............................................     17,617     15,752    10,099
                                                       ---------   --------   -------
                                                          31,943    (28,052)   35,214
                                                       ---------   --------   -------
Deferred (benefit) expense:
  Federal............................................   (109,228)    24,213    11,320
  Foreign............................................     (9,338)   (12,992)   (3,792)
                                                       ---------   --------   -------
                                                        (118,566)    11,221     7,528
                                                       ---------   --------   -------
                                                       $ (86,623)  $(16,831)  $42,742
                                                       =========   ========   =======
</Table>

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

     The Company has allocated directly to additional paid-in capital
approximately $15.9 million in 2001, $6.8 million in 2000 and $3.7 million in
1999 related to the tax benefit from non-qualified stock options exercised.

                                        62
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<Table>
<Caption>
                                                           YEAR ENDED DECEMBER 31,
                                                        -----------------------------
                                                          2001       2000      1999
                                                        --------   --------   -------
<S>                                                     <C>        <C>        <C>
Federal income taxes at statutory rate................  $(91,874)  $(17,852)  $40,569
State and local income taxes, net of federal
  (detriment) benefit.................................    (1,407)    (1,787)    2,446
Non-deductible expenses and transaction costs.........     6,337         --     9,966
Foreign earnings taxed at different rates.............    (3,208)    (8,833)   (4,240)
Losses not utilized (utilized)........................       911     12,725      (461)
Other.................................................     2,618     (1,084)   (5,538)
                                                        --------   --------   -------
                                                        $(86,623)  $(16,831)  $42,742
                                                        ========   ========   =======
</Table>

     Income (loss) before income taxes from foreign operations was approximately
$14.9 million, ($40.3) million and $27.8 million for the years 2001, 2000 and
1999, respectively. Income (loss) from foreign operations was approximately
$41.2 million, ($11.6) million and $59.5 million for the years 2001, 2000 and
1999, respectively. The difference between income from operations and income
(loss) before income taxes is due primarily to intercompany charges which
eliminate in consolidation. Undistributed earnings of the Company's foreign
subsidiaries amounted to approximately $149.6 million at December 31, 2001.
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.

                                        63
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<Table>
<Caption>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                2001       2000
                                                              --------   ---------
<S>                                                           <C>        <C>
Deferred income tax liabilities:
  Depreciation and amortization.............................  $(31,176)  $ (34,990)
  Prepaid expenses..........................................    (6,330)     (6,958)
  Unrealized gain on equity investments.....................   (12,082)         --
  Revenue and Envoy disposition gain........................    (7,388)    (50,446)
  Other.....................................................   (15,054)    (15,487)
                                                              --------   ---------
Total deferred income tax liabilities.......................   (72,030)   (107,881)
Deferred income tax assets:
  Unrealized loss on debt and equity investments............        --      30,159
  Net operating and capital loss carryforwards..............   173,034      59,923
  Accrued expenses and unearned income......................    21,644      19,262
  Goodwill, net of amortization.............................    72,719      80,009
  Other.....................................................     8,067       7,459
                                                              --------   ---------
                                                               275,464     196,812
Valuation allowance for deferred income tax assets..........   (65,025)    (64,114)
                                                              --------   ---------
Total deferred income tax assets............................   210,439     132,698
                                                              --------   ---------
Net deferred income tax assets..............................  $138,409   $  24,817
                                                              ========   =========
</Table>

     The increase in the Company's valuation allowance for deferred income tax
assets to $65.0 million at December 31, 2001 from $64.1 million at December 31,
2000 is primarily due to the uncertainty related to the deferred income tax
asset for certain foreign net operating losses generated in 2001 that may not be
utilized in the future.

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

<Table>
<Caption>
                                                          YEAR ENDED DECEMBER 31,
                                                       ------------------------------
                                                         2001        2000      1999
                                                       ---------   --------   -------
<S>                                                    <C>         <C>        <C>
(Deficiency) excess of income tax over financial
  reporting:
  Depreciation and amortization......................  $   3,731   $ 16,905   $ 8,322
  Net operating and capital loss carryforwards.......   (113,129)   (29,880)      795
  Valuation allowance increase (decrease)............        911      7,890    (2,120)
  Accrued expenses and unearned income...............     (1,888)    (4,379)   (2,397)
  Prepaid expenses...................................       (628)       919        --
  Deferred revenue...................................     (4,037)    12,050        --
  Other items, net...................................     (3,526)     7,716     2,928
                                                       ---------   --------   -------
                                                       $(118,566)  $ 11,221   $ 7,528
                                                       =========   ========   =======
</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 2001, 2000 and 1999, these

                                        64
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

allowances were $7.8 million, $15.1 million and $9.7 million, respectively,
which helped to generate net operating loss carryforwards of $15.3 million to be
used to offset taxable income in that country. Assuming the U.K. subsidiaries
continue to invest in qualified capital expenditures at an adequate level, the
portion of the deferred income tax liability relating to the U.K. subsidiaries
may be deferred indefinitely. The Company recognizes a deferred income tax
benefit for foreign generated operating losses at the time of the loss when the
Company believes it is more likely than not that the benefit will be realized.
The Company has net operating loss and capital loss carryforwards of
approximately $161.9 million in various entities within the United Kingdom which
have no expiration date and has over $32.7 million of net operating loss
carryforwards from various foreign jurisdictions which have different expiration
periods. In addition, the Company has approximately $211.4 million of U.S. state
operating loss carryforwards which expire through 2021 and has approximately
$1.5 million of U.S. federal operating loss carryforwards which begin to expire
in 2005. The company also has a U.S. capital loss carryforward of approximately
$262 million which expires in 2007. The Company evaluates its deferred income
tax assets for realization based upon the more likely than not criteria
prescribed in SFAS No. 109, "Accounting for Income Taxes." Based upon current
estimates, management believes it is more likely than not that the Company's
deferred income tax assets, after the effect of the recorded valuation
allowance, will be realizable. The ultimate realization of deferred income tax
assets is dependent upon the Company generating future taxable income and
capital gains in sufficient amounts within the applicable carryforward period.
Actual results could differ materially from management's estimates.

18.  WEIGHTED AVERAGE SHARES OUTSTANDING

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

<Table>
<Caption>
                                                            YEAR ENDED DECEMBER 31,
                                                          ---------------------------
                                                           2001      2000      1999
                                                          -------   -------   -------
<S>                                                       <C>       <C>       <C>
Weighted average shares:
  Basic weighted average shares.........................  118,223   115,968   113,525
  Effect of dilutive securities:
     Stock options......................................       --        --     2,162
                                                          -------   -------   -------
  Diluted weighted average shares.......................  118,223   115,968   115,687
                                                          =======   =======   =======
</Table>

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

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

19.  EMPLOYEE BENEFIT PLANS

     The Company has numerous employee benefit plans, which cover substantially
all eligible employees in the countries where the plans are offered.
Contributions are primarily discretionary, except in some countries where
contributions are contractually required. Plans include Approved Profit Sharing
Schemes in the U.K. and Ireland that are funded with Company stock; a defined
contribution plan funded by Company stock in Australia, Belgium, Canada and
Singapore; defined contribution plans in Austria, Belgium, Holland, Israel,
Netherlands, Poland and Great Britain; profit sharing schemes in Australia and
France; and defined benefit plans in Germany, Japan 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.

                                        65
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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

     The ESOP expense recognized is equal to the cost of the shares allocated to
plan participants and the interest expense on the leveraged loans for the year.
ESOP expense totaled $6.2 million and $1.3 million in 2000 and 1999,
respectively. No shares were allocated to the Plan in 2001; therefore, there is
no expense. As of December 31, 2001, 2000 and 1999, 1,511,476, 1,667,449 and
1,510,654 shares, respectively, were allocated to participants. There are no
unallocated shares held in suspense as of December 31, 2001. All ESOP shares are
considered outstanding for income per share calculations.

     Under the 401(k), the Company matches employee deferrals at varying
percentages, set at the discretion of the Board of Directors. For the years
ended December 31, 2001, 2000 and 1999, the Company expensed $9.5 million, $5.1
million and $4.3 million, respectively, as matching contributions.

     Participating employees in the Company's employee stock purchase plan (the
"Purchase Plan") have the option to purchase shares at 85% of the lower of the
closing price per share of common stock on the first or last day of the calendar
quarter. The Purchase Plan is intended to qualify as an "employee stock purchase
plan" under Section 423 of the Internal Revenue Code of 1986, as amended. During
2001, 2000 and 1999, 382,968, 663,531 and 414,971 shares, respectively, were
purchased under the Purchase Plan. At December 31, 2001, 1,309,163 shares were
available for issuance under the Purchase Plan.

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

                                        66
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Stock option activity during the periods indicated is as follows:

<Table>
<Caption>
                                                           NUMBER OF    WEIGHTED-AVERAGE
                                                            OPTIONS      EXERCISE PRICE
                                                           ----------   ----------------
<S>                                                        <C>          <C>
Outstanding at December 31, 1998.........................  10,219,941        $27.99
  Granted................................................   9,064,319         27.56
  Exercised..............................................    (530,872)        20.21
  Canceled...............................................    (868,908)        36.69
                                                           ----------
Outstanding at December 31, 1999.........................  17,884,480         27.59
  Granted................................................  15,340,516         14.78
  Exercised..............................................    (508,412)         9.24
  Canceled...............................................  (5,558,403)        21.98
                                                           ----------
Outstanding at December 31, 2000.........................  27,158,181         21.80
  Granted................................................   8,399,811         18.40
  Exercised..............................................  (2,514,514)        12.88
  Canceled...............................................  (3,158,609)        22.89
                                                           ----------
Outstanding at December 31, 2001.........................  29,884,869        $21.44
                                                           ==========
</Table>

     Pro forma information regarding net income and net income per share is
required by Statement No. 123 and has been determined as if the Company had
accounted for its employee stock options under the fair value method of
Statement No. 123. The per share weighted-average fair value of stock options
granted during 2001, 2000 and 1999 was $5.57, $4.93 and $9.05 per share,
respectively, on the date of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions:

<Table>
<Caption>
                                         EMPLOYEE STOCK OPTIONS     EMPLOYEE STOCK PURCHASE PLAN
                                         -----------------------    ----------------------------
                                         2001     2000     1999      2001       2000       1999
                                         -----    -----    -----    ------     ------     ------
<S>                                      <C>      <C>      <C>      <C>        <C>        <C>
Expected dividend yield................     0%       0%       0%        0%         0%         0%
Risk-free interest rate................   5.0%     5.1%     5.8%      3.9%       5.9%       4.7%
Expected volatility....................  40.0%    40.0%    40.0%     40.0%      40.0%      40.0%
Expected life (in years from
  vesting).............................  0.83     0.86     1.40      0.25       0.25       0.25
</Table>

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

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

<Table>
<Caption>
                                                           YEAR ENDED DECEMBER 31,
                                                        -----------------------------
                                                          2001       2000      1999
                                                        --------   --------   -------
<S>                                                     <C>        <C>        <C>
Pro forma net (loss) income...........................  $(59,399)  $381,204   $81,793
Pro forma basic net (loss) income per share...........     (0.50)      3.29      0.72
Pro forma diluted net (loss) income per share.........     (0.50)      3.29      0.71
</Table>

                                        67
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Selected information regarding stock options as of December 31, 2001
follows:

<Table>
<Caption>
                          OPTIONS OUTSTANDING                                  OPTIONS EXERCISABLE
-----------------------------------------------------------------------   -----------------------------
NUMBER OF                           WEIGHTED-AVERAGE   WEIGHTED-AVERAGE   NUMBER OF    WEIGHTED-AVERAGE
 OPTIONS     EXERCISE PRICE RANGE    EXERCISE PRICE     REMAINING LIFE     OPTIONS      EXERCISE PRICE
---------    --------------------   ----------------   ----------------   ----------   ----------------
<S>          <C>                    <C>                <C>                <C>          <C>
   694,350     $ 1.04 - $ 8.58           $ 6.51              1.54            683,780        $ 6.59
 8,694,836     $ 8.75 - $13.44            13.42              8.14          5,196,346         13.41
 6,008,542     $13.50 - $16.99            15.12              8.92          1,048,462         14.94
 7,811,795     $17.00 - $25.25            20.79              7.77          4,865,957         20.58
 6,675,346     $25.44 - $56.25            39.90              6.00          5,716,681         40.09
----------                                                                ----------
29,884,869                               $21.44              7.57         17,511,226        $23.94
==========                                                                ==========
</Table>

20.  OPERATIONS BY GEOGRAPHIC LOCATION

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

<Table>
<Caption>
                                                      2001         2000         1999
                                                   ----------   ----------   ----------
<S>                                                <C>          <C>          <C>
Net revenue:
  Americas:
     United States...............................  $  814,593   $  929,916   $  870,559
     Other.......................................      39,710       28,710       23,987
                                                   ----------   ----------   ----------
       Americas..................................     854,303      958,626      894,546
  Europe and Africa:
     United Kingdom..............................     330,087      348,267      378,099
     Other.......................................     271,730      233,231      260,096
                                                   ----------   ----------   ----------
       Europe and Africa.........................     601,817      581,498      638,195
  Asia-Pacific...................................     163,752      119,786       74,346
                                                   ----------   ----------   ----------
                                                   $1,619,872   $1,659,910   $1,607,087
                                                   ==========   ==========   ==========
Property and equipment, net:
  Americas:
     United States...............................  $  203,685   $  222,727   $  214,503
     Other.......................................       1,856        2,067        2,211
                                                   ----------   ----------   ----------
       Americas..................................     205,541      224,794      216,714
  Europe and Africa:
     United Kingdom..............................     125,702      133,025      156,067
     Other.......................................      13,640       16,911       20,473
                                                   ----------   ----------   ----------
       Europe and Africa.........................     139,342      149,936      176,540
  Asia-Pacific...................................      17,423       17,230        6,430
                                                   ----------   ----------   ----------
                                                   $  362,306   $  391,960   $  399,684
                                                   ==========   ==========   ==========
</Table>

                                        68
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

21.  SEGMENTS

     The following table presents the Company's operations by reportable
segment. The Company is managed through three reportable segments, namely, the
product development group, the commercial services group and the informatics
group. Management has distinguished these segments based on the normal
operations of the Company. The product development group is primarily
responsible for all phases of clinical research. The commercial services group
is primarily responsible for sales force deployment and strategic marketing
services. The informatics group is primarily responsible for providing market
research solutions and strategic analyses to support healthcare decisions. The
Company allocates corporate assets and assets of the shared service centers to
each segment base upon management's estimates. The Company does not include net
revenue and expenses relating to the Internet initiative, charges related to
restructurings, write-off of goodwill and other assets, disposal of a business,
other income (expense) and income tax expense (benefit) in segment
profitability. Overhead costs are allocated based upon management's best
estimate of efforts expended in managing the segments. There are not any
significant intersegment revenues (in thousands):

<Table>
<Caption>
                                                      2001         2000         1999
                                                   ----------   ----------   ----------
<S>                                                <C>          <C>          <C>
Net revenue:
  Product development............................  $  881,789   $  809,050   $  848,611
  Commercial services............................     679,931      790,199      706,092
  Informatics....................................      58,119       59,709       52,384
  Internet initiative............................          33          952           --
                                                   ----------   ----------   ----------
                                                   $1,619,872   $1,659,910   $1,607,087
                                                   ==========   ==========   ==========
Income (loss) from operations:
  Product development............................  $   37,218   $   (9,330)  $   74,388
  Commercial services............................      37,606       55,568       66,029
  Informatics....................................     (14,329)     (14,234)      (4,062)
  Internet initiative............................     (14,227)     (24,257)          --
                                                   ----------   ----------   ----------
                                                   $   46,268   $    7,747   $  136,355
                                                   ==========   ==========   ==========
Total assets:
  Product development............................  $1,280,830   $  972,047   $  864,785
  Commercial services............................     443,407      366,204      334,706
  Informatics....................................     213,730      344,725      285,093
  Internet initiative............................       9,773      278,602           --
  Net assets of discontinued operation...........          --           --      122,981
                                                   ----------   ----------   ----------
                                                   $1,947,740   $1,961,578   $1,607,565
                                                   ==========   ==========   ==========
Expenditures to acquire long-lived assets:
  Product development............................  $  113,516   $   78,111   $  129,873
  Commercial services............................       7,517       22,563       21,942
  Informatics....................................      12,950        7,196        6,313
  Internet initiative............................          --          912           --
                                                   ----------   ----------   ----------
                                                   $  133,983   $  108,782   $  158,128
                                                   ==========   ==========   ==========
Depreciation and amortization expense:
  Product development............................  $   61,385   $   54,118   $   47,798
  Commercial services............................      23,415       29,167       27,653
  Informatics....................................      11,303        9,242        6,841
  Internet initiative............................          --           40           --
                                                   ----------   ----------   ----------
                                                   $   96,103   $   92,567   $   82,292
                                                   ==========   ==========   ==========
</Table>

                                        69
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

22.  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, 2001
                                             -----------------------------------------------------------------
                                             FIRST QUARTER    SECOND QUARTER   THIRD QUARTER    FOURTH QUARTER
                                             --------------   --------------   --------------   --------------
<S>                                          <C>              <C>              <C>              <C>
Net revenue................................  $      404,470   $      404,300   $      407,103   $      403,999
Income (loss) from operations..............           6,094            7,751          (60,471)          94,803
Income (loss) from continuing operations...           7,791            9,674         (265,911)          72,573
Extraordinary gain from sale of
  discontinued operation, net of income
  taxes....................................              --               --          142,030               --
Net income (loss)..........................  $        7,791   $        9,674   $     (123,881)  $       72,573
                                             ==============   ==============   ==============   ==============
Basic net income (loss) per share:
  Income (loss) from continuing
    operations.............................  $         0.07   $         0.08   $        (2.22)  $         0.61
  Extraordinary gain from sale of
    discontinued operation.................              --               --             1.19               --
                                             --------------   --------------   --------------   --------------
  Basic net income (loss) per share........  $         0.07   $         0.08   $        (1.03)  $         0.61
                                             ==============   ==============   ==============   ==============
Diluted net income (loss) per share:
  Income (loss) from continuing
    operations.............................  $         0.06   $         0.08   $        (2.22)  $         0.60
  Extraordinary gain from sale of
    discontinued operation.................              --               --             1.19               --
                                             --------------   --------------   --------------   --------------
  Diluted net income (loss) per share......  $         0.06   $         0.08   $        (1.03)  $         0.60
                                             ==============   ==============   ==============   ==============
Range of stock prices......................  $14.688-22.875   $15.000-26.050   $12.450-25.500   $13.610-18.900
</Table>

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

                                        70
<PAGE>
                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

23.  SUBSEQUENT EVENTS

     On March 18, 2002, the Company and McKesson Corporation ("McKesson")
announced the signing of a definitive agreement to form a private joint venture
("JV") designed to leverage the operational strengths of the healthcare
information businesses of each company. Under the agreement, the Company and
McKesson would be co-equal owners of the JV, with a portion of the equity in the
JV to be allocated to providers of de-identified healthcare data. The primary
contribution by the Company will be the assets of the Company's informatics
group. Subject to the prior satisfaction or waiver of applicable conditions,
completion of the JV is targeted for the second quarter of 2002.

     On March 22, 2002, the Company acquired certain assets of Bioglan Pharma
Inc. ("Bioglan"), the U.S. subsidiary of U.K.-based Bioglan Pharma Plc, in a
transaction valued at L18.5 million (approximately $26.7 million). As part of
the agreement, the Company has also acquired Bioglan's rights to certain other
dermatology products now on the market in the United States, including
ADOXA(TM), a treatment for severe acne.

                                        71
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Quintiles Transnational Corp.:

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

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

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

                                          ARTHUR ANDERSEN LLP

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

                                        72
<PAGE>

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

     Not applicable.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information on the Company's directors is incorporated by reference from
the Company's definitive proxy statement to be filed with respect to the Annual
Meeting of Shareholders to be held on May 1, 2002. Information on the Company's
executive officers is included in Part I under the caption Executive Officers of
the Registrant on page 16 of this report.

ITEM 11.  EXECUTIVE COMPENSATION

     This information is incorporated by reference from our definitive proxy
statement to be filed with respect to the Annual Meeting of Shareholders to be
held on May 1, 2002.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     This information is incorporated by reference from our definitive proxy
statement to be filed with respect to the Annual Meeting of Shareholders to be
held on May 1, 2002.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     This information is incorporated by reference from our definitive proxy
statement to be filed with respect to the Annual Meeting of Shareholders to be
held on May 1, 2002.

                                    PART IV

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

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

<Table>
<Caption>
FINANCIAL STATEMENTS                                           FORM 10-K PAGE
--------------------                                           --------------
<S>                                                            <C>
Consolidated Statements of Operations for the years ended                  41
  December 31, 2001, 2000 and 1999..........................
Consolidated Balance Sheets as of December 31, 2001 and                    42
  2000......................................................
Consolidated Statements of Cash Flows for the years ended                  43
  December 31, 2001, 2000 and 1999..........................
Consolidated Statements of Shareholders' Equity for the                    44
  years ended December 31, 2001, 2000 and 1999..............
Notes to Consolidated Financial Statements..................               45
Report of Independent Public Accountants....................               72
</Table>

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

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

<Table>
<Caption>
EXHIBIT                                     DESCRIPTION
-------                                     -----------
<C>            <C>  <S>
 3.01(1)        --  Amended and Restated Articles of Incorporation, as amended
 3.02(2)        --  Amended and Restated Bylaws, as amended
 4.01           --  Amended and Restated Articles of Incorporation, as amended
                    (see Exhibit 3.01)
</Table>

                                        73
<PAGE>

<Table>
<Caption>
EXHIBIT                                     DESCRIPTION
-------                                     -----------
<C>            <C>  <S>
 4.02           --  Amended and Restated Bylaws, as amended (see Exhibit 3.02)
 4.03(3)        --  Specimen certificate for Common Stock, $0.01 par value per
                    share
 4.04(4)        --  Amended and Restated Rights Agreement, dated as of November
                    5, 1999 and amended and restated as of May 4, 2000 between
                    Quintiles Transnational Corp. and First Union National Bank,
                    including form of Articles of Amendment of Amended and
                    Restated Articles of Incorporation, form of Rights
                    Certificate and the Summary of Rights to Purchase Preferred
                    Stock
10.01(6)(13)    --  Employment Agreement, dated March 13, 2001, by and between
                    Dr. Pamela J. Kirby and Quintiles Transnational Corp.
10.02(5)(6)     --  Employment Agreement, dated February 22, 1994, by and
                    between Dr. Dennis B. Gillings and Quintiles Transnational
                    Corp.
10.03(6)(7)     --  Amendment to Contract of Employment, dated October 26, 1999,
                    by and between Dr. Dennis B. Gillings and Quintiles
                    Transnational Corp.
10.04(6)        --  Second Amendment to Contract of Employment, dated April 1,
                    2001, by and between Dr. Dennis B. Gillings and Quintiles
                    Transnational Corp.
10.05(6)(7)     --  Amended and Restated Executive Employment Agreement, dated
                    November 30, 1999, by and between Santo J. Costa and
                    Quintiles Transnational Corp.
10.06(6)        --  Independent Consultant Agreement, dated November 20, 2001,
                    by and between Santo J. Costa and Quintiles Transnational
                    Corp.
10.07(6)(7)     --  Executive Employment Agreement, dated June 16, 1998, by and
                    between James L. Bierman and Quintiles Transnational Corp.
10.08(6)(7)     --  Executive Employment Agreement, dated December 3, 1998, by
                    and between John S. Russell and Quintiles Transnational
                    Corp.
10.09(6)(7)     --  Amendment to Executive Employment Agreement, dated October
                    26, 1999, by and between John S. Russell and Quintiles
                    Transnational Corp.
10.10(6)        --  Quintiles Transnational Corp. Equity Compensation Plan, as
                    amended and restated on January 1, 2001
10.11(6)(7)     --  Quintiles Transnational Corp. Elective Deferred Compensation
                    Plan, as amended and restated
10.12(6)        --  Quintiles Transnational Corp. Nonqualified Stock Option
                    Plan, amended January 1, 2001
10.13(8)        --  Underlease, dated November 28, 1997, by and between PDFM
                    Limited and Quintiles (UK) Limited and guaranteed by the
                    Company
10.14(9)        --  Agreement for the Provision of Research Services and Lease
                    of Business Assets dated as of March 3, 1995, between Syntex
                    Pharmaceuticals Limited, Quintiles Scotland Limited,
                    Quintiles (UK) Limited, and Roche Products Limited
10.15(10)       --  Agreement for the Provision of Research Services and
                    Purchase of Business Assets, dated as of January 1, 1999,
                    between Hoescht Marion Roussel, Inc. and Quintiles, Inc.
10.16(11)       --  Agreement and Plan of Merger, dated as of January 22, 2000,
                    among Quintiles Transnational Corp., Healtheon/WebMD
                    Corporation, Pine Merger Corp., Envoy Corp. and Qfinance,
                    Inc.
10.17(12)       --  Data Rights Agreement, dated as of May 26, 2000, by and
                    between Healtheon/WebMD Corporation and Quintiles
                    Transnational Corp. Confidential treatment of portions of
                    this exhibit was granted by the Securities and Exchange
                    Commission on November 22, 2000.
10.18(14)       --  Settlement Agreement, dated October 12, 2001, between
                    Quintiles Transnational Corp. and WebMD Corporation
10.19           --  Master Services Agreement dated as of January 1, 2001
                    between Quintiles Transnational Corp. and A.M. Pappas &
                    Associates, LLC. [Note: Certain confidential portions of
                    this exhibit have been omitted as indicated in the exhibit
                    with an asterisk (*), and filed with the Securities and
                    Exchange Commission.]
</Table>

                                        74
<PAGE>

<Table>
<Caption>
EXHIBIT                                     DESCRIPTION
-------                                     -----------
<C>            <C>  <S>
21              --  Subsidiaries
23.01           --  Consent of Arthur Andersen LLP
24.01           --  Power of Attorney (included on the signature page hereto)
99.01           --  Letter to the Commission regarding representations made by
                    Arthur Andersen LLP.
</Table>

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

 (1) Exhibit to our Quarterly Report on Form 10-Q for the period ended September
     30, 1999, as filed with the Securities and Exchange Commission, on November
     15, 1999, and incorporated herein by reference.

 (2) Exhibit to our Current Report on Form 8-K dated November 5, 1999, as filed
     with the Securities and Exchange Commission on November 5, 1999 and
     incorporated herein by reference.

 (3) Exhibit to our Registration Statement on Form S-8 as filed with the
     Securities and Exchange Commission (File No. 333-92987) effective December
     17, 1999, and incorporated herein by reference.

 (4) Exhibit to our Registration Statement on Form 8-A/A, Amendment No. 1 (File
     No. 000-23520), as filed with the Securities and Exchange Commission on May
     10, 2000, and incorporated herein by reference.

 (5) Exhibit to our Registration Statement on Form S-1, as amended, as filed
     with the Securities and Exchange Commission (File No. 33-75766) effective
     April 20, 1994, and incorporated herein by reference.

 (6) Executive compensation plans and arrangements.

 (7) Exhibit to our Annual Report on Form 10-K for the fiscal year ended
     December 31, 1999, as filed with the Securities and Exchange Commission on
     March 30, 2000, and incorporated herein by reference.

 (8) Exhibit to our Annual Report on Form 10-K for the fiscal year ended
     December 31, 1997, as filed with the Securities and Exchange Commission on
     March 30, 1998, and incorporated herein by reference.

 (9) Exhibit to our Current Report on Form 8-K dated March 6, 1995, as filed
     with the Securities and Exchange Commission on March 20, 1995, and
     incorporated herein by reference.

(10) Exhibit to our Current Report on Form 8-K dated March 3, 1999, as filed
     with the Securities and Exchange Commission on March 3, 1999, and
     incorporated herein by reference.

(11) Exhibit to our Current Report on Form 8-K, dated January 25, 2000, as filed
     with the Securities and Exchange Commission on January 25, 2000, and
     incorporated herein by reference.

(12) Exhibit to our Quarterly Report on Form 10-Q for the period ended June 30,
     2000, as filed with the Securities and Exchange Commission on August 14,
     2000, and incorporated herein by reference.

(13) Exhibit to our Quarterly Report on Form 10-Q for the period ended March 31,
     2001, as filed with the Securities and Exchange Commission on May 15, 2001,
     and incorporated herein by reference.

(14) Exhibit to our Quarterly Report on Form 10-Q for the period ended September
     30, 2001, as filed with the Securities and Exchange Commission on November
     1, 2001, and incorporated herein by reference.

     (b)  Reports on Form 8-K.

     We filed a Current Report on Form 8-K dated October 17, 2001, including as
an exhibit a press release regarding our financial results for the period ended
September 30, 2001.

                                        75
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Durham, North
Carolina, on the 22nd day of March, 2002.

                                          QUINTILES TRANSNATIONAL CORP.

                                          By:    /s/ DENNIS B. GILLINGS
                                            ------------------------------------
                                                 Dennis B. Gillings, Ph.D.
                                             Chairman of the Board of Directors

                                        76
<PAGE>

                        SIGNATURES AND POWER OF ATTORNEY

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

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

<Table>
<Caption>
                      SIGNATURE                                       TITLE                     DATE
                      ---------                                       -----                     ----
<S>      <C>                                             <C>                               <C>

                 /s/ PAMELA J. KIRBY                         Chief Executive Officer       March 22, 2002
 ---------------------------------------------------
                Pamela J. Kirby, Ph.D.


                /s/ DENNIS B. GILLINGS                      Chairman of the Board of       March 22, 2002
 ---------------------------------------------------                Directors
              Dennis B. Gillings, Ph.D.


                 /s/ JAMES L. BIERMAN                     Executive Vice President and     March 22, 2002
 ---------------------------------------------------         Chief Financial Officer
                   James L. Bierman


                 /s/ ROBERT C. BISHOP                               Director               March 22, 2002
 ---------------------------------------------------
               Robert C. Bishop, Ph.D.


                 /s/ VAUGHN D. BRYSON                               Director               March 22, 2002
 ---------------------------------------------------
                   Vaughn D. Bryson


                  /s/ E. G. F. BROWN                                Director               March 22, 2002
 ---------------------------------------------------
                    E. G. F. Brown


               /s/ CHESTER W. DOUGLASS                              Director               March 22, 2002
 ---------------------------------------------------
           Chester W. Douglass, DMD, Ph.D.


                   /s/ JIM D. KEVER                                 Director               March 22, 2002
 ---------------------------------------------------
                     Jim D. Kever


                 /s/ ARTHUR M. PAPPAS                               Director               March 22, 2002
 ---------------------------------------------------
                   Arthur M. Pappas


                  /s/ ERIC J. TOPOL                                 Director               March 22, 2002
 ---------------------------------------------------
                 Eric J. Topol, M.D.


                /s/ VIRGINIA V. WELDON                              Director               March 22, 2002
 ---------------------------------------------------
               Virginia V. Weldon, M.D.
</Table>

                                        77
<PAGE>

                                 EXHIBIT INDEX

<Table>
<Caption>
EXHIBIT                                     DESCRIPTION
-------                                     -----------
<C>            <C>  <S>
 3.01(1)        --  Amended and Restated Articles of Incorporation, as amended
 3.02(2)        --  Amended and Restated Bylaws, as amended
 4.01           --  Amended and Restated Articles of Incorporation, as amended
                    (see Exhibit 3.01)
 4.02           --  Amended and Restated Bylaws, as amended (see Exhibit 3.02)
 4.03(3)        --  Specimen certificate for Common Stock, $0.01 par value per
                    share
 4.04(4)        --  Amended and Restated Rights Agreement, dated as of November
                    5, 1999 and amended and restated as of May 4, 2000 between
                    Quintiles Transnational Corp. and First Union National Bank,
                    including form of Articles of Amendment of Amended and
                    Restated Articles of Incorporation, form of Rights
                    Certificate and the Summary of Rights to Purchase Preferred
                    Stock
10.01(6)(13)    --  Employment Agreement, dated March 13, 2001, by and between
                    Dr. Pamela J. Kirby and Quintiles Transnational Corp.
10.02(5)(6)     --  Employment Agreement, dated February 22, 1994, by and
                    between Dr. Dennis B. Gillings and Quintiles Transnational
                    Corp.
10.03(6)(7)     --  Amendment to Contract of Employment, dated October 26, 1999,
                    by and between Dr. Dennis B. Gillings and Quintiles
                    Transnational Corp.
10.04(6)        --  Second Amendment to Contract of Employment, dated April 1,
                    2001, by and between Dr. Dennis B. Gillings and Quintiles
                    Transnational Corp.
10.05(6)(7)     --  Amended and Restated Executive Employment Agreement, dated
                    November 30, 1999, by and between Santo J. Costa and
                    Quintiles Transnational Corp.
10.06(6)        --  Independent Consultant Agreement, dated November 20, 2001,
                    by and between Santo J. Costa and Quintiles Transnational
                    Corp.
10.07(6)(7)     --  Executive Employment Agreement, dated June 16, 1998, by and
                    between James L. Bierman and Quintiles Transnational Corp.
10.08(6)(7)     --  Executive Employment Agreement, dated December 3, 1998, by
                    and between John S. Russell and Quintiles Transnational
                    Corp.
10.09(6)(7)     --  Amendment to Executive Employment Agreement, dated October
                    26, 1999, by and between John S. Russell and Quintiles
                    Transnational Corp.
10.10(6)        --  Quintiles Transnational Corp. Equity Compensation Plan, as
                    amended and restated on January 1, 2001
10.11(6)(7)     --  Quintiles Transnational Corp. Elective Deferred Compensation
                    Plan, as amended and restated
10.12(6)        --  Quintiles Transnational Corp. Nonqualified Stock Option
                    Plan, amended January 1, 2001
10.13(8)        --  Underlease, dated November 28, 1997, by and between PDFM
                    Limited and Quintiles (UK) Limited and guaranteed by the
                    Company
10.14(9)        --  Agreement for the Provision of Research Services and Lease
                    of Business Assets dated as of March 3, 1995, between Syntex
                    Pharmaceuticals Limited, Quintiles Scotland Limited,
                    Quintiles (UK) Limited, and Roche Products Limited
10.15(10)       --  Agreement for the Provision of Research Services and
                    Purchase of Business Assets, dated as of January 1, 1999,
                    between Hoescht Marion Roussel, Inc. and Quintiles, Inc.
10.16(11)       --  Agreement and Plan of Merger, dated as of January 22, 2000,
                    among Quintiles Transnational Corp., Healtheon/WebMD
                    Corporation, Pine Merger Corp., Envoy Corp. and Qfinance,
                    Inc.
</Table>
<PAGE>

<Table>
<Caption>
EXHIBIT                                     DESCRIPTION
-------                                     -----------
<C>            <C>  <S>
10.17(12)       --  Data Rights Agreement, dated as of May 26, 2000, by and
                    between Healtheon/WebMD Corporation and Quintiles
                    Transnational Corp. Confidential treatment of portions of
                    this exhibit was granted by the Securities and Exchange
                    Commission on November 22, 2000.
10.18(14)       --  Settlement Agreement, dated October 12, 2001, between
                    Quintiles Transnational Corp. and WebMD Corporation
10.19           --  Master Services Agreement dated as of January 1, 2001
                    between Quintiles Transnational Corp. and A.M. Pappas &
                    Associates, LLC. [Note: Certain confidential portions of
                    this exhibit have been omitted as indicated in the exhibit
                    with an asterisk (*), and filed with the Securities and
                    Exchange Commission.]
21              --  Subsidiaries
23.01           --  Consent of Arthur Andersen LLP
24.01           --  Power of Attorney (included on the signature page hereto)
99.01           --  Letter to the Commission regarding representations made by
                    Arthur Andersen LLP.
</Table>

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

 (1) Exhibit to our Quarterly Report on Form 10-Q for the period ended September
     30, 1999, as filed with the Securities and Exchange Commission, on November
     15, 1999, and incorporated herein by reference.

 (2) Exhibit to our Current Report on Form 8-K dated November 5, 1999, as filed
     with the Securities and Exchange Commission on November 5, 1999 and
     incorporated herein by reference.

 (3) Exhibit to our Registration Statement on Form S-8 as filed with the
     Securities and Exchange Commission (File No. 333-92987) effective December
     17, 1999, and incorporated herein by reference.

 (4) Exhibit to our Registration Statement on Form 8-A/A, Amendment No. 1 (File
     No. 000-23520), as filed with the Securities and Exchange Commission on May
     10, 2000, and incorporated herein by reference.

 (5) Exhibit to our Registration Statement on Form S-1, as amended, as filed
     with the Securities and Exchange Commission (File No. 33-75766) effective
     April 20, 1994, and incorporated herein by reference.

 (6) Executive compensation plans and arrangements.

 (7) Exhibit to our Annual Report on Form 10-K for the fiscal year ended
     December 31, 1999, as filed with the Securities and Exchange Commission on
     March 30, 2000, and incorporated herein by reference.

 (8) Exhibit to our Annual Report on Form 10-K for the fiscal year ended
     December 31, 1997, as filed with the Securities and Exchange Commission on
     March 30, 1998, and incorporated herein by reference.

 (9) Exhibit to our Current Report on Form 8-K dated March 6, 1995, as filed
     with the Securities and Exchange Commission on March 20, 1995, and
     incorporated herein by reference.

(10) Exhibit to our Current Report on Form 8-K dated March 3, 1999, as filed
     with the Securities and Exchange Commission on March 3, 1999, and
     incorporated herein by reference.

(11) Exhibit to our Current Report on Form 8-K, dated January 25, 2000, as filed
     with the Securities and Exchange Commission on January 25, 2000, and
     incorporated herein by reference.

(12) Exhibit to our Quarterly Report on Form 10-Q for the period ended June 30,
     2000, as filed with the Securities and Exchange Commission on August 14,
     2000, and incorporated herein by reference.

(13) Exhibit to our Quarterly Report on Form 10-Q for the period ended March 31,
     2001, as filed with the Securities and Exchange Commission on May 15, 2001,
     and incorporated herein by reference.

(14) Exhibit to our Quarterly Report on Form 10-Q for the period ended September
     30, 2001, as filed with the Securities and Exchange Commission on November
     1, 2001, and incorporated herein by reference.