<PAGE>   1

                                    FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                   For the fiscal year ended December 31, 1999

                        Commission file number 340-23520

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

     North Carolina                                   56-1714315
(State of incorporation)                 (I.R.S. Employer Identification Number)

   4709 Creekstone Drive, Suite 200
         Durham, North Carolina                                  27703-8411
(Address of principal executive office)                          (Zip Code)

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

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

                                      None.

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

      Common Stock, $.01 par value per share (and Rights Attached Thereto)
                                (Title of Class)

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

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

         The aggregate market value of the registrant's Common Stock at February
29, 2000 held by those persons deemed by the registrant to be non-affiliates was
approximately $3,024,961,411.

         As of February 29, 2000 (the latest practicable date), there were
115,308,723 shares of the registrant's Common Stock, $.01 par value per share,
outstanding.


<PAGE>   2

                          QUINTILES TRANSNATIONAL CORP.

                             Form 10-K Annual Report

                                      INDEX

                                                                          Page
                                                                          ----
PART I
    Item 1.  Business                                                       1
    Item 2.  Properties                                                    17
    Item 3.  Legal Proceedings                                             17
    Item 4.  Submission of Matters to a Vote of Security Holders           19

PART II
    Item 5.  Market for Registrant's Common Equity and Related
               Stockholder Matters                                         20
    Item 6.  Selected Consolidated Financial Data                          21
    Item 7.  Management's Discussion and Analysis of Financial
               Condition and Results of Operations                         22
    Item 7a. Quantitative and Qualitative Disclosures about Market Risk    36
    Item 8.  Financial Statements and Supplementary Data                   36
    Item 9.  Changes in and Disagreements with Accountants on
               Accounting and Financial Disclosure                         65

PART III
    Item 10.  Directors and Executive Officers of the Registrant           66
    Item 11.  Executive Compensation                                       70
    Item 12.  Security Ownership of Certain Beneficial Owners and
                Management                                                 79
    Item 13.  Certain Relationships and Related Transactions               81

PART IV
    Item 14.  Exhibits, Financial Statement Schedules, and Reports on
                Form 8-K                                                   83



<PAGE>   3

                                     PART I

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

         We caution you that any such forward looking statements are further
qualified by important factors that could cause our actual operating results to
differ materially from those in the forward looking statements, including
without limitation, our dependence on certain industries and customers, the
risks associated with acquisitions, development and commercialization of
potential new services, competition, the loss or delay of large contracts,
dependence on key personnel, potential effects of government regulation and the
other risk factors described elsewhere in this report.

ITEM 1.  BUSINESS

GENERAL

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

         Since our formation in 1982, we have continued to expand the scope of
our services and our geographic presence to support the needs of our customers
on a worldwide basis. We have implemented a number of strategic initiatives to
broaden our array of services and create new opportunities for growth. As part
of this strategy, we have completed approximately 37 acquisitions over the past
five years. Our 1999 acquisitions include:

o    KANSAS CITY FACILITY - January 1, 1999. We completed the acquisition of
     substantial assets of Hoechst Marion Roussel's Kansas City-based Drug
     Innovation and Approval organization and opened a Kansas City contract
     research facility.

o    OAK GROVE TECHNOLOGIES, INC. - February 17, 1999. We acquired Chicago-based
     Oak Grove, a leader in providing current Good Manufacturing Practice, or
     cGMP, compliance services to the pharmaceutical, biotechnology and medical
     device industries.


                                       1

<PAGE>   4

o    PHARMACEUTICAL MARKETING SERVICES INC. - March 29, 1999. We acquired PMSI
     which, through its Scott-Levin subsidiary in the United States, provides a
     range of information and market research services to pharmaceutical and
     healthcare companies to enable them to optimize the performance of their
     sales and marketing activities.

o    ENVOY CORPORATION - March 30, 1999. We acquired ENVOY, a leading provider
     of healthcare electronic data interchange, or EDI, and data mining services
     based in Nashville, Tennessee.

o    MEDLAB PTY LTD AND NEIHAUS AND BOTHA - March 31, 1999. We acquired Medlab
     and the assets of the Niehaus and Botha partnership, which together form a
     South Africa-based clinical laboratory.

o    MINERVA MEDICAL PLC - May 19, 1999. We acquired Minerva Medical, a
     Scotland-based clinical research organization.

o    SMG MARKETING GROUP INC. - June 3, 1999. We acquired SMG, a Chicago-based
     healthcare market information company.

o    MEDCOM, INC. - July 2, 1999. We acquired New Jersey-based Medcom, a leading
     provider of physician meetings and educational events designed to help
     pharmaceutical companies raise awareness of their products among healthcare
     professionals.

o    MEDITRAIN - July 15, 1999. We acquired the business and assets of
     MediTrain, the Netherlands' leading multimedia pharmaceutical sales
     representative training company.

o    MEDICINES CONTROL CONSULTANTS PTY LTD. - August 27, 1999. We acquired MCC,
     a South Africa-based pharmaceutical regulatory consulting group.

         On January 24, 2000, we announced a definitive agreement to sell our
EDI unit, ENVOY, to Healtheon/WebMD Corporation. Under the terms of the
agreement with Healtheon/WebMD, we will receive 35 million shares of
Healtheon/WebMD common stock and $400 million in cash from Healtheon/WebMD. We
have agreed to issue Healtheon/WebMD a warrant to purchase up to 10 million
shares of our common stock at $40 per share, exercisable for four years. In
light of the pending sale of ENVOY, we are treating ENVOY's EDI services as a
discontinued operation.

         Prior to closing this transaction, ENVOY will transfer its Synergy
Health Care informatics subsidiary to us, so Synergy will not be included in the
sale to Healtheon/WebMD.

         In connection with the closing of the acquisition of ENVOY by
Healtheon/WebMD, we plan to enter into an agreement with Healtheon/WebMD to form
a strategic alliance with Healtheon/WebMD to develop and market a Web-based
integrated suite of products and services for the pharmaceutical industry to
improve the speed and efficiency of drug development, physician detailing and
delivery of direct-to-customer healthcare information. Under this agreement,
Healtheon/WebMD will perform development services, and we will provide $100
million in funding for such services.

         In addition to these events, we have entered a number of strategic
alliances and made strategic investments that we believe will position us to
explore new opportunities and areas for potential growth.

SERVICES

         We provide globally integrated contract research, sales, marketing and
healthcare policy consulting and health information management services to the
global pharmaceutical, biotechnology, medical device and healthcare industries.
We also provide market research and strategic analysis services to support
healthcare decisions. We manage our operations through three reportable
segments, namely the Product Development Group, the Commercial Development
Group, and the QUINTERNET(TM) Informatics Group. Management has distinguished
these segments based ON our normal operations. The Product Development Group is
primarily responsible for all phases of clinical


                                       2

<PAGE>   5

research and outcomes research consulting. The Commercial Development Group is
primarily responsible for sales force deployment and strategic marketing
services, as well as healthcare policy research and consulting services. The
QUINTERNET(TM) Informatics Group provides market research and healthcare
information to pharmaceutical and healthcare customers. Note 13 of the notes to
our consolidated financial statements includes financial information regarding
each segment.

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

PRODUCT DEVELOPMENT OFFERINGS

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

         EARLY DEVELOPMENT AND LABORATORY SERVICES

         PRECLINICAL SERVICES. Our preclinical unit provides customers with a
wide array of preclinical and toxicology 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, including developmental and reproductive toxicology, genetic
toxicology, neurotoxicology, carcinogenicity testing, pharmacology, analytical
chemistry, pathology, metabolism and pharmacokinetics.

         FORMULATION, MANUFACTURING AND PACKAGING SERVICES. We offer services in
the design and development of pharmaceutical dose forms as well as the
manufacture of study drugs and placebos and the appropriate packaging of these
for double blinded studies. These services can expedite the drug development
process because clinical trials are often postponed by delays in the manufacture
of study drug materials.

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

         CENTRALIZED CLINICAL TRIAL LABORATORIES. In addition to providing
comprehensive safety and efficacy testing for clinical trials, our centralized
clinical trial laboratories provide site-specific study materials, customized
lab report design and specimen archival and management for study sponsors. Our
centralized laboratories offer a 48-hour turnaround time for laboratory results
and are capable of providing direct electronic integration of laboratory data
into safety and efficacy reports for NDA submissions.

         CLINICAL DEVELOPMENT SERVICES

         CLINICAL TRIAL SERVICES. We offer comprehensive clinical trial services
which are the basis for obtaining regulatory approval for drugs and medical
devices. We have specialized business units and


                                       3

<PAGE>   6

extensive experience in the therapeutic areas of the central nervous system,
cardiovascular, infectious, allergic and respiratory diseases as well as in the
field of oncology. Another business unit specializes in clinical development
services for drugs used in neonatal, pediatric and adolescent care. We also have
significant clinical trials experience in the therapeutic areas of
endocrinological, gastroenterological, genitourinary and musculoskeletal
diseases, as well as in the area of stroke. We are experienced in managing large
trials involving several thousand patients at several hundred sites and in
multinational trials conducted simultaneously in the Americas, Europe, the
Asia-Pacific region and South Africa.

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

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

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

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

                  Study monitoring. We provide study monitoring services which
         include investigational site initiation, patient enrollment assistance,
         and data collection and clarification. Site visits help to assure the
         quality of the data, which are gathered according to Good Clinical
         Practice, or GCP, 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 New Drug
         Application, or NDA, submissions and (3) databases in accordance with
         the United States Food and Drug Administration, or FDA, and European
         specifications.

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

         MEDICAL DEVICE SERVICES. Our service offerings for medical devices
include (1) review of global strategies for device development and introduction,
(2) identification of regulatory requirements in targeted markets, (3) clinical
study design and planning, (4) data management, (5) statistical analysis of
report preparations, (6) global clinical trial management and monitoring
capabilities, (7) consulting on


                                       4

<PAGE>   7

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 DEVELOPMENT OFFERINGS

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

         QUINTILES INTEGRATED STRATEGIC SOLUTIONS

         These offerings focus on strategies and services that bridge all three
service groups.

         LATE PHASE CLINICAL STUDIES. Our late phase clinical services, designed
primarily for Phase IIIb and Phase IV clinical trials, include post-submission
studies in support of marketing claims, post-marketing surveillance and health
management support programs. In designing and implementing these services, we
use clinical and health management programs to promote a favorable environment
for new product introductions in advance of the product launch and to assist in
sales generation post-launch.

         STRATEGIC MARKETING AND COMMUNICATIONS SERVICES. We provide strategic
marketing and communications services to international pharmaceutical companies
beginning in the early stages of product development and continuing through
product launch and peak market penetration. These services include
communications strategy and planning, product positioning and branding, opinion
leader development, symposia organization, patient education and sponsored
publications. As early as Phase II trials, we begin providing marketing
information to help shape data and influence opinion leader support for a new
drug. These services represent the core competencies of Medical Actions
Communications Limited, a leading strategic medical communications consultancy
that we acquired in 1997, and Q.E.D. International Inc., a U.S. provider of
integrated product marketing and communications services that we acquired in
October 1998.

         DISEASE MANAGEMENT SERVICES. Our disease management services provide
healthcare policy research and pharmacoeconomics analysis focused on applying
healthcare outcomes analysis to the economic valuation of drugs and the
treatment of diseases. We also have expertise in developing patient registries
and designing disease management programs. Together, these services enable
regulators, healthcare providers, pharmaceutical and biotechnology companies and
others to assess the pricing and cost-effectiveness of new medical therapies.

         HEALTHCARE POLICY RESEARCH AND CONSULTING. We provide management
consulting focused on improving the quality, availability and cost-effectiveness
of healthcare. We designed our healthcare policy research and healthcare
consulting services to assist customers in evaluating healthcare programs and
policies and developing strategies for doing business in the highly regulated
and rapidly changing healthcare environment. These services include corporate
strategic planning and management, program and policy development, financial and
cost-effectiveness analysis, evaluation design, microsimulation modeling and
data analysis. We perform these services across five general practice areas:
public health and finance policy, healthcare organizations, economic analysis,
managed care and medical technology. We have access to more than 150
healthcare-related databases and have developed the expertise to


                                       5


<PAGE>   8

analyze complex data to respond to our clients' needs. These services represent
the core competencies of the Lewin Group, a nationally recognized healthcare
consulting firm that we acquired in 1996.

         COMMERCIALIZATION OFFERINGS

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

         TRAINING AND MARKETING. We also offer a variety of training and
marketing services to support our contract sales offerings. Our recently
acquired MediTrain subsidiary in the Netherlands offers traditional outsourced
pharmaceutical sales representative training services in addition to a number of
innovative Internet-based and multimedia training products. Through our
Innovex-Medcom Marketing Group subsidiary, acquired in July 1999, we provide
peer-to-peer educational programs, including physician meetings and other
events, as well as telemarketing and other marketing services.

         CUSTOMIZED MARKETING. We provide customized product marketing services
specifically for pharmaceutical companies aimed at influencing the decisions of
patients and physicians and accelerating the acceptance of drugs into treatment
guidelines and formularies. We can assess markets, conduct research, develop
strategies and tactics, assist in discussions with regulatory bodies, identify
distribution channels and coordinate vendors in every region in the country. The
marketing departments of pharmaceutical companies typically purchase such
services. Our team of industry experts, with experience in virtually every
therapeutic area, provides marketing insight into a wide range of geographic
markets while optimizing commercial success.

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

QUINTERNET(TM) INFORMATICS OFFERINGS

         Our Informatics Group provides market research and healthcare
information to pharmaceutical and healthcare customers worldwide. The group
includes Synergy Health Care, which provides real-time


                                       6

<PAGE>   9

medical and pharmaceutical market information to improve the quality and
efficiency of pharmaceutical marketing and healthcare delivery, Scott-Levin,
which provides pharmaceutical and healthcare market research and information,
and SMG, which provides our customers access to and analysis of healthcare
information over the Internet. Our Informatics Group is the foundation of our
QUINTERNET(TM) strategy of providing a comprehensive electronic network to
streamliNE communications and enhance information flow throughout the healthcare
industry.

         SYNERGY SERVICE OFFERINGS. Through our healthcare information
subsidiary, Synergy, we provide the healthcare industry a continuous stream of
daily pharmaceutical and medical information to improve management of product
portfolios and healthcare decision-making. We use what we believe is the
healthcare industry's largest database combining medical and pharmaceutical
data, refreshed daily, to provide real time information about pharmaceutical
use, medical interventions and outcomes. The data used are aggregated from
medical and pharmacy transactions and do not identify individual patients. We
also provide strategic marketing information and analytic services to the
pharmaceutical industry. Our Synergy services provide customers with insights
into how their products are utilized by patients, physicians and payors, and how
their products can best be positioned. These products and 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.

                  Custom studies. We use the data in our Synergy database to
         provide custom studies and syndicated reports for clients. Leveraging
         what we believe are the unique aspects of our data, such as patient
         demographics and medical information, Synergy custom studies can help
         to answer clients' most critical business questions. Clients often use
         Synergy's custom studies to gain a better understanding of how drugs
         are utilized by patients and physicians.

                  e-Health products. We are developing the QUINTERNET_ Series, a
         group of 17 internet-based decision support products that allow
         customers quick access to information and in-depth analyses on drug use
         and disease treatment patterns. Powered by an online analytical
         processing engine, the QUINTERNET_ Series helps customers to answer
         their most critical business questions in real time by using an
         interactive query tool that searches a series of large data sets to
         access information and deliver results. The first product, Rx Market
         Monitor (TM), was launched in a Beta version February 1, 2000 and is
         currently being used by four pharmaceutical clients. Full commercial
         launch for this product is scheduled for the second quarter of 2000.
         Each QUINTERNET_ Series product is targeted at a specific customer
         segment, such as pharmaceutical manufacturers, payors, providers or
         patients. Data underlying the QUINTERNET_ Series products are different
         from traditional, prescription-only data sets with respect to speed and
         level of patient information available

         PLANNED COLLABORATION WITH HEALTHEON/WEBMD. After the completion of the
proposed sale of ENVOY, we will retain exclusive rights to de-identified ENVOY
transaction data and certain other de-identified Healtheon/WebMD healthcare
data, subject to limited exceptions. We have agreed to share a royalty derived
from sales of products using the licensed data with Healtheon/WebMD. We intend
to use the data obtained under these arrangements to create and sell to our
healthcare customers analytical informatics products based upon such data. In
connection with our planned strategic alliance with Healtheon/WebMD to develop
and market a web-based integrated suite of products and services for the
pharmaceutical industry, we have agreed to provide Healtheon/WebMD with funding
to develop these products and services. We intend to target three areas of
Internet products: drug development, physician detailing and direct-to-consumer
information delivery. We will share revenues from these jointly


                                       7


<PAGE>   10

developed web-based products and services with Healtheon/WebMD, and
Healtheon/WebMD will be the exclusive provider of these services.

         SCOTT-LEVIN SERVICES. Through our PMSI/Scott-Levin subsidiary, we
provide a range of pharmaceutical and healthcare information and market research
services. These services are comprised of (1) proprietary databases and
syndicated market research audits, (2) managed health care services, (3) state
government affairs services, (4) issues-oriented strategic studies and surveys
and (5) consulting services and software solutions.

                  Proprietary healthcare databases and syndicated market
         research audits. Through self-administered surveys, we maintain
         comprehensive proprietary databases that contain (1) information
         collected from physicians on their diagnoses and prescribing
         activities, (2) information regarding the incidence of, and response
         to, direct selling and other promotion activities, (3) information
         regarding healthcare legislation and key influencers in the United
         States and (4) managed care information, detailing cost containment
         measures imposed by United States managed care organizations, or MCOs,
         that influence or restrict physicians' prescribing activities. Our
         Scott-Levin databases do not hold any identifiable individual patient
         data. Pursuant to a contract with National Data Corporation, or NDC, we
         obtain prescription information which NDC collects from approximately
         34,000 pharmacies located across the United States. We create projected
         state and national data on product level prescription movement from
         which we generate the Source Prescription Audit, among other things.

                  Our syndicated market research audits are generated from
         databases containing information collected by questionnaire, diary or
         personal interview, dispensed prescriptions and secondary research. The
         results of the audits are delivered in hard copy or through PC-based
         data delivery systems. These audits include (1) the Source Prescription
         Audit, including data supplied by NDC, which analyzes pharmaceutical
         prescription activity, (2) the Physician Drug and Diagnosis Audit,
         which analyzes the pharmaceuticals prescribed by physicians relative to
         associated diagnosis, (3) the Personal Selling Audit or PSA, which
         analyzes the effectiveness of the client company'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 this 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 to 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 health care and health care related issues of
         interest in all 50 states, the District of Columbia and Puerto Rico. In
         addition,


                                       8

<PAGE>   11

         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 clients use (1) to
         study specific issues and trends in the marketplace and the broader
         health care 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.

         SMG SERVICES. Through our SMG Marketing Group subsidiary, acquired in
1999, we maintain proprietary regional databases covering most United States
healthcare facilities. Our SMG databases contain information on more than
200,000 healthcare facilities nationwide, including health management
organizations, 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, in
1999 we launched WebMCOInSite(TM), 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.

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.

         We are a market leader in providing full service contract research,
sales, marketing and healthcare policy consulting and health information
management services to the global medical device and healthcare industries. Due
to our agreement to sell ENVOY, ENVOY is being accounted for as a discontinued
operation; therefore, the results of ENVOY are not included in our net revenue
and are reported separately. We also provide insightful market intelligence and
strategic analysis to support healthcare decisions. For the year ended December
31, 1999, approximately 54.2% of our net revenue from external customers was
attributed to operations in the United States and 45.8% 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 38.83%, 39.12%, and 39.60% of
our net revenue was attributed to our clinical development services in 1999,
1998 and 1997, respectively; approximately 37.53%, 41.20% and 44.88% of our net
revenue was attributed to our commercialization services in 1999, 1998 and 1997,
respectively; and approximately 13.58%, 11.27% and 11.22% of our net revenue was
attributed to our early development and laboratory services in 1999, 1998 and
1997 respectively. Neither our integrated strategic services nor our informatics
services accounted for more than 10% of our net revenue in any of these years.


                                       9

<PAGE>   12

         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 2000 and in future
years. Although no customer accounted for more than 10% of our consolidated net
revenue in 1998 or 1997, Hoechst Marion Roussel accounted for approximately 11%
of our consolidated net revenue in 1999.

COMPETITION

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

         Competitive factors for product development services include (1)
previous experience, (2) medical and scientific experience in specific
therapeutic areas, (3) the quality of contract research, (4) speed to
completion, (5) the ability to organize and manage large-scale trials on a
global basis, (6) the ability to manage large and complex medical databases, (7)
the ability to provide statistical and regulatory services, (8) the ability to
recruit investigators, (9) the ability to integrate information technology with
systems to 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 development 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 seventeen years, our market position may be
affected in the future by competitors' efforts to create or acquire enhanced
databases or to develop and market new information products and services. In
addition, our market position could be adversely affected if our competitors
secure exclusive rights to data that we require for our informatics services. In
addition, 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 February 29, 2000, we had approximately 20,453 employees,
comprised of approximately 10,601 in the Americas, 8,792 in Europe and Africa
and 1,060 in the Asia-Pacific region. As of February 29, 2000, our Product
Development Group


                                       10

<PAGE>   13

had 8,975 employees, our Commercial Development Group had 9,779 employees, and
our QUINTERNET(TM) Informatics Group had 389 employees. In addition, 17
employees worked on our Internet capabilities, 181 were in our centralized
operations/corporate office and 1,112 worked for our ENVOY subsidiary.


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,
1999, backlog was approximately $2.2 billion, as compared to approximately $1.9
billion at December 31, 1998.

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

POTENTIAL LIABILITY

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


                                       11

<PAGE>   14

GOVERNMENT REGULATION

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

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

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

         We write our standard operating procedures related to clinical studies
in accordance with regulations and guidelines appropriate to the region where
they will be used, thus helping to ensure compliance with GCP. Within Europe, we
perform our work subject to the European Community Note for Guidance "Good
Clinical Practice for Trials on Medicinal Products in the European Community."
Studies beginning after January 17, 1997 to be submitted to the European
Medicines Evaluation Agency must meet the requirements of the International
Congress of Harmonization - GCP. In addition, FDA regulations and guidelines
serve as a basis for our North American standard operating procedures. Our
offices in the Asia-Pacific region have developed standard operating procedures
in accordance with their local requirements and in harmony with our North
American and European operations.

         Our commercial development services are subject to detailed and
comprehensive regulation in each geographic market in which we operate. Such
regulation relates, among other things, to the distribution of drug samples, the
qualifications of sales representatives and the use of healthcare professionals
in sales functions. In the United States our commercial development services are
subject to the Prescription Drug Marketing Act with regard to the distribution
of drug samples. In the U.K., they are subject to the Association of the British
Pharmaceutical Industry Code of Practice for the


                                       12

<PAGE>   15

Pharmaceutical Industry, which prescribes, among other things, an examination
that must be passed by sales representatives within two years of their taking up
employment, and which prevents the employment of healthcare professionals as
sales representatives. We follow similar guidelines which are in effect in the
other countries where we offer commercial development services.

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

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

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

         Specifically, various initiatives being considered at the federal level
could impact the manner in which we conduct our informatics business. The Health
Insurance Portability and Accountability Act of 1996, or HIPAA, requires the use
of standard transactions, standard identifiers, security and other
administrative simplification provisions and instructs the Secretary of Health
and Human Services, or HHS, to promulgate regulations regarding these standards.
Proposed regulations in each area have been published but final rules have not
been completed because of delays by HHS. Consequently, compliance dates are
unknown. The Act also requires the Secretary of HHS to develop recommendations
regarding the privacy of individually identifiable health information. On
September 11, 1997, the Secretary


                                       13

<PAGE>   16

presented her recommendations, which, among other things, advised that patient
information should not be disclosed except when authorized by the patient. This
Act further established an August 1999 deadline for Congress to enact privacy
legislation and directed the Secretary to issue regulations setting privacy
standards to protect health information that is transmitted electronically in
the event that Congress missed its deadline. Congress did not meet the August
1999 deadline.

         On November 3, 1999, the Secretary of HHS issued a Notice of Proposed
Rulemaking for "Standards for Privacy of Individually Identifiable Health
Information" to implement the privacy requirements of HIPAA. These proposed
regulations would (1) impose standards for entities transmitting protected data
in electronic form with respect to the rights of individuals who are the subject
of protected health information and (2) establish procedures for (a) the
exercise of those individuals' rights and (b) the uses and disclosure of
protected health information. The comment period for these proposed rules ended
February 17, 2000. We understand generally that final regulations will be issued
no earlier than 60 days after the end of the comment period, however, HHS has
indicated that a significant delay is likely which will add additional months to
the expected date of the final rules.

         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. If such legislation were adopted, it could prevent third
party processors from using, transmitting or disclosing certain treatment and
clinical data. It is difficult to predict the impact of the legislation and
regulations described above, but such legislation and regulations could
materially adversely affect our business.

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

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

DISCONTINUED OPERATION -- ENVOY EDI SERVICES

         Through our ENVOY subsidiary's EDI operations, which we have agreed to
sell to Healtheon/WebMD, we provide various EDI and transaction processing
services to participants in the healthcare market.


                                       14

<PAGE>   17

         REAL-TIME TRANSACTION PROCESSING. ENVOY provides real-time transaction
processing for pharmacy claim adjudication and medical transactions for health
care providers and payors.

         A standard pharmacy transaction is the inquiry by the pharmacy, through
a point-of-service terminal or personal computer terminal, to determine whether
the patient is covered by a benefit program. After eligibility is confirmed, the
claim is settled, and the payor transmits to the pharmacy the amount and timing
of the pending payment.

         ENVOY's real-time managed care transactions between providers and
payors include (1) verification of the patient's enrollment in a program, (2)
verification that the provider is eligible to treat the patient, (3)
verification that the patient is eligible for a particular treatment, (4) filing
of encounter data, (5) referral to a specialist and (6) other ancillary
transactions. These transactions are enabled by ENVOY's network connections to
various databases.

         In addition, if the patient wishes to pay the deductible or co-payment
amounts by credit card, ENVOY's services provide the ability to obtain payment
authorization and verification at the provider's offices.

         BATCH TRANSACTION PROCESSING. ENVOY is one of the nation's largest
processors of commercial third-party payor claims with electronic connections to
a significant number of health care providers and payors across the United
States. Batch transactions are predominantly used to process reimbursement
claims in traditional fee-for-service commercial or government payor systems and
to process encounter data in capitated environments. These transactions are
neither time-sensitive nor easily processed on a real-time basis and, as a
result are processed on a collective and delayed basis, usually daily. To submit
claims, health care providers collect data throughout the day and then
electronically forward these claims in bulk to a clearinghouse. ENVOY's
clearinghouse electronically collects and verifies receipt of the claims and
performs reformatting required to conform to a particular payor's
specifications, aggregates daily transactions by payor and transmits claims to
payors based upon each payor's chosen communication protocols.

         EDI PRODUCTS AND INTERFACES. ENVOY has a range of hardware and software
products and interfaces to facilitate the adoption of EDI by its customers.
ENVOY supports industry standards of the American National Standards Institute,
X12N Subcommittee and Healthcare Financing Administration National Standards.

                  Enline(R). ENVOY's Enline family of proprietary software
         products perform all of the transactionS of a stand alone
         point-of-service terminal and have enhanced functionality to facilitate
         both batch and real-time processing. The point-of-service terminal
         product, called Enline Genesis, is designed to handle real-time
         transactions and to rapidly and cost effectively connect a significant
         number of providers into the transaction network. The point-of-service
         terminals can be accessed remotely to modify application software and
         communications parameters, allowing ENVOY the flexibility to implement
         changes in services relatively easily. Point-of-service terminals often
         are purchased from ENVOY by payors, who are sponsoring a


                                       15

<PAGE>   18

         managed care network, and offered by the payors to providers free of
         charge. In addition, providers may purchase terminals from ENVOY for a
         fee.

                  ENVOY has also developed certain Enline PC-based products with
         enhanced functionality features and open Application Program
         Interfaces, or APIs. The APIs are established at the operating system
         level and are designed to enable ENVOY's software to run on a wide
         variety of operating systems including DOS, UNIX and Windows. The
         Enline PC-based products can either function as a stand alone data
         entry system or work in conjunction with physician practice management
         software. The stand alone version, Enline Companion, is offered
         directly to providers. ENline Synergy is designed for integration into
         a practice management software product. In conjunction with the
         practice management vendor, ENVOY integrates Enline Synergy into the
         practice management system for distribution by the practice management
         vendor to the provider. Enline Synergy also controls the editing and
         distribution of the information from the practice management system to
         ENVOY's network.

                  Batch Claims Processing. ENVOY also has a number of
         specialized proprietary software products for processing batch health
         care transactions. The older versions of these products, POSI-DOS and
         ACU-CLAIM, are DOS-based products designed to allow health care
         providers to process batch transactions directly with commercial
         payers. ENVOY's next generation batch claims product, called
         Xpedite(TM), incorporates the features and functionality of POSI-DOS
         and ACU-CLAIM into a Windows-based, 32 bit encryption environment which
         is designed to simplify and expand the editing and reporting
         functionality for providers.

                  Automatic eligibility verification. The technology interfaces
         with hospital and large practice management information systems to
         automatically verify patient eligibility at the time of admission or
         scheduling. Eligibility requests are obtained from ENVOY's real-time
         transaction processing network. In addition to eligibility
         verification, ENVOY's eligibility verification system provides
         statistical reporting on patient demographics for hospitals and/or
         physician practices.

                  Automatic transaction posting. This technology is used for
         automatic posting of transactions into a hospital or practice
         management information system. This technology, which has been
         integrated to work in tandem with the automatic eligibility
         verification technology, uses transactions obtained from ENVOY's
         real-time and batch processing centers to perform automated remittance
         posting, accelerated secondary billing and member update of eligibility
         information.

         PATIENT STATEMENTS. Through ENVOY's ExpressBill subsidiary, ENVOY is
able to offer automated patient billing services to the hospital and other
healthcare provider markets. ENVOY's patient statement services include
electronic data transmission and formatting, statement printing and mailing
services for healthcare providers and practice management system vendors.

         ENVOY CUSTOMERS AND MARKETING. ENVOY provides EDI services to health
care providers, such as pharmacies, physicians, hospitals, dentists, labs and
billing services, and third-party payors, such as commercial indemnity insurers,
managed care organizations and state and federal government agencies.

         ENVOY COMPETITION. Potential competition in the healthcare EDI and
transaction processing market arises not only from companies as specialized as
ENVOY, including former regional partners of


                                       16

<PAGE>   19

ENVOY that have direct provider relationships, but also from companies involved
in other, more highly developed sectors of the electronic transaction processing
market. Such companies could enter into, or focus more attention on, the
healthcare transaction processing market as it develops. In addition, ENVOY
faces competition by selected providers bypassing its electronic network and
going directly to the payor. There can be no assurance that ENVOY can continue
to compete successfully with its existing and potential competitors in the
healthcare EDI and transaction processing market. Factors influencing
competition in the healthcare market include (1) compatibility with the
provider's software and inclusion in practice management software products, (2)
in the case of the pharmacy market, relationships with major retail pharmacy
chains and (3) relationships with third-party payors and managed care
organizations. ENVOY believes that the breadth, price and quality of its
services are the most significant factors in developing and maintaining
relationships with pharmaceutical chains, third-party payors and managed care
organizations.

         ENVOY GOVERNMENTAL REGULATION. Governmental regulatory policies affect
the charges for and the terms of ENVOY's access to private line and public
communications networks for its EDI business. ENVOY must obtain certification on
the applicable communications network for design innovations for
point-of-service, or POS, devices and proprietary software. Any delays in
obtaining necessary certifications with respect to future products and services
could delay their introduction. In addition, the Federal Communications
Commission requires ENVOY's EDI products and services to comply with certain
rules and regulations governing performance. ENVOY believes that its existing
products and services comply with all current rules and regulations. ENVOY can
give no assurance, however, that such rules and regulations regarding access to
communications networks will not change in the future. Changes in such rules,
regulations or policies or the adoption of legislation that makes it more costly
to communicate on networks could adversely affect the demand or the cost of
supply services in the healthcare EDI transaction processing business. ENVOY is
also subject to regulations governing privacy and the collection and use of
data, as described above.


ITEM 2.  PROPERTIES

         As of February 29, 2000 we had approximately 135 offices located in 30
countries. Our executive headquarters is located adjacent to Research Triangle
Park, North Carolina. We maintain substantial offices serving our Product
Development Group in Durham, North Carolina; Kansas City, Missouri; Smyrna,
Georgia; Bracknell, England; Irene, South Africa; Tokyo, Japan; and Singapore.
We also maintain substantial offices serving our Commercial Development Group in
Parsippany, New Jersey; Falls Church, Virginia; New York, New York and Marlow,
England. Substantial offices serving our Informatics Group are located in
Newtown, Pennsylvania and Chicago, Illinois. ENVOY's principal office facilities
are in Nashville, Tennessee. We own facilities that serve our Product
Development Group in Ledbury, England; Lenexa, Kansas; Riccarton, Scotland;
Bathgate, Scotland; Glasgow, Scotland; and Freiburg, Germany. Additionally, we
own a corporate office in London, England. All of our other offices are leased.
We believe that our facilities are adequate for our operations and that suitable
additional space will be available when needed.

ITEM 3.  LEGAL PROCEEDINGS

         On February 12, 1999, Kenneth Hodges filed a civil lawsuit in the State
Court of Fulton County Georgia naming as defendants Richard L. Borison, Bruce I.
Diamond, BASF Corporation, Pfizer, Inc., Merck & Company, Inc., Wyeth-Ayerst
Laboratories Company, Zeneca, Inc., Janssen Pharmaceutica Inc., Smithkline
Beecham Corporation, Hoechst Marion Roussel, Inc., Glaxo Wellcome, Inc., Abbott


                                       17

<PAGE>   20

Laboratories, Bristol-Myers Squibb Company, Warner-Lambert Company, Monsanto
Company, Novartis Pharmaceuticals Corporation and Quintiles Laboratories
Limited, one of our subsidiaries. The complaint alleges that certain drug trials
conducted by Drs. Borison and Diamond in which Hodges alleges he participated
between 1988 and 1996 were not properly conducted or supervised, that Hodges had
violent adverse reactions to many of the drugs and that his schizophrenia was
aggravated by the drug trials. Consequently, Hodges alleges that he was subject
to severe mortification, injured feelings, shame, public humiliations,
victimization, emotional turmoil and distress. The complaint alleges claims for
battery, fraudulent inducement to participate in the drug experiments, medical
malpractice, negligence in conducting the experiments, and intentional
infliction of emotional distress. Hodges seeks to recover his actual damages in
unspecified amounts, medical expenses, litigation costs, and punitive damages.
Alleged damages are in excess of $100 million.

         The complaint does not contain any specific allegations against
Quintiles Laboratories Limited nor any specific factual connection between us
and Hodges' claims. We have denied the allegations and are vigorously defending
this action. Quintiles Laboratories Limited filed a motion to dismiss for
failure to file an expert affidavit, a motion to strike the expert affidavit
subsequently filed and a motion to dismiss based upon the statute of limitations
and the failure to plead fraud with particularity. Quintiles Laboratories
Limited has also filed a motion for summary judgment based on the contention
that it is not a proper party to the action. None of these motions has been
ruled upon. We believe that the claims alleged against us in this action are
vague and meritless and that the recovery sought is baseless.

         On September 30, 1999 a class action lawsuit was filed in the United
States District Court for the Middle District of North Carolina against us and
two 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. The complaint alleges violations of federal securities
laws, including violations of Section 10(b) of the Securities Exchange Act of
1934 and Rule10b-5 thereunder. In particular, among other claims, the complaint
alleges that the defendants made certain statements about our anticipated growth
that were misleading because they failed to disclose that the pharmaceutical
industry allegedly had reversed its trend of outsourcing clinical trials and
that we had been notified that clinical trials for a class of cardiovascular
drugs would be discontinued. The complaint seeks unspecified damages, plus costs
and expenses, including attorneys' fees and experts' fees. We believe that the
claims are without merit and intend to defend the suit vigorously.

         Since September 30, 1999, three additional class action complaints have
been filed against us in the same court. These three new actions assert
essentially the same claims and seek the same relief as the original complaint.
One of the new complaints, filed October 26, 1999, seeks to expand the class to
include a purported sub-class of persons who purchased Quintiles call options,
or sold Quintiles put options, during the class period. A group of investors in
three of the actions against us has filed a motion asking that all of the
actions be consolidated and that they be appointed as lead plaintiffs. The court
has not yet ruled on this motion. We anticipate, however, that all of the
existing lawsuits, and any additional suits that may be filed, ultimately will
be consolidated into a single action. We continue to believe that all of the
claims are without merit and intend to defend the lawsuits vigorously.

         Class action complaints were filed on each of August 20, 1998, August
21, 1998 and September 15, 1998, in the United States District Court, Middle
District of Tennessee, Nashville Division, against ENVOY and certain of its
executive officers. On December 28, 1998, the plaintiffs filed, pursuant to the
Court's instructions, a Consolidated Class Action Complaint, consolidating the
three cases into a single action. The complaint alleges, among other things,
that from February 12, 1997 to August 18, 1998, the defendants issued materially
false and misleading statements about ENVOY, its business, operations and
financial position and failed to disclose material facts necessary to make


                                       18

<PAGE>   21

defendants' statements not false and misleading in violation of Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5
promulgated thereunder, and also asserts additional claims under Tennessee
common law for fraud and negligent misrepresentation. The complaint alleges that
ENVOY failed to disclose that its financial statements were not prepared in
accordance with generally accepted accounting principles due to the improper
write-off of certain acquired in-process technology, resulting in ENVOY's stock
trading at allegedly artificially inflated prices during the relevant period.
The plaintiffs voluntarily dismissed their state law claims. On September 15,
1999, the Federal Court for the Middle District of Tennessee granted ENVOY's
motion to dismiss the Consolidated Complaint. The Court dismissed the
Consolidated Complaint without prejudice. On November 23, 1999 the plaintiffs
filed what they deemed to be an Amended Consolidated Complaint asserting the
same causes of action. Defendants moved to strike the purported Amended
Consolidated Complaint on the ground that the September 1999 dismissal order did
not grant plaintiffs leave to file an amended complaint (but does allow them to
file a new lawsuit). On January 6, 2000 the plaintiffs then moved to
administratively re-open the case, which motion the court granted on January 24,
2000, and then transferred the case to another district judge. Defendants'
motion to strike the purported Amended Consolidated Complaint is still pending
before the new district judge. The plaintiffs in this action seek unspecified
compensatory damages, attorney's fees and other relief. We believe that these
claims are without merit and intend to defend the allegations vigorously.
Neither the likelihood of an unfavorable outcome nor the amount of the ultimate
liability, if any, with respect to these claims can be determined at this time.

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

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

         Not applicable.


                                       19

<PAGE>   22

                                     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.

          CALENDAR PERIOD                          HIGH                LOW
          ---------------                          ----                ---

Quarter ended March 31, 1998..............        $52.428            $34.000
Quarter ended June 30, 1998...............         53.500             42.250
Quarter ended September 30, 1998..........         52.000             33.375
Quarter ended December 31, 1998...........         56.875             41.000

Quarter ended March 31, 1999..............        $53.375            $34.625
Quarter ended June 30, 1999...............         45.500             34.750
Quarter ended September 30, 1999..........         41.938             16.875
Quarter ended December 31, 1999...........         25.031             16.000

         As of February 29, 2000, there were approximately 35,850 beneficial
owners of our common stock, including 1,204 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

         During the three months ended December 31, 1999, options to purchase
7,000 shares of our common stock were exercised at an average exercise price of
$2.3232 per share in reliance on Rule 701 under the Act. We granted these
options before we became subject to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended, pursuant to our Nonqualified
Employee Incentive Stock Option Plan.


                                       20



<PAGE>   23

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, 1999 and the
Consolidated Balance Sheet Data set forth below as of December 31, 1999 and 1998
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 1996 and 1995, and the
Consolidated Balance Sheet Data set forth below as of December 31, 1997, 1996
and 1995 are derived from our consolidated financial statements. The results of
our ENVOY Corporation subsidiary have been reported separately as a discontinued
operation in the consolidated financial statements as we have entered into an
agreement for the proposed sale of this subsidiary. 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, one transaction in 1997 and two transactions
in 1996, 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,
                                                  ------------------------------------------------------------------------
                                                     1999            1998           1997        1996 (1,3)       1995 (1)
                                                  ----------      ----------      ---------     ----------       ---------
                                                                   (In thousands, except per share data)
<S>                                               <C>             <C>             <C>           <C>              <C>
Net revenue                                       $1,607,087      $1,221,776      $ 885,557      $ 627,251       $ 387,787
Income from operations                               136,355         129,389         91,814         46,495          25,111
Income from continuing operations before
   income taxes                                      115,910         125,567         89,439         26,864          23,368
Income from continuing operations                     73,168          85,643         58,063         11,625          14,088
Income (loss) from discontinued operation,
   net of income taxes                                36,123           2,926         (9,197)       (37,217)         (2,122)
Net income (loss) available for
   common shareholders                            $  109,291      $   88,569      $  48,866     $  (27,377)      $  11,247
                                                  ==========      ==========      =========     ==========       =========
Basic net income (loss) per share:
   Income from continuing operations              $     0.64      $     0.82      $    0.58     $     0.13       $    0.17
   Income (loss) from discontinued operation            0.32            0.03          (0.09)         (0.41)          (0.03)
                                                  ----------      ----------      ---------     ----------       ---------
   Basic net income (loss) per share              $     0.96      $     0.85      $    0.49     $    (0.30)      $    0.13
                                                  ==========      ==========      =========     ==========       =========

Diluted net income (loss) per share:
   Income from continuing operations              $     0.63      $     0.77      $    0.54     $     0.13       $    0.16
   Income (loss) from discontinued operation            0.31            0.03          (0.09)         (0.41)          (0.02)
                                                  ----------      ----------      ---------     ----------       ---------
   Diluted net income (loss) per share            $     0.94      $     0.80      $    0.46     $    (0.30)      $    0.13
                                                  ==========      ==========      =========     ==========       =========
Weighted average shares outstanding: (2)
   Basic                                             113,525         104,799         99,908         91,693          83,465
   Diluted                                           115,687         110,879        107,141         91,693          85,826
</TABLE>
<TABLE>
<CAPTION>
                                                                              As of December 31,
                                                  ------------------------------------------------------------------------
                                                      1999           1998           1997         1996 (1)         1995 (1)
                                                  ----------      ----------      ---------     ----------       ---------
                                                                     (In thousands, except employees)
<S>                                               <C>             <C>             <C>           <C>              <C>
Cash and cash equivalents                         $  191,653      $  128,621      $  84,597     $   76,129       $  85,585
Working capital, excluding discontinued
  operation(4)                                        69,235         197,005        166,866        103,736          73,563
Total assets                                       1,656,622       1,170,108        958,268        691,035         377,423
Long-term debt including current portion             184,784         191,601        186,972        188,027          56,763
Shareholders' equity                              $  991,759      $  646,132      $ 517,283     $  278,574       $ 183,132
Employees                                             20,496          16,732         12,717          8,998           5,553
</TABLE>
1        Prior to our November 29, 1996 share exchange with Innovex Limited,
         Innovex had a fiscal year end of March 31 and we had (and continue to
         have) a fiscal year end of December 31. As a result, the pooled data
         presented above for 1995 include Innovex's March 31 fiscal year data in
         combination with our December 31 fiscal year data. In connection with
         the share exchange, Innovex changed its fiscal year end to December 31.
         Accordingly, the pooled data presented above for 1996 include both
         Innovex's and our data on a December 31 year end basis. Because of the
         difference between Innovex's fiscal year end in 1995 compared with
         1996, Innovex's quarter ended March 31,1996 data are included in our
         pooled data for both 1995 and 1996.

2        Restated to reflect the two-for-one stock split of our common stock
         effected in the form of a 100% stock dividend in December 1997.

3        Excluding non-recurring costs (net of tax) of $36.5 million and
         amortization of certain acquired intangible assets of $16.4 million,
         the 1996 basic and diluted net income per share (unaudited) were $0.28
         and $0.25, respectively.

4        Working capital of discontinued operation was $36.0 million in 1999,
         $42.4 million in 1998, $18.0 million in 1997, $47.5 million in 1996 and
         $10.7 million in 1995.

                                       21

<PAGE>   24

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

Overview

Quintiles Transnational Corp. improves healthcare by bringing new medicines to
patients faster and providing knowledge-rich medical and drug data to advance
the quality and cost effectiveness of healthcare. We are a global market leader
in helping pharmaceutical, biotechnology and medical device companies market and
sell their products. We also provide insightful market research solutions and
strategic analyses to support healthcare decisions. Based on industry analyst
reports, we are the largest company in the pharmaceutical outsourcing services
industry as ranked by 1999 net revenue; the net revenue of the second largest
company was over $775 million less than our 1999 net revenue.

During 1999, we completed the following strategic acquisitions.

On January 1, 1999, we acquired substantial assets of Hoechst Marion Roussel's
Kansas City-based Drug Innovation and Approval facility for approximately $93
million in cash, most of which is expected to be paid in the first half of 2000
when the acquisition of the physical facility is completed. As part of this
transaction, we were awarded a $436 million contract for continued support and
completion of ongoing HMR development projects over a five-year period. In
addition, HMR will offer us the opportunity to provide all United States
clinical research services up to an additional $144 million over the same
period.

On February 17, 1999, we acquired Oak Grove Technologies, Inc., a leader in
providing current Good Manufacturing Practice compliance services to the
pharmaceutical, biotechnology and medical device industries. We acquired Oak
Grove in exchange for 87,948 shares of our common stock. The acquisition of Oak
Grove was accounted for as a purchase.

On March 29, 1999, we acquired Pharmaceutical Marketing Services, Inc. and its
core company, Scott-Levin, a leader in pharmaceutical market information and
research services located in the U.S. We acquired PMSI in exchange for
approximately 4,993,787 shares of our common stock. Outstanding PMSI options
became options to acquire approximately 440,426 shares of our common stock. In
addition, we agreed to pay contingent value payments to former PMSI shareholders
who deferred receipt of one-half of the shares of our common stock they were
entitled to receive in the transaction until June 14, 1999. The right to receive
contingent value payments terminated in accordance with the merger agreement.
Accordingly, no contingent value payments were made or are payable to any former
PMSI shareholder. The acquisition of PMSI was accounted for as a purchase.

On March 31, 1999, we acquired MedLab Pty Ltd. and the assets of the Niehaus &
Botha partnership collectively referred to as "N&B", a South African-based
clinical laboratory. We acquired N&B in exchange for 271,146 shares of our
common stock. The acquisition of N&B was accounted for as a pooling of
interests, and as such, all historical financial data have been restated to
include N&B.

On May 19, 1999, we acquired Minerva Medical plc, a Scotland-based clinical
research organization. We acquired Minerva in exchange for 1,143,625 shares of
our common stock. The acquisition of Minerva was accounted for as a pooling of
interests, and as such, all historical financial data have been restated to
include Minerva.

On June 3, 1999, we acquired SMG Marketing Group Inc., a Chicago-based
healthcare market information company. We acquired SMG in exchange for 1,170,291
shares of our common stock. The acquisition of SMG was accounted for as a
pooling of interests, and as such, all historical financial data have been
restated to include SMG.

On July 2, 1999, we acquired Medcom, Inc., a New Jersey-based provider of
physician meetings and educational events to help pharmaceutical companies raise
awareness of their products among healthcare professionals, for approximately
$2.5 million in cash and additional consideration if Medcom's results of
operations exceeded certain targeted levels during 1999. Based on Medcom's 1999
results of operations, we will pay approximately $9.0 million in additional
consideration to the former Medcom shareholders. This additional consideration
will be paid in cash during the first half of 2000 and has been recorded as an
accrued expense at December 31, 1999. The acquisition of Medcom was accounted
for as a purchase.


                                       22

<PAGE>   25

On July 15, 1999, we acquired MediTrain, a Netherlands-based multimedia
pharmaceutical sales representative training company, in exchange for 19,772
shares of our common stock. The acquisition of MediTrain was accounted for as a
purchase.

On August 27, 1999, we acquired Medicines Control Consultants Pty Ltd., a South
African-based pharmaceutical regulatory consulting group, for approximately $1
million in cash. The acquisition of MCC was accounted for as a purchase.

Discontinued Operation - ENVOY

On March 30, 1999, we acquired ENVOY Corporation, a Tennessee-based provider of
healthcare electronic data interchange and data mining services. We acquired
ENVOY in exchange for approximately 28,465,160 shares of our common stock.
Outstanding ENVOY options became options to acquire approximately 3,914,583
shares of our common stock. The acquisition of ENVOY was accounted for as a
pooling of interests, and as such, all historical financial data have been
restated to include ENVOY.

On January 24, 2000, we announced a definitive agreement to sell ENVOY to
Healtheon/WebMD Corp. Prior to the sale, ENVOY will transfer its informatics
subsidiary, Synergy Health Care, Inc., to us. Net revenues of Synergy for 1999
and 1998 were approximately $3.0 million per year. We will receive $400 million
in cash and 35 million shares of Healtheon/WebMD common stock in exchange for
our entire interest in ENVOY and a warrant to acquire 10 million shares of our
common stock at $40 per share, exercisable for four years. Closing is expected
to occur during the second quarter of 2000.

After the proposed sale of ENVOY, we will retain exclusive rights to
de-identified ENVOY transaction data and to certain other de-identified data
available from Healtheon/WebMD, subject to limited exceptions. We have agreed to
share with Healtheon/WebMD a royalty derived from sales of products using the
licensed data. Upon the closing of the sale of ENVOY, we plan to form a
strategic alliance with Healtheon/WebMD to develop a web-based suite of
integrated products and services for the pharmaceutical industry. We will
provide $100 million in funding for development.

ENVOY is being accounted for as a discontinued operation. Accordingly, the
operating results and balance sheet items of ENVOY have been reflected
separately from continuing operations.

Contract Revenue

We consider net revenue, which excludes reimbursed costs, our primary measure of
revenue growth. Substantially all net revenue for the product development and
commercialization service groups is earned by performing services under
contracts with various pharmaceutical, biotechnology, medical device and
healthcare companies. Many of our contracts are fixed price, with some variable
components, and range in duration from a few months to several years. We are
also party to fee-for-service and unit-of-service contracts. We recognize net
revenue based upon (1) labor costs expended as a percentage of total labor costs
expected to be expended (percentage of completion) 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.

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

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


                                       23

<PAGE>   26

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

We report backlog based on anticipated net revenue from uncompleted projects
which have been authorized by the customer through a written contract or
otherwise. Using this method of reporting backlog, at December 31, 1999, 1998
and 1997, our backlog was approximately $2.2 billion, $1.9 billion and $1.1
billion, respectively. We believe that backlog may not be a consistent indicator
of future results because backlog can be affected by a number of factors,
including the variable size and duration of projects, many of which are
performed over several years, loss or significant delay of contracts or a change
in the scope of a project during the course of a contract.

Results of Continuing Operations
Year Ended December 31, 1999 Compared with
Year Ended December 31, 1998

Net revenue for the year ended December 31, 1999 was $1.6 billion, an increase
of $385.3 million or 31.5% over net revenue for the year ended December 31, 1998
of $1.2 billion. Growth occurred across each of our geographic regions and each
of our major service groups. Factors contributing to the growth included an
increase of contract service offerings, the provision of increased services
rendered under existing contracts, the initiation of services under contracts
awarded subsequent to January 1, 1999 and our 1999 acquisitions accounted for
under purchase accounting which contributed approximately $36.0 million of net
revenue for the year ended December 31, 1999. Net revenue for the product
development group increased 33.9% to $948.9 million for the year ended December
31, 1999 as compared to $708.5 million for the year ended December 31, 1998.
This growth was slower than anticipated as a result of several factors,
including early termination and delays of clinical trials and utilization rates
that were lower than historical levels. Net revenue for the commercialization
group increased 23.9% to $614.7 million for the year ended December 31, 1999 as
compared to $496.2 million for the year ended December 31, 1998. The net revenue
for the year ended December 31, 1999 for the commercialization group included
approximately $6.3 million of net revenue contributed by a 1999 acquisition
accounted for as a purchase. Net revenue for the QUINTERNET(TM) informatics
group increased 154.7% to $43.5 million for the year ended December 31, 1999 as
compared to $17.1 million for the year ended December 31, 1998. The net revenue
for the year ended December 31, 1999 for the QUINTERNET(TM) informatics group
included approximately $24.6 million of net revenue contributed by a 1999
acquisition accounted for as a purchase.

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

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

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


                                       24

<PAGE>   27

Income from operations was $136.4 million or 8.5% of 1999 net revenue versus
$129.4 million or 10.6% of 1998 net revenue. Income from operations for the
product development group increased to $83.8 million or 8.8% of 1999 net revenue
from $77.6 million or 11.0% of 1998 net revenue. The decrease as a percentage of
net revenue results from the early termination and delays of clinical programs
and lower utilization rates as discussed above and an increase of approximately
$5.6 million in incremental costs incurred related to our Year 2000 Program.
Income from operations for the commercialization group increased to $57.7
million or 9.4% of 1999 net revenue from $47.3 million or 9.5% of 1998 net
revenue. Income from operations for the QUINTERNET(TM) informatics group
decreased to a loss of $5.2 million or (11.9%) of 1999 net revenue from income
of $4.5 million or 26.2% of 1998 net revenue. This decrease results primarily
from an increase in amortization expense due to a 1999 acquisition accounted for
as a purchase and the allocation of corporate overhead costs attributable to
increased costs incurred to develop the informatics market in 1999.

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

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


Year Ended December 31, 1998 Compared with
Year Ended December 31, 1997

Net revenue for the year ended December 31, 1998 was $1.2 billion, an increase
of $336.2 million or 38.0% over net revenue for the year ended December 31, 1997
of $885.6 million. Growth occurred across each of our geographic regions and
each of our major service groups. Factors contributing to the growth included an
increase of contract service offerings, the provision of increased services
rendered under existing contracts and the initiation of services under contracts
awarded subsequent to January 1, 1998. Net revenue for the product development
group increased 36.8% to $708.5 million for the year ended December 31, 1998 as
compared to $518.0 million for the year ended December 31, 1997. Net revenue for
the commercialization group increased 39.4% to $496.2 million for the year ended
December 31, 1998 as compared to $356.1 million for the year ended December 31,
1997. Net revenue for the QUINTERNET(TM) informatics group increased 48.6% to
$17.1 million for the year ended December 31, 1998 as compared to $11.5 million
for the year ended December 31, 1997.

Direct costs, which include compensation and related fringe benefits for
billable employees, and other expenses directly related to contracts, were
$640.8 million or 52.4% of 1998 net revenue versus $468.3 million or 52.9% of
1997 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 $394.4 million or
32.3% of 1998 net revenue versus $286.8 million or 32.4% of 1997 net revenue.
The $107.7 million increase in general and administrative expenses was primarily
due to an increase in personnel, facilities and locations and outside services
resulting from our growth.

Depreciation and amortization expense was $57.2 million or 4.7% of 1998 net
revenue versus $38.7 million or 4.4% of 1997 net revenue. The $18.5 million
increase is primarily due to the increase in our capitalized asset base. In
1998, we recognized approximately $2.8 million of depreciation expense
associated with the first full year of operation for the facility in Bathgate,
Scotland and related assets.

Income from operations was $129.4 million or 10.6% of 1998 net revenue versus
$91.8 million or 10.4% of 1997 net revenue. Income from operations for the
product development group increased to $77.6 million or 11.0% of 1998 net
revenue from $52.2 million or 10.1% of 1997 net revenue. Income from operations
for the commercialization group increased to $47.3 million or 9.5% of 1998 net
revenue from $37.7 million or 10.6% of 1997 net revenue. Income from operations
for the QUINTERNET(TM) informatics group increased to $4.5 million or 26.2% of
1998 net revenue from $2.0 million or 17.1% of 1997 net revenue.


                                       25

<PAGE>   28

Other expense, which consists primarily of transaction costs and interest,
increased to $3.8 million in 1998 from $2.4 million in 1997. Transaction costs
included in other expense were $3.5 million in 1998 versus $2.2 million in 1997.

The effective income tax rate for 1998 was 31.8% versus a 35.1% rate in 1997.
Excluding transaction costs, which are not generally deductible for tax
purposes, the effective income tax rate for 1998 would have been 30.9% versus a
34.2% rate for 1997. The effective income tax rate reduction resulted from the
reversal of prior year valuation allowances relating to certain net operating
loss carryforwards that we now believe are more likely than not to be utilized
and profits generated in countries with favorable income tax rates. Since we
conduct operations on a global basis, our effective income tax rate may vary.
See "--Income Taxes."


Liquidity and Capital Resources

Cash flows generated from operations were $123.8 million in 1999 versus $125.6
million and $84.2 million in 1998 and 1997, respectively. Cash flows used in
investing activities in 1999 were $104.5 million, versus $76.0 million and
$156.4 million in 1998 and 1997, respectively. Of these investing activities,
capital asset purchases required $158.1 million in 1999 versus $97.0 million and
$81.3 million in 1998 and 1997, respectively. Capital asset expenditures in 1999
included approximately $35 million in connection with the acquisition of HMR's
Drug Innovation and Approval Facility. The remainder of the purchase price,
approximately $58 million, is expected to be paid in the first half of 2000 when
the acquisition of the physical facility is completed. Capital asset
expenditures in 1997 included (pound)15.8 million (approximately $26.5 million)
related to our purchase of land and construction of a facility in Bathgate,
Scotland. The remaining capital expenditures were predominantly incurred in
connection with the expansion of existing operations, the enhancement of
information technology capabilities and the opening of new offices.

Total working capital, excluding net assets of discontinued operation, decreased
$127.8 million to $69.2 million at December 31, 1999 from $197.0 million at
December 31, 1998. This decrease resulted from the $143.75 million of 4.25%
Convertible Subordinated Notes due May 31, 2000 being classified as a current
liability as of December 31, 1999 versus a long-term liability as of December
31, 1998. Trade accounts receivable and unbilled services increased 22.4% to
$377.3 million at December 31, 1999 from $308.3 million at December 31, 1998, as
a result of the growth in net revenue. Trade accounts receivable and unbilled
services, net of unearned income, increased 27.8% to $204.7 million at December
31, 1999 from $160.2 million at December 31, 1998. The number of days revenue
outstanding in trade accounts receivable and unbilled services, net of unearned
income, were 38 and 37 days at December 31, 1999 and December 31, 1998,
respectively.

During 1999, the Company invested approximately $6.2 million in Missouri Tax
Incentive Bonds. In connection with this investment, the Company entered into a
loan agreement with the Missouri Development Finance Board for approximately
$5.6 million. The bonds mature as we are required to make loan payments.

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

During 1998, we acquired a clinical trial production and warehouse facility in
Livingston, Scotland for a purchase commitment valued at (pound)1.75 million
(approximately $2.8 million), with payment due in May, 2001.

During 1995, we acquired a drug development facility in Edinburgh, Scotland.
Related to this acquisition, we entered into a purchase commitment valued at
(pound)12.5 million (approximately $20.9 million). During 1999 the payment terms
were amended, and we paid approximately (pound)6.2 million (approximately $10.1
million) of this commitment in October 1999. The remaining balance of
approximately (pound)6.3 million (approximately $10.1 million) is due in April
2000.


                                       26

<PAGE>   29

We have a $150 million senior unsecured credit facility with a U.S. bank. At
December 31, 1999, we had $150 million available under this facility. Based upon
our current financing plan, we believe the $150 million facility would be
available to retire our credit arrangements and obligations, if necessary.

In May 1999, we entered into a (pound)10.0 million (approximately $16.2 million)
unsecured line of credit with a U.K. bank. We also entered into a (pound)1.5
million (approximately $2.4 million) general bank facility with the same U.K.
bank. At December 31, 1999, we had (pound)11.5 million (approximately $18.6
million) available under these agreements.

All foreign currency denominated amounts due, subsequent to December 31, 1999,
have been translated using the Wednesday, December 29, 1999 foreign exchange
rates as published in the December 30, 1999 edition of the Wall Street Journal.

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

Income Taxes

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


Inflation

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


Impact of Year 2000 Issue

We have not experienced any immediate, adverse impact to our operations
resulting from the millennium date change or leap year change. However, we
cannot provide any assurance that our systems and business relationships have
not been impacted in a manner that is not yet apparent. We will continue to
monitor our systems in order to promptly remediate any adversely impacted
systems. The aggregate cost of our Year 2000 program, including costs stemming
from acquisitions, was approximately $16.6 million, of which approximately $5.1
million were not incremental costs but represented the redeployment of existing
resources.


Conversion to the Euro Currency

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


                                       27

<PAGE>   30

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


Recently Issued Accounting Standard

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." Statement No. 133 requires that upon adoption, all
derivative instruments be recognized in the balance sheet at fair value, and
that changes in such fair values be recognized in earnings unless specific
hedging criteria are met. Changes in the values of derivatives that meet these
hedging criteria will ultimately offset related earnings effects of the hedged
items; effects of certain changes in fair value are recorded in other
comprehensive income pending recognition in earnings. We will adopt Statement
No. 133 when required to do so on January 1, 2001. Because of our limited use of
derivatives, we do not expect the application of Statement No. 133 to have a
significant impact on our financial position or results of operations.


Market Risk

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


Foreign Currency Exchange Rates

Approximately 45.8%, 50.9% and 51.6% of our net revenue for the years ended
December 31, 1999, 1998, and 1997, respectively, were 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 ($15.5) million at December 31, 1999 as compared to
($4.6) million at December 31, 1998.

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, 1999, our most
significant foreign currency exchange rate exposures were in the British pound,
German mark and French franc. We limit our foreign currency transaction risk
through exchange rate fluctuation provisions stated in our contracts with
customers, or we may hedge our transaction risk with foreign currency exchange
contracts or options. We recognize changes in value in income only when foreign
currency exchange contracts or options are settled or exercised, respectively.
There were no open foreign exchange contracts or options relating to service
contracts at December 31, 1999.

As of December 31, 1999, we had short-term obligations denominated in a foreign
currency (approximately (pound)8.0 million). Assuming a hypothetical change of
10% in year-end exchange rates (a weakening of the U.S. dollar), the fair value
of these instruments would increase by approximately $1.3 million.


28

<PAGE>   31

Interest Rates

At December 31, 1999, we had outstanding $143.75 million of 4.25% Convertible
Subordinated Notes due May 31, 2000. The fair value of long-term fixed interest
rate debt is subject to interest rate risk. Generally, the fair market value of
fixed interest rate debt will increase as interest rates fall and decrease as
interest rates rise. The carrying value of the Notes at December 31, 1999
approximates the fair value. A 10% increase in prevailing interest rates at
December 31, 1999 would not result in a material decrease in the fair value of
the Notes due to the short term remaining until maturity. Currently, we do not
hold any derivative instruments to manage interest rate risk.

At December 31, 1999, our investment in debt securities portfolio consists
primarily of U.S. Government Securities 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, 1999, the fair value of the investment portfolio was $109.4
million, based on quoted market prices. The potential loss in fair value
resulting from a hypothetical decrease of 10% in quoted market price is
approximately $10.9 million.


Equity Prices

At December 31, 1999, 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, 1999, the fair value of these investments was $45.2 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 $4.5
million.


Subsequent Events

On January 26, 2000, we announced the adoption of a restructuring plan. In
connection with this plan, we anticipate recognizing a restructuring charge of
approximately $55.0 million during the first quarter of 2000. The restructuring
charge will consist primarily of severance costs related to a worldwide
workforce reduction of approximately 800 positions and lease termination costs
related to the consolidation of offices. This restructuring is targeted to
result in annualized cost savings of $40.0 million to $50.0 million, of which
$30.0 million to $35.0 million are targeted to be realized in 2000.

On February 3, 2000, the Board of Directors authorized us to repurchase up to
$200 million of our common stock from time to time over the next 12 months in
open market, block or negotiated transactions.


Risk Factors

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


                                       29

<PAGE>   32


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 has slowed. If these industries reduce their
tendency to outsource those projects, our operations, financial condition and
growth rate could be materially and adversely affected. Recently, we also
believe we have been negatively impacted by pending mergers and other factors in
the pharmaceutical industry, which appear to have slowed decision making by our
customers and delayed certain trials. A continuation of these trends would have
an ongoing adverse effect on our business. In addition, numerous governments
have undertaken efforts to control growing healthcare costs through legislation,
regulation and voluntary agreements with medical care providers and
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 companies we acquire do not perform as expected or if we are unable to make
strategic acquisitions, our business could be adversely affected.

A key element of our growth strategy has depended on our ability to complete
acquisitions that complement or expand our business and successfully integrate
the acquired companies into our operations. In the past, some of our
acquisitions performed below our expectations in the short term, but we
experienced no impact to our expectations for our overall results, due in part
to the size of such acquisitions and the performance of other areas of our
business. In the future, if we are unable to operate the business of an acquired
company so that its results meet our expectations, those results could have a
negative impact on our results as a whole. The risk that our results may be
affected if we are unable to successfully operate the businesses we acquire may
increase in proportion with (1) the size of the businesses we acquire, (2) the
lines of business we acquire and (3) the number of acquisitions we complete in
any given time period. In addition, in recent months our acquisition activity
has slowed, and we have not completed an acquisition since August 1999. As a
result, we currently are not growing from acquisitions. If we do not acquire
other companies, our overall growth, when compared to historical levels, will be
adversely affected.

In 1999, we completed nine acquisitions, including PMSI and ENVOY, the largest
acquisitions we have completed to date. We are continually evaluating and
competing for new acquisition opportunities. Other risk factors we face as a
result of our acquisition strategy include the following:

     -    our ability to achieve anticipated synergies from combined operations;

     -    our ability to integrate the operations and personnel of acquired
          companies, especially those in lines of business that differ from our
          current lines of business;

     -    the ability of acquired companies to meet anticipated net revenue and
          net income targets;

     -    potential loss of the acquired companies' key employees;

     -    our ability to efficiently operate and expand the acquired companies'
          lines of business that differ from our current lines of business;

     -    the possibility that we may be adversely affected by risk factors
          present at the acquired companies;

     -    potential losses resulting from undiscovered liabilities of acquired
          companies that are not covered by the indemnification we may obtain
          from the sellers;

     -    risks of assimilating differences in foreign business practices and
          overcoming language barriers (for acquisitions of foreign companies);
          and

     -    risks experienced by companies in general that are involved in
          acquisitions.


                                       30

<PAGE>   33

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.

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

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

The proposed sale of ENVOY may fail to close or be delayed.

The proposed sale of ENVOY to Healtheon/WebMD is important to our strategic plan
and, if the transaction fails to close or the closing is delayed, we may not be
able to execute strategies that are critical to our continued growth as planned,
if at all. For example, we have agreed to form a strategic alliance with
Healtheon/WebMD designed to enable us to develop and market web-based products
and services relating to our informatics strategy, and Healtheon/WebMD has
agreed to give us access to data that is important to our informatics business.
Healtheon/WebMD's obligation to perform under these arrangements is contingent
upon closing of the ENVOY transaction. As a result, if the transaction does not
close, we would not be able to take advantage of the benefits of the proposed
alliance as planned, and we would need to seek other partnerships or develop
such capabilities internally. These consequences may substantially delay our
ability to execute our Internet strategy relating to our product development and
commercialization service groups and increase our costs. The sale of ENVOY is
subject to regulatory approval and other conditions that are beyond our control.

Our backlog may not be indicative of future results.

We report backlog based on anticipated net revenue from uncompleted projects
that a customer has authorized. We cannot assure you that the backlog we have
reported will be indicative of our future results. A number of factors may
affect our backlog, including:

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

     -    the loss or delay of projects; and - a change in the scope of work
          during the course of a project.

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


                                       31

<PAGE>   34

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

Our success substantially depends on the performance, contributions and
expertise of our senior management team, led by Dennis B. Gillings, Ph.D., our
Chairman of the Board of Directors and Chief Executive Officer. We maintain key
man life insurance on Dr. Gillings in the amount of $3 million. 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, or any key executive, or our inability to continue to
attract and retain qualified personnel could have a material adverse effect on
our business, results of operations or financial condition.

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

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

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

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

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

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

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


                                       32



<PAGE>   35

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 regulations may increase the cost of our business or limit our service
offerings.

The confidentiality of patient-specific information and the circumstances under
which such patient-specific records may be released for inclusion in our
databases or used in other aspects of our business are subject to substantial
government regulation. Additional legislation governing the possession, use and
dissemination of medical record information and other personal health
information has been proposed at both the state and federal levels. This
legislation may (1) require us to implement security measures that may require
substantial expenditures or (2) limit our ability to offer some of our products
and services. These and other changes in regulation could limit our ability to
offer some of our products or have an impact on the business opportunities
available to us.

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

     -    enhance our existing services;

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

     -    achieve market acceptance for new services; and

     -    respond to emerging industry standards and other technological
          changes.

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

We derive a large portion of our net revenue from international operations; for
example, we derived approximately 45.8% of our 1999 net revenue from outside the
United States. Our financial statements are denominated in U.S. dollars; thus,
factors associated with international operations, including changes in foreign
currency exchange rates and any trends associated with the transition to the
euro, could significantly affect our results of operations and financial
condition. Exchange rate fluctuations between local currencies and the U.S.
dollar create risk in several ways, including:

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

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

We try to limit these risks through exchange rate fluctuation provisions stated
in our service contracts, or we may hedge our transaction risk with foreign
currency exchange contracts or options. 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.


                                       33

<PAGE>   36

We may be adversely affected by customer concentration.

We have one customer that accounted for 11 % of our revenues for the year ended
December 31, 1999. These revenues resulted from services provided by our product
development and commercialization service groups. If this or any future customer
of similar size 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.

The Department of Health and Human Services published proposed regulations
setting privacy standards to protect health information that is transmitted
electronically in the Federal Register on November 3, 1999. The comment period
for these proposed rules ended February 17, 2000. We understand generally that
final regulations will be issued no earlier than 60 days after the end of the
comment period, however, HHS has indicated that a significant delay is likely
which will add additional months to the expected date of the final rules. While
the proposed rules, if promulgated without modification, likely would not
restrict us from de-identifying individual health information and providing such
de-identified, aggregated data to our Synergy subsidiary for purposes of
analysis, the proposed rule may be changed in response to comments and further
modification and could be preempted by legislation. Such legislative or
regulatory changes could occur as early as this year and their impact cannot be
predicted. If legislation or a more restrictive regulation is adopted, it could
inhibit third party processors in using, transmitting or disclosing health data
(even if they have been de-identified) for purposes other than facilitating
payment or performing other clearinghouse functions which would restrict our
ability to obtain data for use in our informatics services. In addition, it
could require us to establish uniform specifications for obtaining de-identified
data, so that de-identified data obtained from different sources could be
aggregated. Third party processors, under the proposed rules, or modified rules,
also may require us to provide indemnity from claims against them arising from
our use of data, even in de-identified form. 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.

Risks associated with discontinued operation--the ENVOY EDI business

Until the proposed sale of our ENVOY subsidiary closes, we will continue to
operate ENVOY's EDI business and will continue to be subject to the following
additional risks associated with ENVOY's EDI business.

EDI Services Are Subject to Evolving Industry Standards and Rapid Technological
Changes

The current industry standard EDI platform for processing transactions could be
replaced or supplemented by an Internet platform to handle these transactions.
Some of ENVOY's competitors in the EDI business are beginning to implement such
a platform. If others succeed in implementing an Internet platform and are able
to gain market acceptance of that platform, whether or not we develop and
execute an Internet platform, ENVOY's EDI business could be materially adversely
affected.

We Rely on Specific Data Centers for ENVOY's EDI Business

ENVOY's EDI business relies on a host computer system to perform real-time EDI
transaction processing. This host computer system is contained in a single data
facility. The host computer system does not have a remote backup data center.
Although the host computer system is insured, if there is a fire or other
disaster at the data facility, ENVOY's EDI business could be materially
adversely affected.

ENVOY's EDI business also relies on a data center operated by a third party to
perform many of ENVOY's other healthcare EDI transaction processing services.
The facility is located in Tampa, Florida and is operated by GTE Data Services
Incorporated, with whom ENVOY has contracted for such processing services.
ENVOY's EDI business relies primarily on this facility to process batch claims
and other medical EDI transaction sets. ENVOY's contract with GTE requires GTE
to maintain continuous processing capability and a "hot site" disaster recovery
system. This contract expires in December 2003. If the GTE facility's services
are disrupted or delayed, ENVOY's EDI business could be materially adversely
affected.


                                       34


<PAGE>   37

We Cannot Predict the Need for Independent Healthcare EDI Processing

ENVOY's EDI business strategy anticipates that providers of healthcare services
and payors will increase their use of electronic processing of healthcare
transactions in the future. The development of the business of electronically
transmitting healthcare transactions is affected, and somewhat hindered, by the
complex nature and types of transactions that must be processed. Furthermore,
while the wide variety of processing forms used by different payors has fostered
the need for healthcare EDI and transaction processing clearinghouses such as
ENVOY to date, if such forms become standardized, through consolidation of
payors or otherwise, then the need for independent third party healthcare EDI
processing could become less prevalent. We cannot assure you that the electronic
processing of healthcare transactions will increase or that ENVOY's EDI business
will grow.

Direct Links May Bypass Need for ENVOY's EDI Services

Some third party payors provide electronic data transmission systems to
healthcare providers, thereby directly linking the payor to the provider. These
direct links bypass third party processors like us. An increase in the use of
direct links between payors and providers would materially adversely affect
ENVOY's EDI business.

Increased Competition in the Healthcare EDI Business Could Adversely Impact Our
Results

Increased competition in the healthcare EDI and transaction processing business
could force ENVOY to reduce, or even eliminate, per transaction fees, which
could adversely affect our results of operations. EDI services face different
types of competition, any or all of which could affect ENVOY's EDI business.
Some of ENVOY's competitors are similarly specialized, such as its former
regional partners that have direct provider relationships, and others are
involved in more highly developed areas of the business. In addition, some
vendors of provider information management systems include or may include, in
their offered products, their own electronic transaction processing systems. If
electronic transaction processing becomes the standard method of processing
healthcare claims and information, other companies with significant capital
resources could enter the industry.

Unauthorized Access To Data Centers Could Adversely Affect ENVOY's EDI Business

Unauthorized access to ENVOY's EDI data centers and misappropriation of our
proprietary information could have a material adverse effect on ENVOY's EDI
business and financial results. While we believe our current security measures
and the security measures used by third parties for which we process or transmit
healthcare information are adequate, such unauthorized access or
misappropriation could occur.


                                       35

<PAGE>   38

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



                                       36


<PAGE>   39

                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                                           ---------------------------------------------
                                                               1999              1998             1997
                                                           -----------       -----------       ---------

<S>                                                        <C>               <C>               <C>
Net revenue                                                $ 1,607,087       $ 1,221,776       $ 885,557
Costs and expenses:
   Direct                                                      883,274           640,764         468,292
   General and administrative                                  505,166           394,432         286,760
   Depreciation and amortization                                82,292            57,191          38,691
                                                           -----------       -----------       ---------
                                                             1,470,732         1,092,387         793,743
                                                           -----------       -----------       ---------
Income from operations                                         136,355           129,389          91,814
Other income (expense):
   Interest income                                              14,391            11,646           8,575
   Interest expense                                            (11,233)          (11,810)         (8,865)
   Transaction costs                                           (26,322)           (3,475)         (2,234)
   Other                                                         2,719              (183)            149
                                                           -----------       -----------       ---------
                                                               (20,445)           (3,822)         (2,375)
                                                           -----------       -----------       ---------
Income from continuing operations before income taxes          115,910           125,567          89,439
Income taxes                                                    42,742            39,924          31,376
                                                           -----------       -----------       ---------
Income from continuing operations                               73,168            85,643          58,063
Income (loss) from discontinued operation, net of
   income taxes                                                 36,123             2,926          (9,197)
                                                           -----------       -----------       ---------
Net income                                                 $   109,291       $    88,569       $  48,866
                                                           ===========       ===========       =========

Basic net income per share:
   Income from continuing operations                       $      0.64       $      0.82       $    0.58
   Income (loss) from discontinued operation                      0.32              0.03           (0.09)
                                                           -----------       -----------       ---------
   Basic net income per share                              $      0.96       $      0.85       $    0.49
                                                           ===========       ===========       =========

Diluted net income per share:
   Income from continuing operations                       $      0.63       $      0.77       $    0.54
   Income (loss) from discontinued operation                      0.31              0.03           (0.09)
                                                           -----------       -----------       ---------
   Diluted net income per share                            $      0.94       $      0.80       $    0.46
                                                           ===========       ===========       =========

Shares used in computing net income per share:
   Basic                                                       113,525           104,799          99,908
   Diluted                                                     115,687           110,879         107,141
</TABLE>


  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.


                                       37

<PAGE>   40

                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                             -----------------------------
                                                                 1999              1998
                                                             -----------       -----------
<S>                                                          <C>               <C>
                  Assets
Current assets:
   Cash and cash equivalents                                 $   191,653       $   128,621
   Trade accounts receivable and unbilled services, net          377,278           308,267
   Investments                                                    32,476            32,241
   Prepaid expenses                                               37,216            26,326
   Other receivables                                              21,571            14,133
   Other current assets                                           21,888            17,747
   Net assets of discontinued operation                          122,981           130,458
                                                             -----------       -----------
         Total current assets                                    805,063           657,793
Property and equipment:
   Land, buildings and leasehold improvements                    182,648            94,284
   Equipment and software                                        296,843           201,458
   Furniture and fixtures                                         47,356            41,116
   Motor vehicles                                                 47,243            46,875
                                                             -----------       -----------
                                                                 574,090           383,733
   Less accumulated depreciation                                (174,406)         (128,402)
                                                             -----------       -----------
                                                                 399,684           255,331
Intangibles and other assets:
   Goodwill, net                                                 204,307            78,082
   Other intangibles, net                                          4,639             5,074
   Investments in debt securities                                 76,902            64,963
   Investments in marketable equity securities                    45,237               493
   Deferred income taxes                                          84,356            71,401
   Deposits and other assets                                      36,434            36,971
                                                             -----------       -----------
                                                                 451,875           256,984
                                                             -----------       -----------
         Total Assets                                        $ 1,656,622       $ 1,170,108
                                                             ===========       ===========
</TABLE>


  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.


                                       38

<PAGE>   41

                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS (CONTINUED)
                        (IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
                                                                                          DECEMBER 31,
                                                                                 -----------------------------
                                                                                     1999               1998
                                                                                 -----------       -----------
<S>                                                                              <C>               <C>
                  Liabilities and Shareholders' Equity
Current liabilities:
   Lines of credit                                                               $        12       $       921
   Accounts payable                                                                   69,349            60,650
   Accrued expenses                                                                  165,446            80,593
   Unearned income                                                                   172,557           148,074
   Income taxes payable                                                               35,755             5,661
   Current portion of obligations held under capital leases                           14,727            12,568
   Current portion of long-term debt and obligation                                  154,178            21,126
   Other current liabilities                                                             823               737
                                                                                 -----------       -----------
         Total current liabilities                                                   612,847           330,330

Long-term liabilities:
   Obligations held under capital leases, less current portion                         8,589            12,447
   Long-term debt and obligation, less current portion                                 7,290           145,460
   Deferred income taxes                                                              31,381            30,439
   Other liabilities                                                                   4,756             5,300
                                                                                 -----------       -----------
                                                                                      52,016           193,646
                                                                                 -----------       -----------
         Total liabilities                                                           664,863           523,976

Commitments and contingencies
Shareholders' Equity:
   Preferred stock, 0 and 3,264,800 shares issued and
     outstanding at December 31, 1999 and 1998, respectively                              --                33
   Common Stock and additional paid-in capital, 115,118,347 and
     105,775,628 shares issued and outstanding at December 31,
     1999 and 1998, respectively                                                     788,247           559,496
   Retained earnings                                                                 204,062            95,618
   Accumulated other comprehensive income (loss)                                       1,677            (5,198)
   Other equity                                                                       (2,227)           (3,817)
                                                                                 -----------       -----------
       Total shareholders' equity                                                    991,759           646,132
                                                                                 -----------       -----------
       Total liabilities and shareholders' equity                                $ 1,656,622       $ 1,170,108
                                                                                 ===========       ===========
</TABLE>


  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.


                                       39

<PAGE>   42

                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                          YEAR ENDED DECEMBER 31,
                                                                -----------------------------------------
                                                                   1999            1998             1997
                                                                ---------       ---------       ---------
<S>                                                             <C>             <C>             <C>
Operating activities:
    Net income                                                  $ 109,291       $  88,569       $  48,866
    (Income) loss from discontinued operation, net of
       income taxes                                               (36,123)         (2,926)          9,197
                                                                ---------       ---------       ---------
    Income from continuing operations                              73,168          85,643          58,063

Adjustments to reconcile net income to net cash provided
  by operating activities:
    Depreciation and amortization                                  82,292          57,191          38,691
    Non-recurring transaction costs                                26,322              --              --
    Net loss (gain) on sale of property and equipment                (355)            534             670
    Gain on sale of marketable equity securities                   (2,057)             --              --
    Provision for (benefit from) deferred income taxes             (1,448)         (1,728)         10,962
    Change in operating assets and liabilities:
        Accounts receivable and unbilled services                 (76,156)        (85,657)        (33,334)
        Prepaid expenses and other assets                         (16,493)         (5,291)        (16,236)
        Accounts payable and accrued expenses                      16,320          26,275          14,056
        Unearned income                                            13,960          49,332           3,092
        Income taxes payable and other current liabilities          7,659            (780)          8,728
    Other                                                             585              81            (519)
                                                                ---------       ---------       ---------
Net cash provided by operating activities                         123,797         125,600          84,173
Investing activities:
    Proceeds from disposition of property and equipment             6,535           6,297           4,642
    Purchase of investments held-to-maturity                       (6,215)             --              --
    Maturities of investments held-to-maturity                     86,683          10,593          35,579
    Purchase of investments available-for-sale                   (110,310)       (125,413)       (137,597)
    Proceeds from sale of investments available-for-sale           25,296         130,422          51,278
    Purchase of marketable equity securities                      (12,424)             --              --
    Proceeds from sale of marketable equity securities              5,913              --              --
    Purchase of other investments                                      --              --         (12,011)
    Acquisition of property and equipment                        (158,128)        (96,954)        (81,255)
    Acquisition of businesses, net of cash acquired                84,746           2,403         (11,329)
    Payment of non-recurring transaction costs                    (26,322)             --          (5,648)
    Loan to ESOP, net                                                  --          (3,429)             --
    Other                                                            (233)             85             (17)
                                                                ---------       ---------       ---------
Net cash used in investing activities                           $(104,459)      $ (75,996)      $(156,358)
</TABLE>


                                       40



<PAGE>   43

                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                                              -----------------------------------------
                                                                 1999            1998             1997
                                                              ---------       ---------       ---------
<S>                                                           <C>             <C>             <C>
Financing activities:
   Increase (decrease) in lines of credit, net                $    (909)      $  (8,597)      $     660
   Proceeds from issuance of debt                                    --              --             566
   Repayment of debt                                             (4,341)           (677)         (7,302)
   Principal payments on capital lease obligations              (13,865)        (18,656)        (16,778)
   Issuance of common stock                                      19,724          24,280         110,758
   Dividend from discontinued operation                          47,070             150              --
   Dividends paid by pooled entity                               (1,089)         (3,499)         (5,397)
   Other                                                            (28)            827               2
                                                              ---------       ---------       ---------
Net cash provided by (used in) financing activities              46,562          (6,172)         82,509
Effect of foreign currency exchange rate changes on cash         (2,868)            592          (1,856)
                                                              ---------       ---------       ---------
Increase (decrease) in cash and cash equivalents                 63,032          44,024           8,468
Cash and cash equivalents at beginning of year                  128,621          84,597          76,129
                                                              ---------       ---------       ---------
Cash and cash equivalents at end of year                      $ 191,653       $ 128,621       $  84,597
                                                              =========       =========       =========
Supplemental Cash Flow Information:
   Interest paid                                              $  12,550       $  11,617       $   8,946
   Income taxes paid                                             32,961          22,286          16,848
Non-cash Investing and Financing Activities:
   Capitalized leases                                            12,871          19,531          23,027
   Equity impact of mergers and acquisitions                    206,275           5,046           1,134
   Equity impact from exercise of non-qualified stock
     options                                                      3,711           5,498          24,049
   Unrealized gain (loss) on marketable securities, net
     of tax                                                      17,781            (572)           (104)
   Tax effect of pooled transactions                                 --              --          62,700
   Conversion of debt to equity                               $      --       $      --       $   8,214
</TABLE>


  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.


                                       41

<PAGE>   44

                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                                                 Employee
                                                                                                                   Stock
                                                                  Accumulated                                    Ownership
                                                                     Other                           Additional  Plan Loan
                                      Comprehensive   Retained   Comprehensive   Preferred   Common   Paid-In    Guarantee
                                         Income       Earnings   Income (Loss)     Stock      Stock   Capital     & Other   Total

<S>                                    <C>           <C>         <C>             <C>         <C>     <C>        <C>        <C>
Balance, December 31, 1996              $     --     $(26,830)      $   541        $ 43      $  613   $305,344   $(1,137)  $278,574
Issuance of common stock                      --           --            --          --          27    114,657        --    114,684
Principal payments on ESOP loan               --           --            --          --          --         --       536        536
Stock issued for acquisitions                 --         (445)           --          --          --        244        --       (201)
Issuance of common stock for other
  than cash                                   --           --            --          --           1         19        --         20
Conversion of debt by pooled entity           --           --            --          --           9      8,205        --      8,214
Effect due to change in fiscal year
  of pooled entity                            --       (3,775)          117          --          --         --        --     (3,658)
Tax effect of pooling of interests            --           --            --          --          --     62,700        --     62,700
Tax benefit from the exercise of
  non-qualified stock options                 --           --            --          --          --     21,367        --     21,367
Dividends paid by pooled entity               --       (5,814)           --          --          --        (72)       --     (5,886)
Two-for-one stock split                       --           --            --          --         369       (369)       --         --
Other equity transactions                     --           --            --          --          --         28        (1)        27
Comprehensive income:
   Net income                             48,866       48,866            --          --          --         --        --     48,866
   Unrealized loss on marketable
     securities, net of tax                 (104)          --          (104)         --          --         --        --       (104)
   Foreign currency adjustments           (7,856)          --        (7,856)         --          --         --        --     (7,856)
                                        --------     --------       -------        ----      ------   --------   -------   ---------
Comprehensive income for year ended
  December 31, 1997                       40,906
                                        ========
Balance, December 31, 1997                             12,002        (7,302)         43       1,019    512,123      (602)   517,283
Issuance of common stock                      --           --            --          --          17     24,263        --     24,280
Principal payments on ESOP loan               --           --            --          --          --         --       215        215
Loan to ESOP                                  --           --            --          --          --         --    (3,429)    (3,429)
Stock issued for acquisitions                 --         (272)           --          --          11      4,474        --      4,213
Tax benefit from the exercise of
  non-qualified stock options                 --           --            --          --          --     15,603        --     15,603
Conversion of preferred stock by
  pooled entity                               --           --            --         (10)         10         --        --         --
Dividends paid by pooled entity               --       (3,181)           --          --          --         --        --     (3,181)
Other equity transactions                     --       (1,500)           --          --          --      1,976        (1)       475
Comprehensive income:
   Net income                             88,569       88,569            --          --          --         --        --     88,569
   Unrealized loss on marketable
     securities, net of tax                 (572)          --          (572)         --          --         --        --       (572)
   Foreign currency adjustments            2,676           --         2,676          --          --         --        --      2,676
                                        --------     --------       -------        ----      ------   --------   -------  ---------
Comprehensive income for year ended
  December 31, 1998                       90,673
                                        ========
Balance, December 31, 1998                             95,618        (5,198)         33       1,057    558,439    (3,817)   646,132
Issuance of common stock                      --           --            --          --           8     19,716        --     19,724
Principal payments on ESOP loan               --           --            --          --          --         --       756        756
Stock issued for acquisitions                 --           --            --          --          51    206,224        --    206,275
Tax benefit from the exercise of
  non-qualified stock options                 --           --            --          --          --      3,711        --      3,711
Conversion of preferred stock by
  pooled entity                               --           --            --         (33)         33         --        --         --
Dividends paid by pooled entity               --       (1,089)           --          --          --         --        --     (1,089)
Effect due to change in fiscal year
  of pooled entity                            --          200            --          --          --         --        --        200
Other equity transactions                     --           42          (128)         --          --       (992)      834       (244)
Comprehensive income:
   Net income                            109,291      109,291            --          --          --         --        --    109,291
   Unrealized gain on marketable
     securities, net of tax               17,781           --        17,781          --          --         --        --     17,781
   Foreign currency adjustments          (10,778)          --       (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   $(2,227) $ 991,759
                                                     ========       =======        ====      ======   ========   =======  =========
</TABLE>

  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.

                                       42


<PAGE>   45

                 QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

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

PRINCIPLES OF CONSOLIDATION

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

USE OF ESTIMATES

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

FOREIGN CURRENCIES

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

REVENUE RECOGNITION

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

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

    The Company's contracts provide for price renegotiation upon scope of work
changes. The Company recognizes revenue related to these scope changes when the
underlying services are performed and realization is reasonably assured. 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.


                                       43

<PAGE>   46

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 greater than 11% of consolidated net revenue in 1999.
These revenues were derived from both the Company's product development and
commercialization segments.

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.

CASH EQUIVALENTS AND INVESTMENTS

     The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The Company does not
report in the accompanying balance sheets cash held for customers for
investigator payments in the amount of $7.5 million and $7.3 million at December
31, 1999 and 1998, 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. In addition, the Company has recorded $10.2 million and $19.2 million
in deposits and other assets at December 31, 1999 and 1998, respectively, that
represents investments in equity securities of and advances to companies for
which there are not readily available market values and for which the Company
does not exercise significant influence or control; such investments are
accounted for using the cost method. Any gains or losses on sales of investments
are computed by specific identification.

PROPERTY AND EQUIPMENT

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

     Buildings and leasehold improvements                   3 - 50 years
     Equipment and software                                 3 - 10 years
     Furniture and fixtures                                 5 - 10 years
     Motor vehicles                                         3 - 5  years

INTANGIBLE ASSETS

     Intangibles consist principally of the excess cost over the fair value of
net assets acquired ("goodwill"). Goodwill and other intangible assets are being
amortized on a straight-line basis over periods from two to 40 years.
Accumulated amortization totaled $22.3 million and $11.4 million at December 31,
1999 and 1998, respectively.

     The carrying values of 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 amortization period, the
Company will reduce carrying values to estimated fair value.


                                       44


<PAGE>   47

NET INCOME PER SHARE

     In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings per Share" which established new standards for
computing and presenting net income per share information. As required, the
Company adopted the provisions of Statement No. 128 in its 1997 financial
statements. Basic net income per share was determined by dividing net income by
the weighted average number of common shares outstanding during each year.
Diluted net income per share reflects the potential dilution that could occur
assuming conversion or exercise of all convertible securities and issued and
unexercised stock options. A reconciliation of the net income and number of
shares used in computing basic and diluted net income per share is in Note 5.

INCOME TAXES

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

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 $3.0 million, $3.5 million and $2.9 million in 1999, 1998 and
1997, respectively.

EMPLOYEE STOCK COMPENSATION

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

FOREIGN CURRENCY HEDGING

     The Company may use foreign exchange contracts and options to hedge the
risk of changes in foreign currency exchange rates associated with contracts in
which the expenses for providing services are incurred in one currency and paid
for by the customer in another currency. The Company recognizes changes in value
in income only when contracts are settled or options are exercised. There were
no open foreign exchange contracts or options relating to service contracts open
at December 31, 1999.

COMPREHENSIVE INCOME

     In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income," which requires presentation of comprehensive income, defined as net
income plus all other changes in net assets from non-owner sources. Statement
No. 130 requires foreign currency translation adjustments and unrealized gains
and losses on the Company's available-for sale securities to be included in
other comprehensive income. Accumulated other comprehensive income at December
31, 1999 was $1.7 million, consisting of ($15.5) million in foreign currency
translation adjustments and $17.2 million in unrealized gains on
available-for-sale securities.


                                       45

<PAGE>   48

RECENTLY ISSUED ACCOUNTING STANDARD

     In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Statement No. 133 requires that upon
adoption, all derivative instruments be recognized in the balance sheet at fair
value, and that changes in such fair values be recognized in earnings unless
specific hedging criteria are met. Changes in the values of derivatives that
meet these hedging criteria will ultimately offset related earnings effects of
the hedged items; effects of certain changes in fair value are recorded in other
comprehensive income pending recognition in earnings. The Company will adopt
Statement No. 133 when required to do so on January 1, 2001. Because of its
limited use of derivatives, the Company does not expect the application of
Statement No. 133 to have a significant impact on its financial position or
results of operations.


2.   SHAREHOLDERS' EQUITY

     The Company is authorized to issue 25 million shares of preferred stock,
$.01 per share par value. At December 31, 1999, 200 million common shares of
$.01 par value were authorized.

     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 Common Stock. The Rights become exercisable if any
person or group announces it has acquired or obtained the right to acquire 15%
or more of the outstanding shares of Common Stock or commences a tender offer or
exchange offer for more than 15% of the Common Stock, subject to limited
exceptions. In the event that any party should acquire more than 15% of the
Common Stock without the Board's approval, the rights entitle all other
shareholders to purchase shares of Common Stock at a substantial discount. In
addition, if any person holding 15% of the Common Stock acquires the Company or
substantially all of its assets, the Rights entitle all other shareholders to
purchase common stock of the acquirer at a substantial discount. The Rights
expire on November 15, 2009, unless redeemed earlier by the Company.


3.  OPERATIONS OF ENVOY

    On March 30, 1999, the Company acquired ENVOY Corporation ("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. The acquisition of ENVOY was accounted for by the pooling of interests
method of accounting and all prior period financial information has been
restated to include ENVOY.

     On January 24, 2000, the Company announced a definitive agreement to sell
ENVOY to Healtheon/WebMD Corp. ("Healtheon/WebMD"). Following the sale, the
Company will no longer be in the electronic data interchange business. However,
prior to the sale, ENVOY will transfer its informatics subsidiary, Synergy
Health Care, Inc. ("Synergy") to the Company. Net revenues of Synergy for 1999
and 1998 were approximately $3.0 million per year. The Company will receive $400
million in cash and 35 million shares of Healtheon/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. Closing is expected to occur during the second quarter of 2000.

     After the proposed sale of ENVOY, the Company will retain exclusive rights
to de-identified ENVOY transaction data and certain other de-identified data
available from Healtheon/WebMD, subject to limited exceptions. The Company
agreed to share with Healtheon/WebMD a royalty derived from sales of products
using the licensed data. Upon the closing of the sale of ENVOY, the Company
plans to form a strategic alliance with Healtheon/WebMD to develop a web-based
suite of integrated products and services for the pharmaceutical industry. The
Company will provide $100 million in funding for development.

    ENVOY is being accounted for as a discontinued operation. The accompanying
consolidated financial statements reflect the operating results and balance
sheet items of ENVOY separately.


                                       46

<PAGE>   49
     The results of ENVOY 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. Prior year consolidated financial
statements have been restated to present ENVOY as a discontinued operation.

    The following is a summary of income (loss) from operations of ENVOY (in
thousands):

                                               YEAR ENDED DECEMBER 31,
                                       -------------------------------------
                                         1999          1998            1997
                                       --------      --------      ---------

Net revenue                            $219,908      $181,943      $ 137,605
                                       ========      ========      =========

Income (loss) before income taxes      $ 61,438      $ 21,407      $  (2,864)
Income taxes                             25,315        18,481          6,333
                                       --------      --------      ---------
Net income (loss)                      $ 36,123      $  2,926      $  (9,197)
                                       ========      ========      =========


         The assets and liabilities of ENVOY have been reclassified in the
accompanying consolidated balance sheets as net assets of discontinued
operation. The following is a summary of these net assets of discontinued
operation (in thousands):

                                                          DECEMBER 31,
                                                   -------------------------
                                                       1999            1998
                                                   ---------       ---------

Current assets                                     $  70,006       $  75,484
Other assets                                          88,794          95,789
Current liabilities                                  (33,977)        (33,050)
Long-term liabilities                                 (1,842)         (7,765)
                                                   ---------       ---------
         Net assets of discontinued operation      $ 122,981       $ 130,458
                                                   =========       =========

    On February 27, 1998, ENVOY acquired the Express Bill Companies pursuant to
separate agreements and plans of merger for an aggregate of 3.5 million shares
of ENVOY common stock (approximately 4.1 million shares of the Company's Common
Stock). These transactions were accounted for as poolings of interests and as
such, the historical financial data for ENVOY has been restated to include the
results of the Express Bill Companies.

    On May 6, 1998, ENVOY acquired all of the issued and outstanding capital
stock of Synergy for approximately $10.2 million in cash. ENVOY recorded
approximately $6.9 million related to the excess cost over the fair value of net
assets acquired. This acquisition was accounted for as a purchase and
accordingly, the results of Synergy have been included from the date of
acquisition.

    On October 1, 1998, ENVOY acquired substantially all of the assets of
Control-O-Fax Corporation and its wholly-owned subsidiary Control-O-Fax Systems,
Inc. (collectively, "Control-O-Fax"), for approximately $8.3 million in cash.
ENVOY recorded approximately $3.1 million related to the excess cost over the
fair value of the net assets acquired. This acquisition was accounted for as a
purchase and accordingly, the results of Control-O-Fax have been included from
the date of acquisition.

    On August 7, 1997, ENVOY acquired all of the issued and outstanding capital
stock of Healthcare Data Interchange Corporation ("HDIC"), the electronic data
interchange subsidiary of Aetna U.S. Healthcare Inc., for approximately $36.4
million in cash. ENVOY recorded approximately $38.9 million related to the
excess cost over the fair value of net assets acquired. As part of the HDIC
acquisition, ENVOY also recorded a one-time write-off of acquired in-process
technology of approximately $6.0 million. The acquisition was accounted for as a
purchase and accordingly, the results of HDIC have been included from the date
of acquisition.


                                       47


<PAGE>   50

4.  MERGERS AND ACQUISITIONS

    On January 1, 1999, the Company acquired substantial assets of Hoechst
Marion Roussel's ("HMR") Kansas City-based Drug Innovation and Approval facility
for approximately $93 million in cash, most of which (approximately $58 million)
is expected to be paid in the first half of 2000 when the acquisition of the
physical facility is completed. As a part of this transaction, the Company was
awarded a $436 million contract for continued support and completion of ongoing
HMR development projects over a five-year period. In addition, HMR will offer
the Company the opportunity to provide all U.S. clinical research services up to
an additional $144 million over the same period.

    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. In addition, the Company agreed to pay contingent
value payments to former PMSI shareholders who deferred receipt of one-half of
the shares of the Company's Common Stock they were entitled to receive in the
transaction until June 14, 1999. The right to receive contingent value payments
terminated in accordance with the merger agreement. Accordingly, no contingent
value payments were made or are payable to any former PMSI shareholder. 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 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 March 31, 1999, the Company acquired Medlab Pty Ltd and the assets of the
Niehaus & Botha partnership (collectively "N&B") in exchange for 271,146 shares
of the Company's Common Stock. On May 19, 1999, the Company acquired Minerva
Medical plc ("Minerva") in exchange for 1,143,625 shares of the Company's Common
Stock. On June 3, 1999, the Company acquired SMG Marketing Group, Inc. ("SMG")
in exchange for 1,170,291 shares of the Company's Common Stock. These
transactions were accounted for by the pooling of interests method and prior
period financial statements have been restated to include the results of
operations for these companies for all periods presented.

    The following is a summary of net revenue and net income from the beginning
of the year through the date of combination for companies acquired in
transactions accounted for as poolings of interests in 1999 and included in
continuing operations (in thousands):

                              N&B              Minerva               SMG
                              ---              -------               ---

Net revenue                 $2,724             $1,938               $6,439

Net income                  $  535             $  290               $1,647

         On February 2, 1998, the Company acquired Pharma Networks N.V. in
exchange for 132,000 shares of the Company's Common Stock. On February 26, 1998,
the Company acquired T2A S.A. in exchange for 311,899 shares of the Company's
Common Stock. On May 31, 1998, the Company acquired Crossbox Limited t/a Cardiac
Alert in exchange for 70,743 shares of the Company's Common Stock. On August 24,
1998, the Company acquired Royce Consultancy, Limited in exchange for 664,194
shares of the Company's Common Stock. On September 9, 1998, the Company acquired
Data Analysis Systems, Inc. in exchange for 358,897 shares of the Company's
Common Stock. On October 12, 1998, the Company acquired QED International, Inc.
in exchange for 523,520 shares of the Company's Common Stock. These 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.

    On June 2, 1997, the Company acquired Butler Communications, Inc. in
exchange for 428,610 shares of the Company's Common Stock. On June 11, 1997, the
Company acquired 100% of the stock of Medical Action Communications Limited for
1,131,394 shares of the Company's Common Stock. On July 2, 1997, the Company
acquired CerebroVascular Advances, Inc. ("CVA") through an exchange of 100% of
CVA's stock for 467,936 shares of the Company's Common Stock. On August 29,
1997, the Company acquired Intelligent Imaging, Inc. ("Intelligent Imaging") in
exchange for 171,880 shares of the Company's Common Stock. On August 29, 1997,
the Company acquired Clindepharm International (Pty) Limited in exchange for
477,966 shares of the Company's Common Stock. These 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.


                                       48

<PAGE>   51

    In addition to the above mergers and acquisitions, the Company has completed
other mergers and acquisitions all of which are immaterial to the financial
statements. For immaterial pooling of interests transactions, the Company's
financial statements for the year of the 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 the transaction have not been restated
because the effect of such restatement would be immaterial. For the Company's
1999 purchase transactions, the Company has not presented pro forma disclosures
because the results of operations for these transactions are not material to the
Company.


5.  NET INCOME PER SHARE

     The following table sets forth the computation of basic and diluted net
income per share (in thousands, except per share data):
<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31,
                                                                         ----------------------------------------
                                                                            1999            1998           1997
                                                                         -----------      --------      ---------
<S>                                                                      <C>              <C>           <C>
Net income:
  Income from continuing operations                                      $    73,168      $ 85,643      $  58,063
  Income (loss) from discontinued operation, net of income                    36,123         2,926         (9,197)
                                                                         -----------      --------      ---------
  Net income                                                             $   109,291      $ 88,569      $  48,866
                                                                         ===========      ========      =========

Weighted average shares:
  Basic weighted average shares                                              113,525       104,799         99,908
  Effect of dilutive securities:
     Stock options                                                             2,162         2,815          2,884
     Preferred Stock                                                              --         3,265          4,349
                                                                         -----------      --------      ---------
  Diluted weighted average shares                                            115,687       110,879        107,141
                                                                         ===========      ========      =========

  Basic net income per share:
     Income from continuing operations                                   $      0.64      $   0.82      $    0.58
     Income (loss) from discontinued operation                                  0.32          0.03          (0.09)
                                                                         -----------      --------      ---------
     Basic net income per share                                          $      0.96      $   0.85      $    0.49
                                                                         ===========      ========      =========

  Diluted net income per share:
     Income from continuing operations                                   $      0.63      $   0.77      $    0.54
     Income (loss) from discontinued operation                                  0.31          0.03          (0.09)
                                                                         -----------      --------      ---------
     Diluted net income per share                                        $      0.94      $   0.80      $    0.46
                                                                         ===========      ========      =========
</TABLE>


     Options to purchase 6.1 million shares of common stock with exercise prices
ranging between $34.84 and $53.375 per share were outstanding during 1999 but
were not included in the computation of diluted net income per share because the
options' exercise price was greater than the average market price of the common
shares and, therefore, the effect would be antidilutive.

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

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


                                       49

<PAGE>   52

6.  COMMITMENTS AND CONTINGENCIES

    On September 30, 1999, a class action lawsuit was 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. The complaint alleges violations of
federal securities laws, including violations of Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 thereunder. In particular, among other
claims, the complaint alleges that defendants made certain statements about the
Company's anticipated growth that were misleading because they failed to
disclose that the pharmaceutical industry allegedly had reversed its trend of
outsourcing clinical trials and that the Company had been notified that clinical
trials for a class of cardiovascular drugs would be discontinued. The complaint
seeks unspecified damages, plus costs and expenses, including attorneys' fees
and experts' fees.

    Since then, three additional class action complaints have been filed against
the Company in the same court. These three new actions assert essentially the
same claims and seek the same relief as the original complaint. One of the new
complaints, filed October 26, 1999, seeks to expand the class to include a
purported sub-class of persons who purchased Company call options, or sold
Company put options, during the class period. A group of investors in three of
the actions against the Company has filed a motion asking that all of the
actions be consolidated and that they be appointed as lead plaintiffs. The court
has not yet ruled on this motion. The Company anticipates that all of the
existing lawsuits, and any additional suits that may be filed, ultimately will
be consolidated into a single action. The Company continues to believe that all
of the claims are without merit and intends vigorously to defend the lawsuits.

    In February 1999, Kenneth Hodges ("Plaintiff") filed a civil lawsuit naming
as defendants Richard L. Borison, Bruce I. Diamond, 14 pharmaceutical companies
and Quintiles Laboratories Limited, a subsidiary of the Company. The complaint
alleges that certain drug trials conducted by Drs. Borison and Diamond in which
Plaintiff alleges he participated between 1988 and 1996 were not properly
conducted or supervised, that Plaintiff had violent adverse reactions to many of
the drugs and that his schizophrenia was aggravated by the drug trials.
Consequently, Plaintiff alleges that he was subject to severe mortification,
injured feelings, shame, public humiliations, victimization, emotional turmoil
and distress. The complaint alleges claims for battery, fraudulent inducement to
participate in the drug experiments, medical malpractice, negligence in
conducting the experiments, and intentional infliction of emotional distress.
Plaintiff seeks to recover damages in an amount in excess of $100 million.
Nowhere in the complaint are found any specific allegations against Quintiles
Laboratories Limited nor any specific factual connection between the Company and
the Plaintiff's claims. The Company believes the claims alleged against it are
vague and meritless, and the recovery sought is baseless. The Company intends to
vigorously defend itself against these claims.

    Three class action complaints were filed in 1998, and later consolidated
into a single action against ENVOY and certain of its executive officers. The
complaint asserted claims under Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, and
also asserted additional claims under Tennessee common law for fraud and
negligent misrepresentation (which state law claims were voluntarily dismissed
by the plaintiffs). The claims were consolidated into one Consolidated
Complaint. On September 15, 1999, the Federal Court for the Middle District of
Tennessee granted ENVOY's motion to dismiss the Consolidated Complaint. The
Court dismissed the complaint without prejudice. On November 23, 1999, the
plaintiffs filed what they deemed to be an Amended Consolidated Complaint.
Defendants moved to strike the purported Amended Consolidated Complaint on the
ground that the September 1999 dismissal order did not grant plaintiffs leave to
file an amended complaint (but does allow them to file a new lawsuit). On
January 6, 2000, the plaintiffs then moved to administratively re-open the case,
which motion the court granted on January 24, 2000, and then transferred the
case to another district judge. Defendants' motion to strike the purported
Amended Consolidated Complaint is still pending before the new district judge.
The plaintiffs in this action seek unspecified compensatory damages, attorney's
fees and other relief. The Company believes that these claims are without merit
and intend to defend the allegations vigorously. Neither the likelihood of an
unfavorable outcome nor the amount of the ultimate liability, if any, with
respect to these claims can be determined at this time.

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


                                       50

<PAGE>   53

7.   CREDIT ARRANGEMENTS AND OBLIGATIONS

    On October 1, 1999, the Company entered into a loan agreement with the
Missouri Development Finance Board due on October 1, 2009. Net proceeds to the
Company were $5.6 million. Interest is charged at an annual rate of 6.7%.

    On May 31, 1998, the Company acquired a clinical trial supply production and
warehouse facility in Livingston, Scotland for a purchase commitment valued at
(pound)1.75 million (approximately $2.9 million), with payment due in May, 2001.

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

    The Company has a $150 million senior unsecured credit facility with a U.S.
bank. At the option of the Company, interest is charged at either the bank's
prime rate (8.5% at December 31, 1999) or LIBOR rate (5.8225% at December 31,
1999) plus an applicable rate (0.17% at December 31, 1999). No balance was
outstanding as of December 31, 1999.

    The Company has a (pound)10.0 million (approximately $16.2 million)
unsecured line of credit with a U.K. bank. Interest is charged at a base rate
(5.5% at December 31, 1999) plus 0.75%. No balance was outstanding at December
31, 1999.

    The Company has a (pound)1.5 million (approximately $2.4 million) general
banking facility with the same U.K. bank. This facility is used for the issuance
of guarantees and the bank charges a 1% per annum fee for each guarantee issued.
No balance was outstanding as of December 31, 1999.

    The Company had a (pound)5.0 million (approximately $8.4 million) unsecured
line of credit with a second U.K. bank. The line of credit had an outstanding
balance of (pound)200,000 (approximately $400,000) at December 31, 1998.
In accordance with its terms, this facility was repaid and expired in May 1999.

    In March 1995, Quintiles Scotland Limited, a wholly-owned subsidiary of the
Company, acquired assets of a drug development facility in Edinburgh, Scotland
from Syntex Pharmaceuticals Limited, a member of the Roche group based in Basel,
Switzerland for a purchase commitment valued at (pound)12.5 million
(approximately $20.9 million). During 1999 the payment terms were amended and
the Company paid approximately (pound)6.2 million (approximately $10.1 million)
in October, 1999. The remaining balance of approximately (pound)6.3 million
(approximately $10.1 million) is due in April, 2000.

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

                                                             DECEMBER 31,
                                                       -----------------------
                                                          1999          1998
                                                       ---------     ---------

4.25% Convertible Subordinated Notes due May 2000      $ 143,747     $ 143,747
Other notes payable                                          148           678
Obligations                                               12,940        23,830
Missouri tax incentive bonds                               5,614            --
                                                       ---------     ---------
                                                         162,449       168,255

       Less: current portion                             154,178        21,126
             unamortized issuance costs                      981         1,669
                                                       ---------     ---------
                                                       $   7,290     $ 145,460
                                                       =========     =========


                                       51

<PAGE>   54

Maturities of long-term debt and obligations at December 31, 1999 are as
follows (in thousands):

                      2000                       $ 154,671
                      2001                           3,315
                      2002                             446
                      2003                             467
                      2004                             499
                      Thereafter                     3,051
                                                 ---------

                                                 $ 162,449
                                                 =========

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


8.   INVESTMENTS

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

                                                             GROSS      GROSS
                                  AMORTIZED   UNREALIZED   UNREALIZED   MARKET
HELD-TO-MATURITY SECURITIES:        COST         GAINS       LOSSES     VALUE
----------------------------      ---------   ----------   ----------   ------

State Securities --
   maturing in one year or less   $    798     $     --     $     --   $    798
   maturing in over five years       5,416           --           --      5,416
                                  --------     --------     --------   --------
                                  $  6,214     $     --     $     --   $  6,214
                                  ========     ========     ========   ========


                                                             GROSS      GROSS
                                  AMORTIZED   UNREALIZED   UNREALIZED   MARKET
AVAILABLE-FOR-SALE SECURITIES:       COST        GAINS       LOSSES     VALUE
------------------------------    ---------   ----------   ----------   ------

U.S. Government Securities --
  maturing in one year or less    $  5,438     $     --     $    (27)  $  5,411
  maturing between one and
    three years                     12,535           --         (315)    12,220
  maturing between three and
    five years                      58,538           --       (2,421)    56,117

State and Municipal Securities --
  maturing between one and
    three years                      1,544           --           (3)     1,541
Equity Securities                   15,523       29,714           --     45,237
Money Funds                         27,013           --         (746)    26,267
Other                                1,608           --           --      1,608
                                  --------     --------     --------   --------
                                  $122,199     $ 29,714     $ (3,512)  $148,401
                                  ========     ========     ========   ========


                                       52

<PAGE>   55

         The following is a summary as of December 31, 1998 of held-to-maturity
securities and available-for-sale securities by contractual maturity where
applicable (in thousands):

                                                             GROSS      GROSS
                                  AMORTIZED   UNREALIZED   UNREALIZED   MARKET
HELD-TO-MATURITY SECURITIES:        COST         GAINS       LOSSES     VALUE
----------------------------      ---------   ----------   ----------   ------

U.S. Government Securities --
   maturing in one year or less   $  2,990     $     15     $     --   $  3,005
Other                                2,333          217           --      2,550
                                  --------     --------     --------   --------
                                  $  5,323     $    232     $     --   $  5,555
                                  ========     ========     ========   ========

                                                             GROSS      GROSS
                                  AMORTIZED   UNREALIZED   UNREALIZED   MARKET
AVAILABLE-FOR-SALE SECURITIES:       COST        GAINS       LOSSES     VALUE
------------------------------    ---------   ----------   ----------   ------

U.S. Government Securities:
  maturing between one and
    three years                   $  6,506     $      2     $     (9)  $  6,499
  maturing between three and
    five years                      43,584            9         (298)    43,295
  maturing between five and
    seven years                     13,000           13          (39)    12,974
State and Municipal Securities --
  maturing in one year or less       2,000           --           --      2,000
  maturing between one and
    three years                      1,568           27           --      1,595
Equity Securities                      556           --          (63)       493
Money Funds                         25,512           --         (594)    24,918
Other                                  605           --           (5)       600
                                  --------     --------     --------   --------
                                  $ 93,331     $     51     $ (1,008)  $ 92,374
                                  ========     ========     ========   ========

     The gross realized gains and losses on sales of available-for-sale
securities were $2.1 million and $1,000, respectively, in 1999, and $81,000 and
$210,000, respectively, in 1998. The net adjustment to unrealized holding gains
(losses) on available-for-sale securities included as a separate component of
shareholders' equity was $17.8 million, ($572,000) and ($104,000) in 1999, 1998
and 1997, respectively.


9.   ACCOUNTS RECEIVABLE AND UNBILLED SERVICES

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

                                            DECEMBER 31,
                                     -------------------------
                                        1999            1998
                                     ---------       ---------
Trade:
   Billed                            $ 221,827       $ 178,874
   Unbilled services                   157,022         131,170
                                     ---------       ---------
                                       378,849         310,044

Allowance for doubtful accounts         (1,571)         (1,777)
                                     ---------       ---------
                                     $ 377,278       $ 308,267
                                     =========       =========


                                       53

<PAGE>   56

     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:

                                  DECEMBER 31,
                                --------------
REGION                          1999      1998
------                          ----      ----

Americas:
  United States                  55%       54%
  Other                           1         1
                                ---       ---
         Americas                56        55

Europe and Africa:
   United Kingdom                30        31
   Other                         11        12
                                ---       ---
         Europe and Africa       41        43

Asia - Pacific                    3         2
                                ---       ---
                                100%      100%
                                ===       ===


10.   ACCRUED EXPENSES

      Accrued expenses consist of the following (in thousands):

                                         DECEMBER 31,
                                    ---------------------
                                      1999          1998
                                    --------      -------

Compensation and payroll taxes      $ 51,704      $47,627
Acquisition related accruals          67,086           --
Other                                 46,656       32,966
                                    --------      -------
                                    $165,446      $80,593
                                    ========      =======

11.   LEASES

     The Company leases certain office space and equipment under operating
leases. The leases expire at various dates through 2049 with options to cancel
certain leases at five-year increments. Some leases contain renewal options.
Annual rental expenses under these agreements were approximately $46.5 million,
$36.8 million and $26.2 million for the years ended December 31, 1999, 1998 and
1997, respectively. The Company leases certain assets, primarily vehicles, under
capital leases. Capital lease amortization is included with depreciation and
amortization expenses and accumulated depreciation in the accompanying financial
statements.

     The following is a summary of future minimum payments under capitalized
leases and under operating leases that have initial or remaining noncancelable
lease terms in excess of one year at December 31, 1999 (in thousands):

                                        CAPITAL LEASES     OPERATING LEASES

2000                                       $15,581              $ 45,903
2001                                         8,999                37,553
2002                                           106                30,611
2003                                             2                22,657
2004                                            --                18,096
Thereafter                                      --                73,098
                                           -------              --------
Total minimum lease payments                24,688              $227,918
Amounts representing interest                1,372              ========
                                           -------
Present value of net minimum payments       23,316
Current portion                             14,727
                                           -------
Long-term capital lease obligations        $ 8,589
                                           =======


                                       54

<PAGE>   57

12.  INCOME TAXES

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

                                         YEAR ENDED DECEMBER 31,
                                 -------------------------------------
                                   1999           1998           1997
                                 --------       --------       -------
Current:
   Federal                       $ 21,351       $ 26,640       $11,201
   State                            3,764          3,995         2,655
   Foreign                         10,099         12,736         7,003
                                 --------       --------       -------
                                   35,214         43,371        20,859
                                 --------       --------       -------
Deferred expense (benefit):
   Federal                         11,320         (1,068)        8,021
   Foreign                         (3,792)        (2,379)        2,496
                                 --------       --------       -------
                                    7,528         (3,447)       10,517
                                 --------       --------       -------
                                 $ 42,742       $ 39,924       $31,376
                                 ========       ========       =======


Income tax expense attributable to continuing operations excludes income tax
expense from its discontinued operation.

         The Company has allocated directly to additional paid-in capital
approximately $3.7 million in 1999, $15.6 million in 1998 and $21.4 million in
1997 related to the tax benefit from non-qualified stock options exercised.

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

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                          --------------------------------------
                                                             1999          1998            1997
                                                          --------       --------       ---------

<S>                                                       <C>            <C>            <C>
Federal income taxes at statutory rate                    $ 40,569       $ 43,949       $ 31,304
State and local income taxes, net of federal benefit         2,446          2,597          1,745
Non-deductible expenses and transaction costs                9,966             --             --
Foreign earnings taxed at different rates                   (4,240)          (519)           726
Utilization of net operating loss carryforwards               (461)        (2,194)          (398)
Non-taxable income                                              --           (590)        (1,521)
Other                                                       (5,538)        (3,319)          (480)
                                                          --------       --------       --------
                                                          $ 42,742       $ 39,924       $ 31,376
                                                          ========       ========       ========
</TABLE>


     Income before income taxes from foreign operations was approximately $27.8
million, $30.8 million and $4.7 million for the years 1999, 1998 and 1997,
respectively. Income from foreign operations was approximately $59.5 million,
$63.0 million and $35.8 million for the years 1999, 1998 and 1997, respectively.
The difference between income from operations and income before income taxes is
due primarily to intercompany charges which eliminate in consolidation.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $120.6 million at December 31, 1999. 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.


                                       55


<PAGE>   58


     The 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):

                                                             DECEMBER 31,
                                                     -------------------------
                                                        1999             1998
                                                     ---------       ---------

Deferred income tax liabilities:
   Depreciation and amortization                     $ (25,834)      $ (29,077)
   Prepaid expenses                                     (6,274)         (1,835)
   Unrealized gain on equity investments                (9,297)             --
   Other                                               (11,386)         (3,693)
                                                     ---------       ---------
Total deferred income tax liabilities                  (52,791)        (34,605)
Deferred income tax assets:
   Net operating loss carryforwards                     29,398          24,456
   Accrued expenses and unearned income                 15,469          13,434
   Goodwill,  net of amortization                       87,304          94,432
   Other                                                14,778           5,902
                                                     ---------       ---------
                                                       146,949         138,224
Valuation allowance for deferred income tax assets     (56,224)        (52,685)
                                                     ---------       ---------
Total deferred income tax assets                        90,725          85,539
                                                     ---------       ---------
Net deferred income tax assets                       $  37,934       $  50,934
                                                     =========       =========

     The increase in the Company's valuation allowance for deferred income tax
assets to $56.2 million at December 31, 1999 from $52.7 million at December 31,
1998 is primarily due to the uncertainty related to the deferred income tax
asset for certain acquisition costs offset by the reduction of prior year
valuation allowances relating to net operating loss carryforwards that more
likely than not will be available for utilization in the future. In connection
with the Innovex acquisition, the Company established an initial deferred income
tax asset of $108 million to reflect the income tax benefits arising from the
deductibility of goodwill recorded for tax purposes. The Innovex business
combination was accounted for as a pooling of interests for financial reporting
purposes, and no goodwill was recorded. In addition, the Company recorded a
$45.3 million valuation allowance related to this taxable goodwill to reflect
uncertainties that might affect the realization of this deferred income tax
asset. These uncertainties include the projection of future taxable and foreign
source income, the interplay of U.S. income tax statutes and the Company's
ability to minimize foreign tax credit limitations. Based on its analysis, the
Company believes it is more likely than not that a portion of the deferred
income tax asset related to this taxable goodwill will not be recognized. The
resulting net asset of $62.7 million was recorded as an increase to additional
paid-in capital.

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

                                                  YEAR ENDED DECEMBER 31,
                                           ----------------------------------
                                              1999        1998         1997
                                           --------     --------     --------

Excess (deficiency) of income tax over
  financial reporting:
  Depreciation and amortization             $ 8,322     $ 10,326     $ 14,936
  Net operating loss carryforwards              795       (6,816)      (6,057)
  Valuation allowance reduction              (2,120)      (2,194)        (636)
  Accrued expenses and unearned income       (2,397)      (6,611)        (874)
  Other items, net                            2,928        1,848        3,148
                                            -------     --------     --------
                                            $ 7,528     $ (3,447)    $ 10,517
                                            =======     ========     ========


     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 1999, 1998 and 1997, these allowances were $9.7 million, $23
million and $28 million, respectively, which helped to generate net operating
loss carryforwards of $5.0 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, as the Company believes it is more likely than
not that the benefit will be realized. The Company has net operating loss
carryforwards of approximately $53.7 million in various entities within the
United Kingdom which have no expiration date and has over $16 million of net
operating loss carryforwards from various foreign jurisdictions which have
different expiration periods. In addition, the Company has approximately
$800,000 of U.S. state operating loss carryforwards which expire through 2014
and has approximately $17.9 million of U.S. federal operating loss carryforwards
which begin to expire in 2005.


                                       56

<PAGE>   59

13. 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, Singapore and
Canada, defined contribution plans in Belgium, Holland, Sweden, and Great
Britain, a profit sharing scheme in France, and defined benefit plans in Germany
and the U.K. The defined benefit plan in Germany is an unfunded plan, which is
provided for in the balance sheet. In addition, the Company sponsors a
supplemental non-qualified deferred compensation plan, covering certain
management employees.

    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.

    In 1992, the Company loaned the ESOP approximately $2.0 million to purchase
413,222 shares of the Company's Common Stock. As of December 31, 1997, the loan
was repaid. In connection with its acquisition of BRI, the Company merged the
existing BRI ESOP, also a leveraged plan, into the Company's ESOP effective
September 1, 1997. During 1998, the ESOP borrowed approximately $4.0 million
from the Company to purchase 100,000 shares of the Company's Common Stock. The
ESOP's trustee holds such shares in suspense and releases them for allocation to
participants as the loan is repaid. The Company's contributions to the ESOP are
used to repay the loan principal and interest.

    The amount of 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 $1.3 million, $1.7 million and $568,000 in
1999, 1998 and 1997, respectively. As of December 31, 1999, 1998 and 1997,
1,510,654, 1,520,950 and 1,773,000 shares, respectively, were allocated to
participants. Shares unallocated and held in suspense as of December 31, 1999,
totaled 111,748 and had a fair value of $2.1 million. All ESOP shares are
considered outstanding for net 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, 1999, 1998 and 1997, the Company expensed $4.3 million, $3.4
million and $2.1 million, respectively, as matching contributions.

    The Company has an employee stock purchase plan (the "Purchase Plan"), which
is intended to provide eligible employees an opportunity to acquire the
Company's Common Stock. Participating employees have the option to purchase
shares at 85% of the lower of the closing price per share of common stock on the
first or last day of the calendar quarter. The Purchase Plan is intended to
qualify as an "employee stock purchase plan" under Section 423 of the Internal
Revenue Code of 1986, as amended. During 1999, 1998 and 1997, 414,971, 141,727
and 84,522 shares, respectively, were purchased under the Purchase Plan. At
December 31, 1999, 2,355,767 shares were available for issuance under the
Purchase Plan.

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


                                       57


<PAGE>   60

     Stock option activity during the periods indicated is as follows:

                                                     Weighted-Average
                                          Number      Exercise Price
                                       ----------    ----------------

Outstanding at December 31, 1996        8,734,788       $   12.62
   Granted                              3,206,831           31.69
   Exercised                           (2,075,369)           6.76
   Canceled                              (530,734)          20.77
                                       ----------
Outstanding at December 31, 1997        9,335,516           20.02
   Granted                              3,148,054           43.26
   Exercised                           (1,535,542)          12.38
   Canceled                              (728,087)          25.40
                                       ----------
Outstanding at December 31, 1998       10,219,941           27.99
   Granted                              9,064,319           27.56
   Exercised                             (530,872)          20.21
   Canceled                              (868,908)          36.69
                                       ----------
Outstanding at December 31, 1999       17,884,480       $   27.59
                                       ==========


     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 1999, 1998 and 1997 was $9.05, $16.07 and $12.64 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
                                             ------------------------------     ------------------------------
                                              1999        1998        1997       1999        1998         1997
                                             ------      ------      ------     ------      ------       -----

<S>                                          <C>         <C>         <C>         <C>         <C>         <C>
Expected dividend yield                          0%          0%          0%          0%          0%          0%

Risk-free interest rate                        5.8%        4.8%        5.9%        4.7%        4.9%        5.1%

Expected volatility                           40.0%       42.0%       41.0%       40.0%       40.0%       34.4%

Expected life (in years from vesting)          1.40        1.35        1.20        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 expense related to
discontinued operation of approximately $5.0 million in 1999, $4.5 million in
1998 and $2.2 million in 1997) follows (in thousands, except for net income per
share information):

                                                   YEAR ENDED DECEMBER 31,
                                               -------------------------
                                                 1999       1998        1997
                                               -------     -------    -------

Pro forma net income                           $81,793     $70,252    $36,773

Pro forma basic net income per share              0.72        0.67       0.37

Pro forma diluted net income per share            0.71        0.63       0.34


                                       58

<PAGE>   61

Selected information regarding stock options as of December 31, 1999 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>             <C>
 2,207,989         $  0.20  -  $  8.58       $   6.87             3.9            1,859,169       $    6.57
 7,391,595         $  8.75  -  $ 24.01          19.50             8.6            1,188,752           18.86
 3,472,851         $ 24.56  -  $ 37.75          33.83             7.9            1,213,040           31.92
 3,366,009         $ 37.81  -  $ 52.13          41.44             8.3            1,508,460           40.15
 1,446,036         $ 53.38  -  $ 56.25          53.38             9.0              754,935           53.38
----------                                                                      ---------
17,884,480                                   $  27.59             7.9            6,524,356       $   26.70
==========                                                                       =========
</TABLE>



14.  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):

                                    1999             1998          1997
                                 ----------      ----------      --------
Net revenue:
  Americas:
     United States               $  870,559      $  599,757      $428,920
     Other                           23,987          15,078         7,325
                                 ----------      ----------      --------
          Americas                  894,546         614,835       436,245

  Europe and Africa:
     United Kingdom                 378,099         346,090       256,371
     Other                          260,096         232,047       170,248
                                 ----------      ----------      --------
          Europe and Africa         638,195         578,137       426,619

  Asia-Pacific                       74,346          28,804        22,693
                                 ----------      ----------      --------
                                 $1,607,087      $1,221,776      $885,557
                                 ==========      ==========      ========
Long-lived assets:
  Americas:
     United States               $  214,503      $   78,599      $ 55,072
     Other                            2,211           1,544         1,130
                                 ----------      ----------      --------
          Americas                  216,714          80,143        56,202

  Europe and Africa:
     United Kingdom                 156,067         149,101       117,407
     Other                           20,473          20,713        15,330
                                 ----------      ----------      --------
          Europe and Africa         176,540         169,814       132,737

  Asia-Pacific                        6,430           5,374         2,414
                                 ----------      ----------      --------
                                 $  399,684      $  255,331      $191,353
                                 ==========      ==========      ========


                                       59

<PAGE>   62

15.  SEGMENTS

     The following table presents the Company's operations by reportable
segment. The Company is managed through three reportable segments, namely, the
product development service group, the commercialization service group and the
QUINTERNET(TM) informatics service group. Management has distinguished these
segments based on the normal operations of the Company. The product development
group is primarily responsible for all phases of clinical research and outcomes
research consulting. The commercialization group is primarily responsible for
sales force deployment and strategic marketing services. The QUINTERNET(TM)
informatics group is primarily responsible for providing market research
solutions and strategic analyses to support healthcare decisions. The
QUINTERNET(TM) informatics group has been restated to exclude the electronic
data interchange operations of ENVOY, which has been treated as a discontinued
operation. The Company does not include non-recurring costs, interest income
(expense) and income tax expense (benefit) in segment profitability. Overhead
costs are allocated based upon management's best estimate of efforts expended in
managing the segments. There are not any significant intersegment revenues (in
thousands):

<TABLE>
<CAPTION>
                                                    1999             1998           1997
                                                -----------       ----------      --------
<S>                                             <C>               <C>             <C>
Net revenue:
  Product development                           $   948,905       $  708,508      $517,993
  Commercialization                                 614,660          496,178       356,064
  QUINTERNET(TM) informatics                         43,522           17,090        11,500
                                                -----------       ----------      --------
                                                $ 1,607,087       $1,221,776      $885,557
                                                ===========       ==========      ========

Income (loss) from operations:
  Product development                           $    83,842       $   77,605      $ 52,167
  Commercialization                                  57,683           47,298        37,685
  QUINTERNET(TM) informatics                         (5,170)           4,486         1,962
                                                -----------       ----------      --------
                                                $   136,355       $  129,389      $ 91,814
                                                ===========       ==========      ========

Total assets:
  Product development                           $   940,274       $  754,129      $614,234
  Commercialization                                 290,356          267,091       213,519
  QUINTERNET(TM) informatics                        303,011           18,430         5,433
  Net assets of discontinued operation              122,981          130,458       125,082
                                                -----------       ----------      --------
                                                $ 1,656,622       $1,170,108      $958,268
                                                ===========       ==========      ========

Expenditures to acquire long-lived assets:
  Product development                           $   130,616       $   77,587      $ 68,877
  Commercialization                                  22,150           18,349        11,510
  QUINTERNET(TM) informatics                          5,362            1,018           868
                                                -----------       ----------      --------
                                                $   158,128       $   96,954      $ 81,255
                                                ===========       ==========      ========

Depreciation and amortization expense:
  Product development                           $    49,391       $   33,341      $ 20,463
  Commercialization                                  26,268           22,681        17,864
  QUINTERNET(TM) informatics                          6,633            1,169           364
                                                -----------       ----------      --------
                                                $    82,292       $   57,191      $ 38,691
                                                ===========       ==========      ========
</TABLE>


                                       60

<PAGE>   63

16.  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, 1999
                                           --------------------------------------------------------------------
                                               FIRST            SECOND              THIRD             FOURTH
                                              QUARTER           QUARTER            QUARTER            QUARTER
                                           -----------        -----------        -----------        -----------

<S>                                        <C>                <C>                <C>                <C>
Net revenue                                $   359,705        $   402,276        $   402,497        $   442,609
Income from operations                          38,517             42,455             27,997             27,386
Income from continuing operations                3,364             25,139             20,500             24,165
Income from discontinued operation,
   net of taxes                                  5,250             10,041             10,679             10,153
Net income                                 $     8,614        $    35,180        $    31,179        $    34,318
                                           ===========        ===========        ===========        ===========
Basic net income per share:
   Income from continuing operations       $      0.03        $      0.22        $      0.18        $      0.21
   Income from discontinued operation             0.05               0.09               0.09               0.09
                                           -----------        -----------        -----------        -----------
   Basic net income per share              $      0.08        $      0.31        $      0.27        $      0.30
                                           ===========        ===========        ===========        ===========
Diluted net income per share:
   Income from continuing operations       $      0.03        $      0.21        $      0.18        $      0.21
   Income from discontinued operation             0.05               0.09               0.09               0.09
                                           -----------        -----------        -----------        -----------
   Diluted net income per share            $      0.08        $      0.30        $      0.27        $      0.30
                                           ===========        ===========        ===========        ===========

Range of stock prices                   $ 34.625 - 53.375  $34.750 - 45.500   $ 16.875 - 41.938   $ 16.000 - 25.031
</TABLE>
<TABLE>
<CAPTION>


                                                               YEAR ENDED DECEMBER 31, 1998
                                           --------------------------------------------------------------------
                                               FIRST            SECOND              THIRD             FOURTH
                                              QUARTER           QUARTER            QUARTER            QUARTER
                                           -----------        -----------        -----------        -----------

<S>                                        <C>                <C>                <C>                <C>
Net revenue                                $   272,546        $   297,947        $   315,558        $   335,725
Income from operations                          30,565             30,250             32,152             36,422
Income from continuing operations               21,139             19,921             20,105             24,478
Income from discontinued operation,
  net of taxes                                      75                497              1,880                474
Net income                                 $    21,214        $    20,418        $    21,985        $    24,952
                                           ===========        ===========        ===========        ===========
Basic net income per share:
   Income from continuing operations       $      0.20        $      0.19        $      0.19        $      0.23
   Income from discontinued operation             0.00               0.00               0.02               0.00
                                           -----------        -----------        -----------        -----------
   Basic net income per share              $      0.20        $      0.20        $      0.21        $      0.24
                                           ===========        ===========        ===========        ===========
Diluted net income per share:
   Income from continuing operations       $      0.19        $      0.18        $      0.18        $      0.22
   Income from discontinued operation             0.00               0.00               0.02               0.00
                                           -----------        -----------        -----------        -----------
   Diluted net income per share            $      0.19        $      0.18        $      0.20        $      0.22
                                           ===========        ===========        ===========        ===========

Range of stock prices                   $ 34.000 - 52.428  $ 42.250 - 53.500  $ 33.375 - 52.000  $ 41.000 - 56.875
</TABLE>


                                       61

<PAGE>   64


17.   SUBSEQUENT EVENTS

         On January 26, 2000, the Company announced the adoption of a
restructuring plan. In connection with this plan, the Company anticipates
recognizing a restructuring charge of approximately $55 million during the first
quarter of 2000. The restructuring charge will consist primarily of severance
costs related to a worldwide workforce reduction of approximately 800 positions
and lease termination costs related to the consolidation of offices.

         On February 3, 2000, the Board of Directors authorized the Company to
repurchase up to $200 million of the Company's Common Stock from time to time
over the next 12 months in open market, block or negotiated transactions.


                                       62


<PAGE>   65

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, 1999 and 1998, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the two years in the
period then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the December 31, 1998
consolidated financial statements of ENVOY Corporation, a company acquired
during 1999 in a transaction accounted for as a pooling of interests, as
discussed in Note 3. Such statements are included in the consolidated financial
statements of Quintiles Transnational Corp., and reflect total assets and total
net income of 11 percent and 2 percent, respectively, of the related
consolidated totals. These statements were audited by other auditors whose
report has been furnished to us and our opinion, insofar as it relates to the
amounts included for ENVOY Corporation, is based solely upon the report of the
other auditors.

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

In our opinion, based upon our audits and the report of the other auditors, 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the two years in the period then
ended, in conformity with generally accepted accounting principles.



                                              Arthur Andersen LLP



Raleigh, North Carolina,
January 26, 2000, except
with respect to the matter
discussed in Note 17, as to
which the date is February 3, 2000.


                                       63


<PAGE>   66

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders of Quintiles Transnational Corp.

We have audited the accompanying consolidated statements of operations,
shareholders' equity, and cash flows of Quintiles Transnational Corp. (formed as
a result of the consolidation of Quintiles Transnational Corp. and the companies
identified in Notes 3 and 4 of the consolidated financial statements) for the
year ended December 31, 1997. The consolidated financial statements give
retroactive effect to the merger of Quintiles Transnational Corp. and the
companies identified in Notes 3 and 4, which have been accounted for using the
pooling of interests method as described in the notes to the consolidated
financial statements. These financial statements are the responsibility of the
management of Quintiles Transnational Corp. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit 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 audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of the operations and cash flows
of Quintiles Transnational Corp. for the year ended December 31, 1997, after
giving retroactive effect to the merger of the companies identified in Notes 3
and 4 to the consolidated financial statements, in conformity with accounting
principles generally accepted in the United States.



                                             Ernst & Young LLP



Raleigh, North Carolina
January 26, 1998,
except for Notes 3 and 4, as to which the date is
January 24, 2000.



                                       64




<PAGE>   67


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

         Not applicable.


                                       65

<PAGE>   68


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         DIRECTORS AND EXECUTIVE OFFICERS

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

         Name                Age   Position with the Company
         ----                ---   -------------------------
James L. Bierman              47   Chief Financial Officer
Robert C. Bishop, Ph.D.       57   Director
E.G.F. Brown                  56   Director
Vaughn D. Bryson              61   Director
Santo J. Costa                54   Vice Chairman and Director
Chester W. Douglass, Ph.D.    60   Director
William E. Ford               38   Director
Dennis B. Gillings, Ph.D.     56   Chairman of the Board of Directors and
                                     Chief Executive Officer
Fred C. Goad                  59   Director
Jim D. Kever                  47   Director and Chief Executive Officer of ENVOY
Arthur M. Pappas              52   Director
John S. Russell               45   Senior Vice President and General Counsel
Eric J. Topol, M.D.           45   Director
Virginia V. Weldon, M.D.      64   Director


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

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


                                       66

<PAGE>   69

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

         VAUGHN D. BRYSON has served as a director since March 1997. Mr. Bryson
is President of Life Science Advisors, LLC, a consulting firm focused on
assisting biopharmaceutical and medical device firms in building shareholder
value. Mr. Bryson was a 32 year employee of Eli Lilly & Co. ("Lilly"), a global
research-based pharmaceutical corporation, where he served as President and
Chief Executive Officer from 1991 until June 1993; he was Executive Vice
President from 1986 until 1991. He served as a director of Lilly from 1984 until
his retirement in 1993. From April 1994 to December 1996, Mr. Bryson served as
Vice Chairman of Vector Securities International, Inc., an investment banking
firm. Mr. Bryson is a director of Ariad Pharmaceuticals, Inc., a developer of
pharmaceuticals that targets intracellular signaling pathways in order to alter
the course of disease; Chiron Corporation, a global healthcare company with
biopharmaceutical businesses; Fusion Medical Technologies, Inc., a company
developing and commercializing proprietary collagen gel-based products for use
in controlling bleeding during surgery; and Amylin Pharmaceuticals, Inc., a
developmental stage biopharmaceutical company focusing on metabolic disorders.

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

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

         WILLIAM E. FORD has served as a director since June 1999. He was
appointed a director of ENVOY in March 1996 and served as a director until we
acquired ENVOY in March 1999. Mr. Ford has served as a managing member of
General Atlantic Partners LLC, a private equity firm that invests globally in
information technology companies, since 1991. Mr. Ford is also a director of
Priceline.com Incorporated, a publicly traded buyer-driven e-commerce company
whose "demand collection system" enables consumers to use the Internet to save
money on a wide range of products and services; E*Trade Group, Inc., a provider
of online investing services for self-directed investors; Tickets.com, a
provider of entertainment tickets, event information and related products and
services through retail stores, telephone sales centers, interactive voice
response systems and the Internet; LHS Group, Inc., a publicly-traded


                                       67

<PAGE>   70

billing solutions software company; Eclipsys Corporation, a provider of
clinical, financial and administrative software solutions to the health care
industry; and several private software companies in which General Atlantic
Partners, LLC or one of its affiliates is an investor.

         FRED C. GOAD, JR. has served as a director since June 1999. He served
as the Chairman and Co-Chief Executive Officer of ENVOY from August 1995 until
we acquired ENVOY in March 1999, and as a director from Envoy's incorporation in
August 1994 through March 1999. Prior to that time, he served as ENVOY's
President from the date of incorporation until assuming the title of Chairman
and Co-Chief Executive Officer in August 1995. Mr. Goad served as Chief
Executive Officer and a director of ENVOY Corporation, a Delaware corporation
and former parent corporation to ENVOY, from September 1985 through June 1995.
Mr. Goad is a director of Performance Food Group Company, a food distribution
company.

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

         JIM D. KEVER has served as a director since June 1999. He has served as
Chief Executive Officer of ENVOY, since we acquired ENVOY in March 1999. Mr.
Kever served as President and Co-Chief Executive Officer of ENVOY from August
1995 until March 1999 and as a director from Envoy's incorporation in August
1994 until March 1999. Prior to such time, he served as Envoy's Executive Vice
President, Secretary and General Counsel from the date of incorporation. Mr.
Kever had served as a director and Secretary, Treasurer and General Counsel of
ENVOY's former parent corporation since 1981 and as Executive Vice President
since 1984. Mr. Kever also is a director of Transaction System Architects, Inc.,
a supplier of electronic payment software products and network integration
solutions, 3D Systems Corporation, a manufacturer of technologically advanced
solid imaging systems and prototype models, and Tyson Foods, where he also
serves on the audit and ethics committees.

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


                                       68

<PAGE>   71

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

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

         VIRGINIA V. WELDON, M.D. has served as a director since November, 1997.
Dr. Weldon served as Senior Vice President, Public Policy, Monsanto Company, an
agro-chemicals and biotechnology (life sciences) company, from October 1993
until her retirement in March 1998. Previously, she was Professor of Pediatrics,
Vice Chancellor for Medical Affairs and Vice President of the Medical Center at
Washington University in St. Louis. Dr. Weldon has received recognition from
numerous medical, scientific and educational organizations, among them the
Association of American Medical Colleges, of which she served as Chairman. In
1994, Dr. Weldon was one of 18 individuals appointed to the President's
Committee of Advisors on Science and Technology. More recently, she became a
member of the California Institute of Technology Board of Trustees. Dr. Weldon
received her medical degree from the State University of New York at Buffalo.
She also completed post-doctoral studies at the Johns Hopkins University.

         SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our executive officers and directors to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Based on a
review of the report forms that were filed, we believe that during 1999 all
filing requirements applicable to our executive officers and directors were
complied with except that each of Santo J. Costa, Greg Porter and David White
reported late to the Securities and Exchange Commission the acquisition or sale
of certain shares of our common stock.


                                       69

<PAGE>   72

ITEM 11. EXECUTIVE COMPENSATION

         The following tables show annual and long-term compensation that we
paid or accrued for services rendered for the fiscal years indicated by our
Chief Executive Officer and the next four most highly compensated executive
officers (the "named executive officers") whose total salary and bonus exceeded
$100,000 individually during the year ended December 31, 1999.

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                                                                         Long Term
                                            Annual Compensation                        Compensation
                               ----------------------------------------------------    ------------
                                                                                          No. Of
                                                                                        Securities
          Name and                                                     Other Annual     Underlying          All Other
     Principal Position        Year         Salary         Bonus       Compensation      Options          Compensation
     ------------------        ----         ------         -----       ------------      -------          ------------

<S>                            <C>         <C>           <C>           <C>              <C>               <C>
Dennis B. Gillings             1999        $568,749 (1)  $    --        $       (2)     169,316  (3)      $ 472,070  (4)
    Chairman of the Board of   1998         474,996 (5)       --                (2)      25,048  (6)        349,236  (7)
    Directors and Chief        1997         447,400 (8)       --                         24,013  (9)        231,009 (10)
    Executive Officer

Santo J. Costa                 1999        $474,453      $     --       $        (2)    201,650 (11)      $   5,853 (12)
    Vice Chairman              1998         450,000            --                (2)     22,553 (13)        760,552 (14)
                               1997         425,000            --        43,981 (15)    119,338 (16)      2,336,090 (17)

Ludo J. Reynders               1999        $341,253      $     --        $       (2)     46,521 (18)      $   4,566 (19)
    Chief Executive Officer,   1998         315,000            --                (2)     23,803 (20)          6,837 (21)
    Clinical Development       1997         301,415            --                (2)     64,477 (22)         11,781 (23)
    Services

Rachel R. Selisker             1999        $265,125      $     --        $       (2)     55,385 (24)      $   5,626 (25)
    Senior Consultant,         1998         237,000            --                (2)     12,771 (26)          9,225 (27)
    Global Shared Services     1997         225,000            --                (2)     34,378 (28)         17,620 (29)

Jim D. Kever                   1999 (30)   $196,500      $178,500 (31)   $       (2)    127,871 (32)      $   4,053 (33)
    Chief Executive Officer,
    ENVOY
</TABLE>

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

(1)      Includes $284,375 deferred during 1999 pursuant to our Elective
         Deferred Compensation Plan.

(2)      Perquisites and other personal benefits received did not exceed the
         lesser of $50,000 or 10% of salary and bonus compensation for the named
         executive officer.

(3)      Includes 12,792 shares subject to options granted pursuant to the 1999
         bonus.

(4)      Includes contributions to our 401(k) Plan on behalf of Dr. Gillings in
         the amount of $2,375, the estimated value of contributions made to our
         ESOP on Dr. Gillings' behalf in the amount of $1,038, the present value
         of the benefit to Dr. Gillings of the premiums we paid under a
         split-dollar life insurance arrangement in the amount of $463,583 (see
         "Employment Agreements" below for a description of this arrangement),
         and other life insurance premiums that we paid in the amount of $5,074.

(5)      Includes $236,348 deferred during 1998 pursuant to our Elective
         Deferred Compensation Plan.

(6)      Includes 6,053 shares subject to options granted pursuant to the 1998
         bonus.

(7)      Includes contributions to our 401(k) Plan on behalf of Dr. Gillings in
         the amount of $2,364, the estimated value of contributions made to our
         ESOP on Dr. Gillings' behalf in the amount of $6,031, the present value
         of the benefit to Dr. Gillings of the premiums we paid under a
         split-dollar life insurance arrangement in the amount of $335,686 (see
         "Employment Agreements"


                                       70

<PAGE>   73
         below for a description of this arrangement), and other life insurance
         premiums that we paid in the amount of $5,155.

(8)      Includes $55,925 deferred during 1997 pursuant to our Elective Deferred
         Compensation Plan.

(9)      Includes 7,042 shares subject to options granted pursuant to the 1997
         bonus.

(10)     Includes contributions to our 401(k) Plan on behalf of Dr. Gillings in
         the amount of $2,237, the value of contributions made to our ESOP on
         Dr. Gillings' behalf in the amount of $16,473, the present value of the
         benefit to Dr. Gillings of the premiums that we paid under a
         split-dollar life insurance arrangement in the amount of $207,144 (see
         "Employment Agreements" below for a description of this arrangement),
         and other life insurance premiums that we paid in the amount of $5,155.

(11)     Includes 9,443 shares subject to options granted pursuant to the 1999
         bonus.

(12)     Includes $1,038, which represents the estimated value of contributions
         made to our ESOP on behalf of Mr. Costa. Also includes $4,815
         representing the value of life insurance premiums paid in 1999.

(13)     Includes 5,299 shares subject to options granted pursuant to the 1998
         bonus.

(14)     Includes $749,625, which represents the appreciation of incentive stock
         options exercised, and $6,031, which represents the estimated value of
         the contributions made to our ESOP on behalf of Mr. Costa. Also
         includes $4,896 representing the value of life insurance premiums paid
         in 1998.

(15)     Amount represents the value of financial planning and legal costs that
         we paid on behalf of Mr. Costa.

(16)     Includes 5,549 shares subject to options granted pursuant to the 1997
         bonus.

(17)     Includes $2,317,260, which represents the appreciation of incentive
         stock options exercised, and $14,510 which represents the estimated
         value of the contributions made to our ESOP on behalf of Mr. Costa.
         Also includes $4,320 representing the value of life insurance premiums
         paid in 1997.

(18)     Includes 5,259 shares subject to options granted pursuant to the 1999
         bonus.

(19)     Includes $2,375 in contributions to our 401(k) Plan on behalf of Mr.
         Reynders, life insurance premiums that we paid in the amount of $1,153
         and $1,038 representing the estimated value of contributions made to
         our ESOP on behalf of Mr. Reynders.

(20)     Includes 3,514 shares subject to options granted pursuant to the 1998
         bonus.

(21)     Includes $806 in contributions to our 401(k) Plan on behalf of Mr.
         Reynders and $6,031 representing the estimated value of contributions
         made to our ESOP on behalf of Mr. Reynders.

(22)     Includes 2,810 shares subject to options granted pursuant to the 1997
         bonus.

(23)     Amount represents the value of contributions to the Quintiles (UK)
         Limited Approved Profit Sharing Scheme on behalf of Dr. Reynders.

(24)     Includes 4,123 shares subject to options granted pursuant to the 1999
         bonus.

(25)     Includes $2,604 in contributions to our 401(k) Plan on behalf of Ms.
         Selisker, life insurance premiums that we paid in the amount of $896
         and $1,038 representing the estimated value of contributions made to
         our ESOP on behalf of Ms. Selisker.

(26)     Includes 2,482 shares subject to options granted pursuant to the 1998
         bonus.

(27)     Includes contributions to our 401(k) Plan on behalf of Ms. Selisker in
         the amount of $2,430, the estimated value of contributions made to our
         ESOP on Ms. Selisker's behalf in the amount of $5,931 and life
         insurance premiums that we paid in the amount of $864.

(28)     Includes 2,711 shares subject to options granted pursuant to the 1997
         bonus.

(29)     Includes $2,400 in contributions to our 401(k) Plan on behalf of Ms.
         Selisker, life insurance premiums that we paid in the amount of $691
         and $14,529 representing the estimated value of contributions made to
         our ESOP on behalf of Ms. Selisker.

(30)     Mr. Kever is Chief Executive Officer of ENVOY, which became our
         wholly-owned subsidiary following our acquisition of ENVOY in March
         1999. After completion of our pending agreement to sell ENVOY, Mr.
         Kever will no longer be one of our executive officers.

                                       71

<PAGE>   74

(31)     Amount represents payments made in 2000 pursuant to Mr. Kever's current
         employment contract with ENVOY.

(32)     Includes 64,271 shares subject to options granted pursuant to the 1999
         bonus.

(33)     Includes $1,875 representing the value of contributions made to our
         401(k) Plan on behalf of Mr. Kever in 1999 and $2,345 which represents
         the value of life insurance premiums paid for Mr. Kever in 1999.


         OPTION GRANTS IN LAST FISCAL YEAR

         The following table reflects the stock options granted during the past
fiscal year to the named executive officers pursuant to our Equity Compensation
Plan and Nonqualified Stock Option Plan. No stock appreciation rights were
granted to the named executive officers during 1999. Unless otherwise noted, all
options expire 10 years from the date of grant or, if sooner, three months after
termination of employment, unless employment is terminated because of (1) death
or disability in which case the options expire one year after the date of such
termination, (2) retirement as determined by the administrator of the Plan, in
which case the options expire ten years after such termination, if the holder
has agreed to a non-compete, otherwise, the options expire one year after such
termination or (3) termination as a result of a Special Program, as determined
by the administrator of the Plan, in which case the options expire three years
after the date of such termination.



                                       72

<PAGE>   75

<TABLE>
<CAPTION>
                                                                                           POTENTIAL REALIZABLE VALUE
                                                                                             AT ASSUMED ANNUAL RATES
                                                                                                  OF STOCK PRICE
                                                                                               APPRECIATION FOR OPTION
                                                 INDIVIDUAL GRANTS                                   TERM (1)
                           ------------------------------------------------------------    --------------------------
                            NUMBER OF      PERCENT OF
                            SECURITIES   TOTAL OPTIONS
                           UNDERLYING      GRANTED TO        EXERCISE OR
                             OPTIONS      EMPLOYEES IN       BASE PRICE      EXPIRATION
       NAME                  GRANTED    FISCAL YEAR (2)     PER SHARE ($)       DATE         5% ($)        10% ($)
       ----                -----------  ---------------     -------------    -----------     ------        -------

<S>                         <C>         <C>                 <C>              <C>          <C>            <C>
Dennis B. Gillings          2,356 (3)         0.0%              42.44        06/07/2009      62,879         159,347
                           21,470 (4)         0.2%              42.44        06/07/2009     573,007       1,452,112
                            3,664 (5)         0.0%              42.44        06/07/2009      97,787         247,813
                            5,940 (6)         0.1%              35.88        08/15/2009     134,015         339,623
                           33,630 (7)         0.4%              35.88        08/15/2009     758,746       1,922,812
                            3,188 (8)         0.0%              22.00        11/15/2009      44,108         111,779
                           45,697 (9)         0.5%              22.00        11/15/2009     632,249       1,602,243
                           53,371(10)         0.6%              42.44        06/07/2009   1,424,403       3,609,718

Santo J. Costa              2,356 (3)         0.0%              42.44        06/07/2009      62,879         159,347
                           14,322(11)         0.2%              42.44        06/07/2009     382,236         968,661
                            2,874 (5)         0.0%              42.44        06/07/2009      76,703         194,381
                            4,003 (6)         0.0%              35.88        08/15/2009      90,314         228,874
                           23,541 (7)         0.3%              35.88        08/15/2009     531,123       1,345,969
                            2,566 (8)         0.0%              22.00        11/15/2009      35,502          89,970
                           31,988 (9)         0.4%              22.00        11/15/2009     442,576       1,121,574
                           90,000(10)         1.0%              42.44        06/07/2009   2,401,984       6,087,100
                           30,000(12)         0.3%              40.19        03/14/2009     758,211       1,921,456

Ludo J. Reynders            2,356 (3)         0.0%              42.44        06/07/2009      62,879         159,347
                            7,175(13)         0.1%              42.44        06/07/2009     191,492         485,277
                            1,700 (5)         0.0%              42.44        06/07/2009      45,371         114,979
                            2,228 (6)         0.0%              35.88        08/15/2009      50,267         127,387
                           13,452 (7)         0.1%              35.88        08/15/2009     303,499         769,125
                            1,331 (8)         0.0%              22.00        11/15/2009      18,415          46,668
                           18,297 (9)         0.2%              22.00        11/15/2009     252,902         640,904

Rachel R. Selisker          2,356 (3)         0.0%              42.44        06/07/2009      62,879         159,347
                            7,175(13)         0.1%              42.44        06/07/2009     191,492         485,277
                            1,189 (5)         0.0%              42.44        06/07/2009      31,733          80,417
                            1,788 (6)         0.0%              35.88        08/15/2009      40,295         102,115
                           13,452 (7)         0.1%              35.88        08/15/2009     303,499         769,125
                            1,148 (8)         0.0%              22.00        11/15/2009      15,883          40,252
                           18,279 (9)         0.2%              22.00        11/15/2009     252,902         640,904
                           10,000(14)         0.1%              50.88        02/04/2009     319,950         810,816

Jim D. Kever               64,271(15)         0.7%              18.69        12/31/2009     755,343       1,914,187
                           63,600(16)         0.7%              18.94        11/05/2009     757,456       1,919,543
</TABLE>

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

(1)      Potential realizable value of each grant is calculated assuming that
         market price of the underlying security appreciates at annualized rates
         of 5% and 10%, respectively, over the 10 year term of the grant. The
         assumed annual rates of appreciation of 5% and 10% would result in the
         price of the common stock increasing to $82.87 and $131.96 per share,
         respectively, for the options expiring February 4, 2009, $69.13 and
         $110.07 per share, respectively, for the options expiring June 7, 2009,
         $58.44 and $93.05 per share, respectively, for the options expiring
         August 15,


                                       73

<PAGE>   76

         2009, $35.84 and $57.06 per share, respectively, for the options
         expiring November 15, 2009, $30.85 and $49.12 per share, respectively,
         for the options expiring November 5, 2009, $65.46, $104.24 per share,
         respectively, for the options expiring March 14, 2009, and $30.44 and
         $48.47 per share, respectively, for the options expiring December 31,
         2009.

(2)      Options to purchase an aggregate of 9,095,779 shares were granted to
         employees during 1999.

(3)      Incentive stock options granted June 7, 1999. Number of options granted
         as incentive stock options to extent of annual $100,000 cap; options in
         excess of the cap granted as nonqualified options. Shares subject to
         the options granted vest June 7, 2003.

(4)      Nonqualified stock options granted June 7, 1999. Shares subject to the
         options granted vest over the next four years, with 28% of such shares
         vesting on June 7 of each of 2000, 2001 and 2002 and 16% vesting on
         June 7, 2003.

(5)      Nonqualified stock options granted June 7, 1999. Shares subject to the
         options granted vest on May 15, 2000.

(6)      Nonqualified stock options granted August 15, 1999. Shares subject to
         the options granted vest on May 15, 2000.

(7)      Nonqualified stock options granted August 15, 1999. Shares subject to
         the options granted vest over the next four years, with 25% of such
         shares vesting on August 15 of each year beginning August 15, 2000.

(8)      Nonqualified stock options granted November 15, 1999. Shares subject to
         the options granted vested on May 15, 2000.

(9)      Nonqualified stock options granted November 15, 1999. Shares subject to
         the options granted vest over the next four years, with 25% of such
         shares vesting on November 15 of each year beginning November 15, 2000.

(10)     Nonqualified stock options granted June 7, 1999. Shares subject to the
         options granted vested immediately.

(11)     Nonqualified stock options granted June 7, 1999. Shares subject to the
         options vest over the next four years with 29% of such shares vesting
         on June 7 of each of 2000, 2001 and 2002 and 13% vesting on June 7,
         2003.

(12)     Nonqualified stock options granted March 14, 1999. Shares subject to
         the options granted vested immediately.

(13)     Nonqualified stock options granted June 7, 1999. Shares subject to the
         options vest over the next four years with 33% of such shares vesting
         on June 7 of each of 2000, 2001 and 2002 and 1% vesting on June 7,
         2003.

(14)     Nonqualified stock options granted February 4, 1999. Shares subject to
         the options granted vest over two years, with 50% of such shares
         vesting on December 31 of each year beginning December 31, 1999.

(15)     Nonqualified stock options granted December 31, 1999. Shares subject to
         the options granted vest over the next four years, with 25% of such
         shares vesting on December 31 of each year beginning December 31, 2000.
         In connection with our sale of ENVOY, Mr. Kever will participate in a
         Special Program, which means that the shares subject to these options
         vest immediately upon, and the options expire three years from, the
         date of our sale of ENVOY.

(16)     Nonqualified stock options granted November 5, 1999. Shares subject to
         the options granted vest over the next two years, with 50% of such
         shares vesting on November 5 of each year beginning November 5, 2000.
         In connection with our sale of ENVOY, Mr. Kever will participate in a
         Special Program, which means that the shares subject to these options
         vest immediately upon, and the options expire three years from, the
         date of our sale of ENVOY.


                                       74

<PAGE>   77

                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR END OPTION VALUES

         The following table provides information about the stock options held
by the named executive officers on December 31, 1999.

<TABLE>
<CAPTION>
                                                               NUMBER OF SECURITIES          VALUE OF UNEXERCISED IN-THE
                        SHARES ACQUIRED       VALUE           UNDERLYING UNEXERCISED                MONEY OPTIONS
        NAME            ON EXERCISE(#)      REALIZED ($)       OPTIONS AT FY-END                    AT FY-END (1)
        ----            ---------------     ------------    ---------------------------   --------------------------------
                                                            EXERCISABLE   UNEXERCISABLE   EXERCISABLE($)   UNEXERCISABLE($)
                                                            -----------   -------------   --------------   ----------------
<S>                      <C>               <C>             <C>           <C>             <C>               <C>
Dennis B. Gillings            --              --             183,370        143,051           775,835             --
Santo J. Costa                --              --             280,493        107,072           107,198             --
Ludo J. Reynders              --              --             112,971         70,070           315,602             --
Rachel R. Selisker            --              --              81,005         67,377           364,032             --
Jim D. Kever                  --              --             635,470        139,486         6,474,078             --
</TABLE>

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

 (1)     The value of the options is based upon the difference between the
         exercise price and the closing price per share on December 31, 1999,
         $18.6875.

DIRECTOR COMPENSATION

         Each non-officer director receives annually a grant of stock options
valued at $100,000 with the number of options determined in accordance with the
Black-Scholes method. In addition, each non-officer director receives (1) an
annual retainer of $24,000, (2) $1,000 for each Board meeting attended in person
or by teleconference and (3) $500 for each committee meeting attended in person
or by teleconference, each paid quarterly in cash. Beginning in 2000, committee
chairs will also receive an extra $5,000 per year in compensation for their
additional responsibilities. We reimburse each director for out-of-pocket
expenses incurred in connection with the rendering of services as a director.
Certain other financial relationships with directors are described in "Certain
Transactions."

EMPLOYMENT AGREEMENTS

         We have entered into employment agreements with Dr. Gillings, Mr.
Costa, Dr. Reynders, Ms. Selisker and Mr. Kever. The named executive officers
are eligible to participate in any bonus, stock option, pension, insurance,
medical, dental, 401(k), disability and other plans generally made available to
our executives.

         The employment agreement for Dr. Gillings extends for three years from
February 22, 1994 and automatically renews for additional and successive one
year terms unless either party provides 90 days' notice of intent to terminate
prior to the expiration of the then-current term. This agreement was amended on
October 26, 1999 to provide more detailed change in control provisions. The
agreement terminates upon Dr. Gillings' death, upon notice by us if Dr. Gillings
becomes permanently disabled, upon notice by us for cause, upon notice by Dr.
Gillings in the event of a change in control, as defined in his employment
agreement (provided Dr. Gillings terminates his employment within 18 months
following such change in control), upon notice by Dr. Gillings in the event of
our material breach or improper termination of the employment agreement and upon
notice by Dr. Gillings if Dr. Gillings is not elected as our Chairman of the
Board and Chief Executive Officer. The agreement provides for severance payments
and continuation of benefits in the event Dr. Gillings' termination is for
permanent disability, change in control, breach or improper termination by us,
or for a change in position. In the


                                       75

<PAGE>   78

event of termination by Dr. Gillings due to permanent disability, breach or
improper termination by us or for a change in position, we must pay Dr. Gillings
or his estate or beneficiaries his full base salary then in effect and other
benefits under the agreement for the lesser of three years or the term of the
non-compete covenant provided in the agreement. In the event that Dr. Gillings
terminates his employment or is terminated by us without cause within 18 months
following a change in control, we must make a severance payment equal to 2.99
times the amount of Dr. Gillings' base salary and executive compensation plan
benefits for the year of termination, continue his other benefit plans for 18
months and make a lump sum payment of any amounts held by Dr. Gillings in any
retirement plan of ours. In addition, upon a change in control, all options held
by Dr. Gillings will become fully vested and exercisable. We are not obligated
to make any payments or provide benefits to Dr. Gillings if the termination is
for cause. The agreement includes a three year (or such lesser period as the
Board determines, but in no event less than one year) non-compete provision
pursuant to which Dr. Gillings cannot compete with us in any geographic area in
which we do business and cannot solicit or interfere with our relationship with
any person or entity doing business with us, or offer employment to any person
employed by us in the one year period prior to Dr. Gillings' termination of
employment. The agreement prohibits disclosure of any confidential information
acquired during the period of employment with us.

         We entered into split-dollar life insurance agreements as of May 16,
1996 with certain trusts created by Dr. Gillings, pursuant to which we and the
trusts will share in the premium costs of certain variable and whole life
insurance policies that pay an aggregate death benefit to the trusts upon the
death of Dr. Gillings or his wife, Joan Gillings, whichever occurs later. The
trusts pay premiums on the policies as if each policy were a one year term life
policy, and we pay the remaining premiums. We may cause this arrangement to be
terminated at any time upon 30 days' notice. Upon termination of the
arrangement, surrender of a policy, or payment of the death benefit under a
policy, we are entitled to repayment of an amount equal to the cumulative
premiums previously paid by us thereunder, with all remaining amounts going to
the trust. Upon any surrender of a policy, the liability of the related trust to
us is limited to the cash value of the policy. See footnotes (4), (7) and (10)
to the "Summary Compensation Table" above for additional information on premium
payments that we made under the policies.

         Effective November 29, 1999, Mr. Costa ceased to be our President and
Chief Operating Officer and became our Vice Chairman. His amended and restated
employment agreement, dated November 30, 1999, extends through December 31,
2001. The agreement terminates upon the death of Mr. Costa, upon notice by us if
Mr. Costa becomes permanently disabled, upon notice by us for cause, upon notice
by Mr. Costa in the event of a change in control, as defined in his employment
agreement (provided Mr. Costa terminates his employment within 18 months
following such change in control) and upon notice by Mr. Costa in the event of
our material breach. The agreement provides for severance payments and
continuation of benefits in the event Mr. Costa's employment is terminated prior
to expiration of the agreement. In the event of termination by Mr. Costa for
reasons other than a change in control, we must pay Mr. Costa his full base
salary until December 31, 2001, any annual bonus, prorated to the date of
termination, and other benefits under the agreement, subject to certain
limitations and exceptions. In the event that Mr. Costa terminates his
employment or is terminated by us without cause within 18 months after a change
in control, we must make a severance payment equal to 2.99 times the annual
average amount of Mr. Costa's compensation for the two most recent fiscal years,
including executive compensation plan benefits as well as continue his other
benefit plans for eighteen months and make a lump sum payment of any amounts
held by Mr. Costa in any retirement plan of ours. In addition, upon a change in
control, all options held by Mr. Costa will become fully vested and exercisable.
We are not obligated to make any payments or provide benefits to Mr. Costa if
the termination is for cause. The agreement includes a one year non-compete
provision following termination of employment and prohibits disclosure of
confidential information.


                                       76

<PAGE>   79

         Dr. Reynders' employment agreement, which was amended and restated on
March 17, 2000, calls for Dr. Reynders to serve as Chief Executive Officer,
Quintiles CRO Service Group. The agreement automatically renews for successive
one year terms, unless either party provides 90 days notice prior to the renewal
date of intent to terminate. The agreement is terminable by us for cause. Either
party may terminate the agreement at any time by providing the other party with
90 days written notice. If Dr. Reynders terminates the employment relationship
as a result of our failure to cure a material breach of the agreement after 30
days notice of such breach, he is entitled to an amount equal to his then
current salary for 12 months. In the event that Dr. Reynders terminates his
employment or is terminated by us without cause within 18 months after a change
in control, as defined in the agreement, we must make a severance payment equal
to 2.99 times the amount of his base salary and executive compensation plan
benefits for the year of termination, continue his other benefit plans for
eighteen months and make a lump sum payment of any amounts held by Dr. Reynders
in any retirement plan of ours. In addition, upon a change in control, all
options held by Dr. Reynders will become fully vested and exercisable. The
agreement includes a one year non-compete provision following termination of
employment and prohibits disclosure of confidential information.

         Ms. Selisker's employment agreement, dated January 1, 1995, extends for
successive one year intervals unless terminated by either party with 90 days
written notice. This employment agreement was amended on October 25, 1999 to
provide more detailed change in control provisions. Ms. Selisker has resigned
her position as Chief Financial Officer and will serve as a senior consultant in
the creation of our global shared services centers for finance and human
resources. Her employment agreement, however, remains in effect until superseded
by a replacement agreement. The January 1, 1995 agreement, as amended,
terminates automatically upon Ms. Selisker's attaining the age of 65, her death,
total and permanent disability, a material breach of her employment agreement
that is not cured within 30 days of written notice, acts of dishonesty,
commission of certain crimes or failure to perform her duties under the
agreement. The agreement provides for severance payments and continuation of
benefits in the event that either we voluntarily terminate the agreement by
giving notice of our intention not to renew, in the event of Ms. Selisker's
total and permanent disability or if Ms. Selisker terminates after a material
breach by us which we fail to cure within 30 days. In the event that Ms.
Selisker terminates her employment or is terminated by us without cause within
18 months following a change in control, as defined in the agreement, we must
make a severance payment equal to 2.99 times the amount of Ms. Selisker's base
salary and executive compensation plan benefits for the year of termination,
continue her other benefit plans for 18 months and make a lump sum payment of
any amounts held by Ms. Selisker in any retirement plan of ours. In addition,
upon a change in control, all options held by Ms. Selisker will become fully
vested and exercisable. The agreement includes a one year non-compete provision
and prohibits Ms. Selisker from soliciting or interfering with our relationship
with any person doing business with us or offering employment to any person
employed by us in the one year period prior to Ms. Selisker's termination of
employment.

         Mr. Kever's employment agreement terminates three years from March 30,
1999. This employment agreement was amended on November 23, 1999 to provide more
detailed change in control provisions. The agreement gives us the ability to
terminate Mr. Kever's employment at any time for any reason, and Mr. Kever may
resign at any time. Upon termination by ENVOY or resignation by Mr. Kever for
any reason other than in connection with change in control, as defined in the
agreement, of Quintiles Transnational Corp., Mr. Kever is entitled to receive
his base salary and cash bonus, as defined in the agreement, for the remainder
of the term of the agreement, payable in the same amounts and at the same times
as if the employment had not terminated. In the event that Mr. Kever terminates
his employment or is terminated by us without cause within 18 months following a
change in control we must make a severance payment equal to 2.99 times the
amount of Mr. Kever's base salary and executive


                                       77

<PAGE>   80

compensation plan benefits for the year of termination, continue his other
benefit plans for 18 months and make a lump sum payment of any amounts held by
Mr. Kever in any retirement plan of ours. In addition, upon a change in control,
all options held by Mr. Kever will become fully vested and exercisable. The
agreement includes a non-compete that extends from the later of (1) the last day
of the employment agreement's three year term or (2) 18 months following Mr.
Kever's termination or resignation. This non-compete provision prohibits Mr.
Kever from competing against us in any geographical area in which we do business
or soliciting or hiring any of our employees. Mr. Kever's employment agreement
prohibits disclosure of any confidential information acquired in the course of
his employment.


                                       78


<PAGE>   81

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SHARE OWNERSHIP OF MANAGEMENT

         The following table provides information, as of February 29, 2000,
regarding shares of our common stock owned of record or known to us to be owned
beneficially by each director, each executive officer named in the Summary
Compensation Table in Item 11 and all current directors and executive officers
as a group. Except as set forth in the footnotes, each of the shareholders
identified in the table below has sole voting and investment power over the
shares beneficially owned by such person, except to the extent such power may be
shared with a spouse.

                                                          Shares
                                                       Beneficially   Percent
                       Name                               Owned(1)    of Class
                       ----                            ------------   --------

Dennis B. Gillings, Ph.D. (2)                           6,112,530       5.3%
Santo J. Costa (3)                                        308,612         *
Ludo Reynders (4)                                         227,085         *
Rachel R. Selisker (5)                                    171,382         *
William E. Ford (6)                                     2,818,421       2.4%
Fred C. Goad (7)                                          963,447         *
Jim D. Kever (8)                                        1,018,226         *
Robert C. Bishop, Ph.D. (9)                                36,345         *
Chester W. Douglass, Ph.D. (10)                           367,693         *
Arthur M. Pappas (11)                                      79,943         *
Vaughn D. Bryson (12)                                      15,585         *
Virginia V. Weldon, M.D. (13)                               9,601         *
Eric J. Topol, M.D. (14)                                    8,727         *
E.G.F. Brown (15)                                          14,493         *

All current directors and executive officers as a      11,776,174      10.0%
group (14 persons) (16)

-------------------------
*Less than one percent

(1)      Pursuant to the rules of the Securities and Exchange Commission,
         certain shares of our common stock which a person has the right to
         acquire within 60 days of the date shown above pursuant to the exercise
         of stock options are deemed to be outstanding for the purpose of
         computing the percentage ownership of such person but are not deemed
         outstanding for the purpose of computing the percentage ownership of
         any other person. Such shares are described below as being subject to
         presently exercisable stock options. A beneficial owner of shares held
         in our ESOP or Approved Profit Sharing Scheme has sole voting power
         over the shares held in his or her account, but shares investment power
         over the shares with the Trustee.

(2)      Includes 183,370 shares subject to presently exercisable stock options
         and 161,219 shares held by our ESOP for Dr. Gillings' account. Includes
         6,739 shares owned by Dr. Gillings' daughter, 180,000 shares owned by
         the Gillings Family Limited Partnership, of which Dr. Gillings and his
         wife are the general partners, 7,200 shares held by the GFEF Limited
         Partnership, of which Dr. Gillings is the general partner, 198,618
         shares owned by Dr. Gillings' wife and 834,766 shares owned by a
         Grantor Retained Annuity Trust under which Dr. Gillings is the
         beneficiary.


                                       79

<PAGE>   82

         Dr. Gillings shares voting power over 392,557 shares and shares
         investment power over 1,388,542 shares. Dr. Gillings disclaims
         beneficial ownership of all shares owned by his wife and daughter, all
         shares in the Gillings Family Limited Partnership, all shares owned by
         the GFEF Limited Partnership and all shares in the GRAT, except to the
         extent of his interest therein.

(3)      Includes 281,917 shares subject to presently exercisable stock options
         and 3,645 shares held by our ESOP for Mr. Costa's account.

(4)      Includes 112,971 shares subject to presently exercisable stock options,
         702 shares held by Quintiles (UK) Limited Approved Profit Sharing
         Scheme for Dr. Reynders' account and 166 shares held by our ESOP for
         Dr. Reynders' account.

(5)      Includes 81,949 shares subject to presently exercisable stock options
         and 44,069 shares held by our ESOP for Ms. Selisker's account.

(6)      Includes 8,622 shares subject to presently exercisable stock options.

(7)      Includes 658,790 shares subject to presently exercisable stock options.

(8)      Includes 635,470 shares subject to presently exercisable stock options
         and 63,960 shares in a trust for the benefit of Mr. Kever's minor
         children.

(9)      Includes 33,845 shares subject to presently exercisable stock options.

(10)     Includes 36,593 shares subject to presently exercisable stock options.
         Includes 93,600 shares owned by the Douglass Family Limited
         Partnership, of which Dr. Douglass is the sole general partner. Dr.
         Douglass disclaims beneficial ownership of the shares held by the
         limited partnership except to the extent of his pecuniary interest
         therein.

(11)     Includes 33,843 shares subject to presently exercisable stock options.

(12)     Includes 12,585 shares subject to presently exercisable stock options.

(13)     Includes 8,601 shares subject to presently exercisable stock options.

(14)     Includes 8,727 shares subject to presently exercisable stock options.

(15)     Includes 6,493 shares subject to presently exercisable stock options.

(16)     Does not include shares beneficially owned by named executive officers
         who are not executive officers as of the date of this report. Includes
         1,930,550 shares subject to presently exercisable stock options and
         165,198 shares held by our ESOP for the accounts of individual
         executive officers.


                                       80

<PAGE>   83

STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

         The following table provides information regarding shares of our common
stock known to be beneficially owned by persons holding more than five percent
of our outstanding common stock (other than directors and executive officers
shown in the preceding table) as of February 29, 2000.

                                            SHARES BENEFICIALLY     PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER               OWNED              CLASS
------------------------------------               -----              -----

Capital Group International, Inc. (1)            22,264,870            19.4%
   Capital Guardian Trust Company
11100 Santa Monica Blvd
Los Angeles, California  90025

Capital Research and Management Company (2)       9,292,560             8.1%
333 South Hope Street
Los Angeles, California  90071

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

(1)      Based on a Schedule 13G filed with the Securities and Exchange
         Commission on February 14, 2000. Capital Group International, a holding
         company, reports sole dispositive power over the shares held by its
         subsidiaries. Capital Guardian Trust Company, a bank subsidiary of
         Capital Group International, reports sole voting power over 10,541,450
         shares and sole dispositive power over 13,375,100 shares. Both Capital
         Group International and Capital Guardian Trust disclaim beneficial
         ownership of the shares.

(2)      Based on a Schedule 13G filed with the Securities and Exchange
         Commission on February 14, 2000. Capital Research and Management
         Company has sole dispositive power over the shares, but does not have
         voting power over the shares and disclaims beneficial ownership of the
         shares.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         On March 30, 1999, we acquired all of the outstanding shares of ENVOY
in exchange for approximately 28,465,160 shares of our common stock. Fred C.
Goad, Jim D. Kever and William E. Ford served as directors of ENVOY prior to the
share exchange and currently serve as our directors. In addition, Mr. Goad
served as ENVOY's Chairman and Co-Chief Executive Officer and Mr. Kever served
as ENVOY's President and Co-Chief Executive Officer. As a result of the share
exchange, Mr. Goad received 209,715 shares of our common stock and fully vested
stock options covering 711,260 shares of our common stock. In addition, a trust
of which Mr. Goad is the trustee and a sole beneficiary received 89,432 shares
of our common stock and Mr. Goad's wife received 15,304 shares of our common
stock. Mr. Kever received 468,181 shares of our common stock and fully vested
stock options covering 635,470 shares of our common stock. In addition, a trust
of which Mr. Kever is the trustee and the sole beneficiary received 69,960
shares of our common stock. GAP 25, whose general partner is GAP LLC, of which
Mr. Ford is a managing member, received 2,818,421 shares of our common stock and
GAPCO, of which Mr. Ford is a general partner, received 446,378 shares of our
common stock. Mr. Ford received fully vested stock options covering 4,464 shares
of our common stock. All of the stock options received in the share exchange by
Messrs. Goad, Kever and Ford became exercisable immediately.


                                       81

<PAGE>   84

         In connection with the ENVOY share exchange, Mr. Goad resigned as
ENVOY's Chairman and Co-Chief Executive Officer which entitled him to receive
certain payments under the terms of his Amended and Restated Employment
Agreement with ENVOY dated January 1, 1994. Pursuant to that agreement, ENVOY
paid Mr. Goad a lump sum payment of $1,132,463. Mr. Goad is also entitled to
receive reimbursement for certain expenses and benefits, including reimbursement
for excise taxes, if any, that may be incurred by Mr. Goad in connection with
the lump sum payment or acceleration of stock options under that agreement. Mr.
Goad remains subject to non-competition restrictions contained in that
agreement.

         Effective March 15, 1995, A.M. Pappas & Associates, LLC, or AMP&A,
entered into a consulting agreement with us. The 1995 Consulting Agreement
superseded the July 11, 1994 consulting agreement. In compliance with the terms
of the 1995 Consulting Agreement, we granted Mr. Pappas stock options on March
15, 1995 covering 40,000 shares of our common stock at an exercise price of
$8.75 per share which vested 50% on March 15, 1995, 75% on March 15, 1996 and
100% on March 15, 1997. Fifty percent of the fees invoiced during any
twelve-month period are deemed satisfied by the stock options granted on March
15, 1995 as described above up to a maximum of $100,000 per twelve-month period.
Between the expiration of the 1995 consulting agreement in March 1998 and the
execution of a replacement agreement on January 1, 2000, AMP&A continued to
provide us with consulting services substantially in accordance with the terms
of the 1995 agreement. In 1999, we paid consulting fees of $195,385 in cash. On
January 1, 2000, we entered into a new consulting agreement with AMP&A. The 2000
consulting agreement calls for a minimum aggregate consulting fee (exclusive of
expenses) per year of $200,000, and AMP&A has agreed not to invoice us for more
than $220,000 per year without our prior consent. We have agreed to reimburse
AMP&A for all reasonable out-of-pocket and administrative expenses incurred by
AMP&A in connection with performing its services.

         We are a limited partner in TechAMP International, L.P., a fund
organized to make venture capital investments in the equity securities of
private companies in the life science sector. TechAMP is managed by its general
partner, AMP&A Management, LLC, an affiliate of AMP&A. We have committed to
invest an aggregate of $8,000,000 in TechAMP. As a limited partner, we will make
capital contributions under this commitment from time to time at the request of
the fund's general partner. In 1999, we made capital contributions of $2,424,000
to TechAMP.

         In November 1997, we signed a preferred provider agreement with The
Cleveland Clinic Foundation, pursuant to which The Cleveland Clinic will work
with us as a preferred provider for investigator services in certain therapeutic
areas, including cardiology, AIDS, cancer and molecular genetics, and we will
work with The Cleveland Clinic as a preferred provider for contract drug
development services. Dr. Topol is Chairman of the Department of Cardiology and
a co-director of the Heart Center at The Cleveland Clinic. In 1999, pursuant to
the 1997 preferred provider agreement, we incurred fees of $192,604, all of
which were paid in 1999.


                                       82

<PAGE>   85

                                     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.

                 Financial Statements                             Form 10-K Page
                 --------------------                             --------------

Consolidated Statements of Income for the years ended
  December 31, 1999, 1998 and 1997

Consolidated Balance Sheets as of December 31, 1999 and 1998

Consolidated Statements of Cash Flows for the years ended
  December 31, 1998, 1998 and 1997

Consolidated Statements of Shareholders' Equity for the years
  ended December 31, 1999, 1998 and 1997

Notes to Consolidated Financial Statements

Report of Independent Public Accountants

Report of Independent Auditors

(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.


                                       83

<PAGE>   86

                                  EXHIBIT INDEX

Exhibit        Description
-------        -----------

3.01(1)        Amended and Restated Articles of Incorporation, as amended

3.02(2)        Amended and Restated Bylaws, as amended

4.01(3)        Indenture, dated as of May 17, 1996, between Quintiles
               Transnational Corp. and Marine Midland Bank, as Trustee, with
               respect to our 4.25% Convertible Subordinated Notes due May 31,
               2000

4.02           Amended and Restated Articles of Incorporation, as amended (see
               Exhibit 3.01)

4.03           Amended and Restated Bylaws, as amended (see Exhibit 3.02)

4.04(4)        Specimen certificate for Common Stock, $0.01 par value per share

4.05(5)        Form of 4.25% Convertible Subordinated Notes in Unrestricted
               Global Form

4.06(5)        Form of 4.25% Convertible Subordinated Notes in Certificated Form

4.07(6)        Rights Agreement, dated as of November 5, 1999 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(4)(7)    Employment Agreement, dated February 22, 1994, by and between Dr.
               Dennis B. Gillings and Quintiles Transnational Corp.

10.02(7)       Amendment to Contract of Employment, dated October 26, 1999, by
               and between Dr. Dennis B. Gillings and Quintiles Transnational
               Corp.

10.03(7)       Amended and Restated Executive Employment Agreement, dated
               November 30, 1999, by and between Santo J. Costa and Quintiles
               Transnational Corp.

10.04(7)(8)    Employment Agreement, dated January 1, 1995, by and between
               Rachel R. Selisker and Quintiles Transnational Corp.

10.05(7)       Amendment to Contract of Employment, dated October 25, 1999 by
               and between Rachel R. Selisker and Quintiles Transnational Corp.

10.06(7)       Amended and Restated Executive Employment Agreement, dated March
               17, 2000, by and between Dr. Ludo Reynders and Quintiles, Inc.

10.07(7)       Amended and Restated Employment Agreement, dated March 30, 1999
               by and between Jim D. Kever and Envoy Corporation


                                       84

<PAGE>   87

Exhibit        Description
-------        -----------

10.08(7)       Amendment to Executive Employment Agreement, dated November 23,
               1999, by and between Jim D. Kever and Envoy Corporation

10.09(7)       Executive Employment Agreement, dated June 16, 1998, by and
               between James L. Bierman and Quintiles Transnational Corp.

10.10(7)       Executive Employment Agreement, dated December 3, 1998, by and
               between John S. Russell and Quintiles Transnational Corp.

10.11(7)       Amendment to Executive Employment Agreement, dated October 26,
               1999, by and between John S. Russell and Quintiles Transnational
               Corp.

10.12(4)(7)    Quintiles Transnational Corp. Non-Qualified Employee Incentive
               Stock Option Plan

10.13(7)       Quintiles Transnational Corp. Equity Compensation Plan, as
               amended and restated on November 4, 1999

10.14(7)       Quintiles Transnational Corp. Elective Deferred Compensation
               Plan, as amended and restated

10.15(7)       Quintiles Transnational Corp. Nonqualified Stock Option Plan

10.16(7)       Amended and Restated Envoy Corporation 1995 Employee Stock
               Incentive Plan

10.17(9)       Sublease, dated January 18, 1996, by and between Legent
               Corporation and Innovex, Inc.

10.18(10)      Underlease, dated November 28, 1997, by and between PDFM Limited
               and Quintiles (UK) Limited and guaranteed by the Company

10.19          Consulting Agreement dated as of January 1, 2000 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 separately with the Securities and Exchange Commission.]

10.20(11)      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

10.21(12)      Merger Agreement, dated as of December 14, 1998, among Quintiles
               Transnational Corp., QTRN Acquisition Corp., and Pharmaceutical
               Marketing Services Inc.

10.22(13)      Amended and Restated Agreement and Plan of Merger, dated December
               15, 1998, among Quintiles Transnational Corp., QELS Corp., and
               ENVOY Corporation

10.23(14)      Credit Agreement dated as of August 7, 1998


                                       85

<PAGE>   88

Exhibit        Description
-------        -----------

10.24(15)      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.

10.25(16)      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.

21             Subsidiaries

23.01          Consent of Arthur Andersen LLP

23.02          Consent of Ernst & Young LLP

23.03          Consent of Ernst & Young LLP

24.01          Power of Attorney (included on the signature page hereto)

27.01          Restated Financial Data Schedule year ended 12/31/97 (for SEC use
               only)

27.02          Restated Financial Data Schedule 3 months ended 3/31/98 (for SEC
               use only)

27.03          Restated Financial Data Schedule 6 months ended 6/30/98 (for SEC
               use only)

27.04          Restated Financial Data Schedule 9 months ended 9/30/98 (for SEC
               use only)

27.05          Restated Financial Data Schedule year ended 12/31/98 (for SEC use
               only)

27.06          Restated Financial Data Schedule 3 months ended 3/31/99 (for SEC
               use only)

27.07          Restated Financial Data Schedule 6 months ended 6/30/99 (for SEC
               use only)

27.08          Restated Financial Data Schedule 9 months ended 9/30/99 (for SEC
               use only)

27.09          Financial Data Schedule year ended 12/31/99 (for SEC use only)

99.01          Report of Independent Auditors

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

         (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.


                                       86

<PAGE>   89

         (3)      Exhibit to our Quarterly Report on Form 10-Q, as filed with
                  the Securities and Exchange Commission on August 14, 1996, and
                  incorporated herein by reference.

         (4)      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.

         (5)      Exhibit to our Registration Statement on Form S-3, as amended,
                  as filed with the Securities and Exchange Commission (File No.
                  333-19009) effective February 1, 1997, and incorporated
                  herein by reference.

         (6)      Exhibit to our Registration Statement on Form 8-A, as filed
                  with the Securities and Exchange Commission on November 5,
                  1999, and incorporated herein by reference.

         (7)      Executive compensation plans and arrangements.

         (8)      Exhibit to our Annual Report on Form 10-K for the fiscal year
                  ended December 31, 1994, as filed with the Securities and
                  Exchange Commission on March 30, 1995, and incorporated herein
                  by reference.

         (9)      Exhibit to our Annual Report on Form 10-K for the fiscal year
                  ended December 31, 1996, as filed with the Securities and
                  Exchange Commission on March 25, 1997, and incorporated herein
                  by reference.

         (10)     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.

         (11)     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.

         (12)     Exhibit to our Current Report on Form 8-K dated December 16,
                  1998, as filed with the Securities and Exchange Commission on
                  December 16, 1998, and incorporated herein by reference.

         (13)     Exhibit to our Current Report on Form 8-K dated December 16,
                  1998, as filed with the Securities and Exchange Commission on
                  December 17, 1998, and incorporated herein by reference.

         (14)     Exhibit to our Quarterly Report on Form 10-Q dated November
                  16, 1998, as filed with the Securities and Exchange Commission
                  on November 16, 1998, and incorporated herein by reference.

         (15)     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.


                                       87

<PAGE>   90

         (16)     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.

(b) Reports on Form 8-K.

         We filed a Current Report on Form 8-K dated October 5, 1999, reporting
the filing of a class action lawsuit against us on September 30, 1999 in the
United States District Court for the Middle District of North Carolina.

         We filed a Current Report on Form 8-K dated October 20, 1999, including
as an exhibit a press release regarding our financial results for the three
month period ended September 30, 1999.

         We filed a Current Report on Form 8-K dated November 5, 1999 (1)
reporting the distribution of one preferred stock purchase right for each
outstanding share of our common stock pursuant to a Rights Agreement that we
entered into with First Union National Bank, as rights agent, and (2) attaching
as exhibits (a) the Rights Agreement, dated November 5, 1999 and (b) our Amended
and Restated Bylaws, as amended March 13, 1996 and November 4, 1999.


                                       88

<PAGE>   91

                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in Durham, North Carolina,
on the 30th day of March, 2000.

                                      QUINTILES TRANSNATIONAL CORP.


                                      By: /s/Dennis B. Gillings
                                          --------------------------------------
                                          Dennis B. Gillings, Ph.D.
                                          Chairman of the Board of Directors and
                                          Chief Executive Officer


                                       89

<PAGE>   92

                        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.

Signature                      Title                              Date
---------                      -----                              ----

/s/  Dennis B. Gillings        Chairman of the Board of           March 30, 2000
----------------------------   Directors and Chief
Dennis B. Gillings, Ph.D.      Executive Officer

/s/ James L. Bierman           Chief Financial Officer            March 30, 2000
----------------------------
James L. Bierman

/s/ Robert C. Bishop           Director                           March 30, 2000
----------------------------
Robert C. Bishop, Ph.D.

/s/ E. G. F. Brown             Director                           March 30, 2000
----------------------------
E. G. F. Brown

/s/ Vaughn D. Bryson           Director                           March 30, 2000
----------------------------
Vaughn D. Bryson

                               Vice-Chairman and Director         March __, 2000
----------------------------
Santo J. Costa

/s/ Chester W. Douglass        Director                           March 30, 2000
----------------------------
Chester W. Douglass, Ph.D.

/s/ William E. Ford            Director                           March 30, 2000
----------------------------
William E. Ford

/s/ Fred C. Goad               Director                           March 30, 2000
----------------------------
Fred C. Goad

/s/ Jim D. Kever               Director and Chief Executive       March 30, 2000
----------------------------   Officer of ENVOY
Jim D. Kever

/s/ Arthur M. Pappas           Director                           March 30, 2000
----------------------------
Arthur M. Pappas

/s/ Eric J. Topol              Director                           March 30, 2000
----------------------------
Eric J. Topol, M.D.

/s/ Virginia V. Weldon         Director                           March 30, 2000
----------------------------
Virginia V. Weldon, M.D.



                                       90







<PAGE>   93

                                  EXHIBIT INDEX

Exhibit        Description
-------        -----------

3.01(1)        Amended and Restated Articles of Incorporation, as amended

3.02(2)        Amended and Restated Bylaws, as amended

4.01(3)        Indenture, dated as of May 17, 1996, between Quintiles
               Transnational Corp. and Marine Midland Bank, as Trustee, with
               respect to our 4.25% Convertible Subordinated Notes due May 31,
               2000

4.02           Amended and Restated Articles of Incorporation, as amended (see
               Exhibit 3.01)

4.03           Amended and Restated Bylaws, as amended (see Exhibit 3.02)

4.04(4)        Specimen certificate for Common Stock, $0.01 par value per share

4.05(5)        Form of 4.25% Convertible Subordinated Notes in Unrestricted
               Global Form

4.06(5)        Form of 4.25% Convertible Subordinated Notes in Certificated Form

4.07(6)        Rights Agreement, dated as of November 5, 1999 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(4)(7)    Employment Agreement, dated February 22, 1994, by and between Dr.
               Dennis B. Gillings and Quintiles Transnational Corp.

10.02(7)       Amendment to Contract of Employment, dated October 26, 1999, by
               and between Dr. Dennis B. Gillings and Quintiles Transnational
               Corp.

10.03(7)       Amended and Restated Executive Employment Agreement, dated
               November 30, 1999, by and between Santo J. Costa and Quintiles
               Transnational Corp.

10.04(7)(8)    Employment Agreement, dated January 1, 1995, by and between
               Rachel R. Selisker and Quintiles Transnational Corp.

10.05(7)       Amendment to Contract of Employment, dated October 25, 1999 by
               and between Rachel R. Selisker and Quintiles Transnational Corp.

10.06(7)       Amended and Restated Executive Employment Agreement, dated March
               17, 2000, by and between Dr. Ludo Reynders and Quintiles, Inc.

10.07(7)       Amended and Restated Employment Agreement, dated March 30, 1999
               by and between Jim D. Kever and Envoy Corporation



<PAGE>   94

Exhibit        Description
-------        -----------

10.08(7)       Amendment to Executive Employment Agreement, dated November 23,
               1999, by and between Jim D. Kever and Envoy Corporation

10.09(7)       Executive Employment Agreement, dated June 16, 1998, by and
               between James L. Bierman and Quintiles Transnational Corp.

10.10(7)       Executive Employment Agreement, dated December 3, 1998, by and
               between John S. Russell and Quintiles Transnational Corp.

10.11(7)       Amendment to Executive Employment Agreement, dated October 26,
               1999, by and between John S. Russell and Quintiles Transnational
               Corp.

10.12(4)(7)    Quintiles Transnational Corp. Non-Qualified Employee Incentive
               Stock Option Plan

10.13(7)       Quintiles Transnational Corp. Equity Compensation Plan, as
               amended and restated on November 4, 1999

10.14(7)       Quintiles Transnational Corp. Elective Deferred Compensation
               Plan, as amended and restated

10.15(7)       Quintiles Transnational Corp. Nonqualified Stock Option Plan

10.16(7)       Amended and Restated Envoy Corporation 1995 Employee Stock
               Incentive Plan

10.17(9)       Sublease, dated January 18, 1996, by and between Legent
               Corporation and Innovex, Inc.

10.18(10)      Underlease, dated November 28, 1997, by and between PDFM Limited
               and Quintiles (UK) Limited and guaranteed by the Company

10.19          Consulting Agreement dated as of January 1, 2000 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 separately with the Securities and Exchange Commission.]

10.20(11)      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

10.21(12)      Merger Agreement, dated as of December 14, 1998, among Quintiles
               Transnational Corp., QTRN Acquisition Corp., and Pharmaceutical
               Marketing Services Inc.

10.22(13)      Amended and Restated Agreement and Plan of Merger, dated December
               15, 1998, among Quintiles Transnational Corp., QELS Corp., and
               ENVOY Corporation

10.23(14)      Credit Agreement dated as of August 7, 1998



<PAGE>   95

Exhibit        Description
-------        -----------

10.24(15)      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.

10.25(16)      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.

21             Subsidiaries

23.01          Consent of Arthur Andersen LLP

23.02          Consent of Ernst & Young LLP

23.03          Consent of Ernst & Young LLP

24.01          Power of Attorney (included on the signature page hereto)

27.01          Restated Financial Data Schedule year ended 12/31/97 (for SEC use
               only)

27.02          Restated Financial Data Schedule 3 months ended 3/31/98 (for SEC
               use only)

27.03          Restated Financial Data Schedule 6 months ended 6/30/98 (for SEC
               use only)

27.04          Restated Financial Data Schedule 9 months ended 9/30/98 (for SEC
               use only)

27.05          Restated Financial Data Schedule year ended 12/31/98 (for SEC use
               only)

27.06          Restated Financial Data Schedule 3 months ended 3/31/99 (for SEC
               use only)

27.07          Restated Financial Data Schedule 6 months ended 6/30/99 (for SEC
               use only)

27.08          Restated Financial Data Schedule 9 months ended 9/30/99 (for SEC
               use only)

27.09          Financial Data Schedule (for SEC use only)

99.01          Report of Independent Auditors

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

         (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.



<PAGE>   96

         (3)      Exhibit to our Quarterly Report on Form 10-Q, as filed with
                  the Securities and Exchange Commission on August 14, 1996, and
                  incorporated herein by reference.

         (4)      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.

         (5)      Exhibit to our Registration Statement on Form S-3, as amended,
                  as filed with the Securities and Exchange Commission (File No.
                  333-19009) effective February 1, 1997, and incorporated
                  herein by reference.

         (6)      Exhibit to our Registration Statement on Form 8-A, as filed
                  with the Securities and Exchange Commission on November 5,
                  1999, and incorporated herein by reference.

         (7)      Executive compensation plans and arrangements.

         (8)      Exhibit to our Annual Report on Form 10-K for the fiscal year
                  ended December 31, 1994, as filed with the Securities and
                  Exchange Commission on March 30, 1995, and incorporated herein
                  by reference.

         (9)      Exhibit to our Annual Report on Form 10-K for the fiscal year
                  ended December 31, 1996, as filed with the Securities and
                  Exchange Commission on March 25, 1997, and incorporated herein
                  by reference.

         (10)     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.

         (11)     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.

         (12)     Exhibit to our Current Report on Form 8-K dated December 16,
                  1998, as filed with the Securities and Exchange Commission on
                  December 16, 1998, and incorporated herein by reference.

         (13)     Exhibit to our Current Report on Form 8-K dated December 16,
                  1998, as filed with the Securities and Exchange Commission on
                  December 17, 1998, and incorporated herein by reference.

         (14)     Exhibit to our Quarterly Report on Form 10-Q dated November
                  16, 1998, as filed with the Securities and Exchange Commission
                  on November 16, 1998, and incorporated herein by reference.

         (15)     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.



<PAGE>   97

         (16)     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.