QUINTILES TRANSNATIONAL CORP, 8-K, 1997-10-17

QUINTILES TRANSNATIONAL CORP
8-K, 1997-10-17
COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH

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<PAGE> 1

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 17, 1997

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

NORTH CAROLINA 340-23520 56-1714315
(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation) Identification Number)

4709 CREEKSTONE DRIVE, RIVERBIRCH BUILDING, SUITE 300,
DURHAM, NORTH CAROLINA 27703-8411
(Address of principal executive offices)

(919) 941-2000
(Registrant's telephone number, including area code)

N/A
(Former name or former address, if changed since last report)

<PAGE> 2

ITEM 5. OTHER EVENTS.

In connection with its June 11, 1997 acquisition of Action International
Marketing Services Limited and its subsidiaries including Medical Actions
Communications Limited, July 2, 1997 acquisition of CerebroVascular Advances,
Inc. and August 29, 1997 acquisition of Clindepharm, International (Pty)
Limited, which acquisitions were accounted for as poolings of interests,
Quintiles Transnational Corp. (the "Company") has restated certain of its
historical consolidated financial data and provides the supplemental
consolidated financial statements and other materials described below. Upon the
filing of the Company's Form 10-Q for the period ended September 30, 1997, the
supplemental consolidated financial statements provided herein shall become the
historical consolidated financial statements of the Company.

Item Description Page
---------------- ----

Selected Consolidated Financial Data 3

Management's Discussion and Analysis of Financial Condition
and Results of Operations 4

Index to Supplemental Consolidated Financial Statements 14

Report of Independent Auditors 15

Supplemental Consolidated Statements of Income for each of the three
years in the period ended December 31, 1996 16

Supplemental Consolidated Balance Sheets as of December 31, 1996,
and 1995 17

Supplemental Consolidated Statements of Shareholders' Equity for
each of the three years in the period ended December 31, 1996 18

Supplemental Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1996 19

Notes to Supplemental Consolidated Financial Statements 20

Unaudited Condensed Supplemental Consolidated Statements of
Income for the three months ended June 30, 1997 and 1996 and
for the six months ended June 30, 1997 and 1996 35

Unaudited Condensed Supplemental Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996 36

Unaudited Condensed Supplemental Consolidated Statements of Cash
Flows for the six months ended June 30, 1997 and 1996 37

Notes to Unaudited Condensed Supplemental Consolidated
Financial Statements 38

Information set forth in this report, including Management's Discussion and
Analysis of Financial Condition and Results of Operations, contains various
"forward looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Act of 1934, which statements
represent the Company's judgment concerning the future and are subject to risks
and uncertainties that could cause the Company's 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," or "continue," or the negative
thereof or other variations thereof or comparable terminology.

The Company cautions that any such forward looking statements are
further qualified by important factors that could cause the Company's actual
operating results to differ materially from those in the forward looking
statements, including without limitation, the Company's dependence on
certain industries and clients, management of its growth, risks associated with
acquisitions, risks relating to contract sales services, competition within the
industry, the loss or delay of large contracts, dependence on personnel and
government regulation and other considerations described in connection with
specific forward looking statements, as well as other risk factors described in
the Company's filings with the Securities and Exchange Commission.

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SELECTED CONSOLIDATED FINANCIAL DATA

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

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1992(1) 1993(1) 1994(1) 1995(1) 1996(1) 1996 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue.................. $103,303 $149,225 $207,022 $337,006 $554,227 $245,141 $374,065
Income from operations....... 9,182 11,758 17,038 26,544 42,436 20,879 40,042
Income before income taxes... 6,773 9,037 16,045 25,361 22,897 20,351 38,986
Net income available for
common shareholders........ 3,498 4,740 10,271 15,349 7,097 12,349 24,342
Net income per share......... $ 0.16 $ 0.19 $ 0.36 $ 0.48 $ 0.20 $ 0.35 $ 0.67
Weighted average shares
outstanding(2)............. 21,313 24,512 28,672 31,894 34,670 34,914 36,485
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------- JUNE 30,
1992(1) 1993(1) 1994(1) 1995(1) 1996(1) 1997
-------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents.... $ 6,698 $ 17,241 $ 50,936 $ 85,693 $ 68,730 $106,065
Working capital.............. 3,953 18,366 47,642 72,575 99,310 152,657
Total assets................. 75,101 129,593 202,195 343,762 532,577 708,566
Long-term debt including
current portion............ 12,931 21,420 21,954 52,026 182,463 182,406
Shareholders' equity......... $ 24,936 $ 41,979 $ 89,015 $165,182 $150,545 $318,936
Employees.................... 1,409 1,953 2,650 4,435 7,513 8,500
</TABLE>

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

(1) Prior to the Company's November 29, 1996 share exchange with Innovex Limited
("Innovex"), Innovex had a fiscal year end of March 31 and the Company had
(and continues to have) a fiscal year end of December 31. As a result, the
pooled data presented above for 1992 through 1995 include Innovex's March 31
fiscal year data in combination with the Company's December 31 fiscal year
data. In connection with the share exchange, Innovex changed its fiscal year
end to December 31. Accordingly, the pooled data presented above for 1996
include both Innovex's and the Company's data on a December 31 year end
basis. Because of the difference between Innovex's fiscal year end in 1995
compared with 1996, Innovex's quarter ended March 31, 1996 data are included
in the Company's pooled data for both 1995 and 1996.
(2) Restated to reflect a two-for-one stock split of the Company's Common Stock
effected as a 100% stock dividend on November 27, 1995.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1996

OVERVIEW

Quintiles Transnational Corp. ("Quintiles" or "the Company") is a leading
provider of full-service contract research, sales and marketing services to the
global pharmaceutical, biotechnology and medical device industries.
Additionally, the Company supports the developing information needs of the
broader healthcare industry by providing health economics and healthcare policy
consulting and disease and health information management services.

Since its inception in 1982, the Company has followed a focused strategy of
expanding the scope of its services and geographic presence to support the
worldwide needs of its client base. Through internal expansion and strategic
acquisitions, the Company has broadened its array of services, created new
opportunities for growth and enhanced its management team and scientific and
technical operating staff. Specifically:

- On February 15, 1996, the Company acquired PMC Contract Research AB
("PMC"), a contract research organization ("CRO") located in Uppsala,
Sweden. The Company acquired PMC for approximately 273,000 shares of the
Company's Common Stock. Additionally, approximately $1.3 million in cash
was paid to a dissenting shareholder. The acquisition of PMC was accounted
for as a pooling of interests, and all consolidated financial data for
periods subsequent to January 1, 1996 were previously restated to include
the results of the pooled company. The financial data of the pooled
companies prior to January 1, 1996 were not materially different from that
previously reported by the Company, and thus have not been restated.

- On May 13, 1996, the Company acquired the operating assets of Lewin-VHI,
Inc., a healthcare consulting firm, headquartered in Fairfax, VA, and
formed a new subsidiary of the Company, The Lewin Group Inc. ("Lewin"). In
connection with this transaction, the Company paid approximately $30.0
million in cash for the operating assets of Lewin and issued options to
Lewin's management team and key staff to purchase 203,717 shares of the
Company's Common Stock. This acquisition was accounted for as a purchase.

- In August 1996, the Company began construction of a new 171,000 square
foot facility in Bathgate, Scotland, for formulation, manufacturing,
packaging and distribution of clinical trial drugs. The Bathgate facility,
which was completed in September 1997, is anticipated to house 300
employees and will also include a data management center.

- On November 22, 1996, the Company acquired BRI International, Inc.
("BRI"), a leading international contract research firm, headquartered in
Arlington, VA, specializing in medical device development and regulatory
compliance consulting. The Company exchanged 1,614,862 shares of its
Common Stock for all of BRI's outstanding shares of capital stock and
exchanged options exercisable for 336,112 shares of the Company's Common
Stock. The Company recognized in the fourth quarter of 1996 approximately
$2.5 million in non-recurring transaction costs and approximately $2.3
million in non-recurring restructuring costs related to the transaction.
The acquisition was accounted for as a pooling of interests, and
accordingly, the Company previously restated all historical financial data
to include the historical financial data of BRI.

- On November 29, 1996, the Company effected a share exchange with Innovex
Limited ("Innovex"), an international contract services organization
headquartered in Marlow, U.K., specializing in the sales and marketing of
drugs for the pharmaceutical industry. In the Innovex transaction, which
was accounted for as a pooling of interests, the Company acquired 100% of
the outstanding shares of Innovex in exchange for 9,214,239 shares of the
Company's Common Stock and exchanged 786,226 options to purchase shares of
the Company's Common Stock for Innovex stock options. Subsequently, the
Company retired approximately $56.8 million of Innovex obliga-

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tions. In the fourth quarter of 1996, related to the Innovex transaction,
the Company recognized approximately $14.5 million in non-recurring
transaction costs and approximately $8.5 million in non-recurring
restructuring costs. In addition, Innovex had previously recognized
approximately $2.4 million and $2.3 million, respectively, in
non-recurring restructuring and special pension costs in the quarter ended
March 31, 1996. The Company previously restated all historical financial
data to include Innovex historical financial data in accordance with
pooling of interests accounting.

- On June 11, 1997, the Company acquired Action International Marketing
Services Limited and its subsidiaries including Medical Actions
Communications Limited (collectively "MAC"), a leading international
strategic medical communications consultancy. The Company acquired all of
the stock of MAC for 565,697 shares of the Company's Common Stock. The
Company also granted stock options exercisable for 62,850 shares of the
Company's Common Stock. The acquisition was accounted for as a pooling of
interests, and as such, all historical financial data have been restated
to include the historical financial data of MAC.

- On July 2, 1997, the Company acquired CerebroVascular Advances, Inc.
("CVA"), a CRO based in San Antonio, Texas that is a leader in stroke
clinical trials. The Company exchanged 233,968 shares of its Common Stock
for all of CVA's outstanding shares of capital stock and exchanged options
exercisable for 17,019 shares of the Company's Common Stock. The
acquisition was accounted for as a pooling of interests, and accordingly,
the Company restated all historical financial data to include the
historical financial data of CVA.

- On August 29, 1997, the Company acquired Clindepharm International (Pty)
Limited ("Clindepharm") in exchange for 238,983 shares of the Company's
Common Stock. The acquisition was accounted for as a pooling of interests,
and as such, all historical financial data have been restated to include
the historical financial data of Clindepharm since its inception in 1996.

In addition to the above transactions, the Company has completed other
transactions since January 1, 1997, all of which are immaterial to the Company's
financial statements.

To facilitate the integration of its acquisitions, capitalize on the
synergies each acquisition provides and manage its internal growth, the Company
is organized into three service groups which work closely together to provide
the Company's services on an integrated basis. The Contract Research Service
Group includes clinical trial studies, clinical data management and
biostatistical analysis, laboratory services, formulation and packaging of
clinical trial drugs, pre-clinical services, regulatory affairs and medical
device consulting services. The Innovex Service Group includes perimarketing
clinical trial studies in Phases IIIb and IV, as well as the Company's
pharmaceutical sales and marketing services. The Lewin-Benefit Service Group
encompasses the Company's health economics and healthcare policy consulting and
disease and health information management services.

CONTRACT REVENUE

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

5
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RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995

Prior to the Company's November 29, 1996 share exchange with Innovex,
Innovex had a fiscal year end of March 31, and the Company had (and continues to
have) a fiscal year end of December 31. As a result, the pooled data presented
for 1992 through 1995 include Innovex's March 31 fiscal year data in combination
with the Company's December 31 fiscal year data. In connection with the share
exchange, Innovex changed its fiscal year end to December 31. Accordingly, the
pooled data presented for 1996 include both Innovex's and the Company's data on
a December 31 year end basis. Because of the difference between Innovex's fiscal
year end in 1995 compared with 1996, Innovex's quarter ended March 31, 1996 data
are included in the Company's pooled data for both 1995 and 1996.

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

Direct costs, which include compensation and related fringe benefits for
billable employees and any other expenses directly related to contracts which
are not included as reimbursed costs, were $279.0 million or 50.3% of 1996 net
revenue versus $171.6 million or 50.9% of 1995 net revenue. The decrease in
direct costs as a percentage of net revenue is primarily attributable to
efficiency realized through the use of information technology in the Company's
provision of services related to global, long-term contracts, offset by
increased costs attributable to the increase in net revenue generated from
contract sales and marketing services, which incur a higher level of direct
costs (but lower general and administrative expenses) relative to net revenue
than contract research services.

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

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

Income from operations was $42.4 million or 7.7% of 1996 net revenue versus
$26.5 million or 7.9% of 1995 net revenue. Net of non-recurring costs, income
from operations was $57.9 million or 10.4% of 1996 net revenue versus $31.2
million or 9.3% of 1995 net revenue. During the quarter ended March 31, 1996,
Innovex recognized two non-recurring charges: a $2.4 million expense for an
Innovex internal reorganization and a related $2.3 million special pension
contribution. Accordingly, the Company's pooled, consolidated financial results
include such charges, totalling $4.7 million, in both the fiscal years ended
December 31, 1996 and 1995. In the fourth quarter of 1996, the Company
recognized approximately $10.7 million in non-recurring restructuring costs
related to the BRI and Innovex transactions.

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

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$1.2 million was primarily due to an increase of interest and miscellaneous
expense of $5.8 million which was offset by an increase in interest income of
approximately $4.5 million.

The effective tax rate for 1996 was 61.2% versus a 36.6% rate in 1995. The
increase in the 1996 effective tax rate was primarily attributable to the
non-tax deductible, non-recurring acquisition transaction costs incurred and a
portion of the non-recurring costs relating to the Innovex internal
reorganization prior to its pooling of interests with the Company. The lack of
tax relief for the Innovex internal reorganization costs is reflected in both
the effective tax rates for 1996 and 1995. The effective tax rate for 1996 was
33.9% versus a 34.6% rate in 1995 excluding the non-recurring costs. The
Company's effective tax rate may vary as profits in locations with different tax
rates change. See "-- Taxes".

YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994

Net revenue for 1995 was $337.0 million versus $207.0 million in 1994, an
increase of $130.0 million or 62.8%. In general, the growth occurred across each
of the Company's three geographic regions. The growth can be attributed
primarily to the increase in services rendered under existing contracts and the
initiation of services under new contract work awarded in 1995. Excluding fiscal
1995 acquisitions, which contributed net revenue of approximately $11.7 million
in that year, the Company's net revenue was $325.3 million, which represented
growth of $118.3 million or 57.1% over 1994.

Direct costs, which include compensation and related fringe benefits for
billable employees and any other expenses directly related to contracts which
are not included as reimbursed costs, were $171.6 million or 50.9% of 1995 net
revenue versus $103.3 million or 49.9% of 1994 net revenue. The increase in
direct costs as a percentage of net revenue is due primarily to costs
attributable to the increasing net revenue from sales and marketing services,
which incur a higher level of direct costs (but lower general and administrative
expenses) relative to revenue than contract research services, the establishment
of start-up operations and direct costs associated with the operational
integration of the Company's acquisitions in 1995.

General and administrative expense, which includes compensation and fringe
benefits for administrative employees, non-billable travel, professional
services, advertising, computer and facility expenses, was $116.9 million or
34.7% of 1995 net revenue versus $76.2 million or 36.8% of 1994 net revenue. The
$40.8 million growth in general and administrative expense is primarily due to
an increase in personnel, facilities and locations, business development and
marketing activities, information technology investments and the use of outside
services brought on by the Company's growth and operation as a publicly-held
company.

Depreciation and amortization was $17.2 million or 5.1% of 1995 net revenue
versus $10.5 million or 5.1% of 1994 net revenue.

Income from operations was $26.5 million or 7.9% of net revenue in 1995
versus $17.0 million or 8.2% of net revenue in 1994. The decrease as a
percentage of net revenue was due to the recognition of two non-recurring
charges: Innovex recorded a $2.4 million expense related to an internal
reorganization and a $2.3 million expense related to a special pension
contribution. Excluding these costs, income from operations would have been
approximately $31.2 million or 9.3% of 1995 net revenue.

Other expense increased to $1.2 million in 1995 from $1.0 million in 1994.
Net of a 1994 one-time gain of approximately $460,000, other expense decreased
approximately $270,000. This decrease is primarily attributable to an increase
in interest income and other income of approximately $1.7 million, offset by an
increase in interest expense of $970,000 and $475,000 in non-recurring
acquisition transaction costs expensed by the Company in 1995, most of which
were not tax-deductible.

The effective tax rate for 1995 was 36.6% versus a 33.5% rate in 1994. The
increase in the 1995 effective tax rate was primarily attributable to the
non-tax deductible nature of some of the non-recurring costs relating to the
internal reorganization, some of the foreign operating losses and some of the
acquisition transaction costs incurred. The Company's effective tax rate may
vary as profits in locations with different tax rates change. See "-- Taxes".

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LIQUIDITY AND CAPITAL RESOURCES

Cash flows generated from operations were $32.7 million in 1996 versus
$35.8 million and $19.2 million in 1995 and 1994, respectively. Investing
activities in 1996 were $144.9 million, versus $38.3 million and $14.7 million
in 1995 and 1994, respectively. The change in the amount of cash used in
investing activities is primarily due to the investment of the Company's net
proceeds from the May 1996 private placement of its 4.25% Convertible
Subordinated Notes due May 31, 2000 and its October 1995 equity offering. Such
proceeds were used as follows: $62.7 million was invested in investment-grade,
interest-bearing securities with maturities of greater than 90 days; $11.4
million was used for the payment of non-recurring transaction costs in
connection with business combinations described above; $35.1 million was used
for acquisitions; and $56.8 million was used to retire Innovex obligations
assumed in the share exchange with Innovex. Approximately $45.2 million of the
Innovex obligations was related to debt incurred for the recapitalization of
Innovex in April 1996. Capital asset purchases required $39.7 million in 1996
versus $26.0 million and $16.5 million in 1995 and 1994, respectively. Capital
asset expenditures in 1996 included approximately $5.0 million related to the
Company's purchase of land and commencement of construction of a facility in
Bathgate, Scotland. The remaining capital expenditures were predominantly
incurred in connection with the expansion of existing operations, the
enhancement of information technology capabilities and the opening of new
offices.

Total working capital was $99.3 million at December 31, 1996 compared to
$72.6 million at December 31, 1995. Total accounts receivable and unbilled
services increased 70.5% to $183.2 million at December 31, 1996 from $107.2
million at December 31, 1995, as a result of the growth in net revenue. The
number of days revenue outstanding in accounts receivable and unbilled services,
net of unearned income, was 48 and 47 days at December 31, 1996 and December 31,
1995, respectively.

In August 1996, the Company began construction of a 171,000 square foot
facility in Bathgate, Scotland, which has been completed in 1997. As of December
31, 1996, the Company had spent approximately U.K. L3.0 million (approximately
$5.0 million) relating to the acquisition of land and construction of the
Bathgate facility.

In November 1996, in conjunction with the Company's share exchange with
Innovex, the Company assumed the following commitments:

- During 1993, Innovex acquired Clinical Research Foundation, an
international contract research organization, for total consideration of
approximately Deutche Marks (DM) 30.0 million, of which a final payment
of approximately DM 6.6 million (approximately $4.0 million) was due
from the Company in April 1997 and has been satisfied.

- In August 1996, Innovex acquired Eminent, a Spanish contract sales and
marketing services firm. An initial payment of 100 Spanish Pesetas
million was made in August 1996. A remaining amount of up to 700 Spanish
Pesetas million (approximately $5.0 million) would be due over the next
three years if certain performance measures are met.

During 1995, the Company acquired a drug development facility in Edinburgh,
Scotland. Related to this acquisition, the Company entered into a purchase
commitment valued at U.K. L13.0 million (approximately $21.8 million) with
payment due in December 1999. The Company has hedged this commitment by
purchasing forward contracts. The Company's forward contracts mature on December
29, 1999, and as of December 31, 1996, the Company had committed to purchasing
approximately U.K. L600,000 (approximately $852,000) under such contracts.

The Company has available to it a U.K. L15.0 million unsecured line of
credit with a U.K. bank and a U.K. L5.0 million secured overdraft facility with
a second U.K. bank. During 1996, the Company also had available a $4.0 million
secured line of credit with a U.S. bank and a $15.0 million unsecured line of
credit with a second U.S. bank, each of which expired in accordance with its
terms during the six months ended June 30, 1997. At December 31, 1996, the
Company had U.K. L5.7 million and $19.0 million available under these credit
agreements.

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All foreign currency denominated amounts due, subsequent to December 31,
1996, have been translated using the Wednesday, January 29, 1997 foreign
exchange rate as published in the January 30, 1997 edition of the Wall Street
Journal.

The Company's primary cash needs on both a short-term and long-term basis
are for working capital, geographic expansion, addition of new services,
potential acquisitions, general corporate purposes and capital expenditures. On
March 12, 1997, the Company completed a public offering of 5,520,000 shares of
its Common Stock, 1,415,000 of which were sold by the Company. The Company is
using the net proceeds from the sale of the shares of common stock offered by
the Company for the replenishment of working capital following the Company's
repayment in November 1996 of approximately $56.8 million of obligations assumed
in the share exchange with Innovex. The Company is using this working capital
and the remaining proceeds for geographic expansion, addition of new services,
potential acquisitions, general corporate purposes and capital expenditures,
including approximately $23.4 million to complete construction of the Company's
171,000 square foot clinical trial drug formulation, manufacturing, packaging
and distribution facility in Bathgate, Scotland.

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

FOREIGN CURRENCY

Approximately 57.0%, 60.1% and 58.6% of the Company's net revenue for the
years ended December 31, 1996, 1995, and 1994, respectively, were derived from
the Company's operations outside the United States. The Company's financial
statements are denominated in U.S. dollars, and accordingly, changes in the
exchange rate between foreign currencies and the U.S. dollar will affect the
translation of such subsidiaries' financial results into U.S. dollars for
purposes of reporting the Company's consolidated financial results.

The Company may be subject to foreign currency transaction risks when the
Company's service contracts are denominated in a currency other than the
currency in which the Company incurs expenses related to such contracts. The
Company limits its foreign currency transaction risks through exchange rate
collars stated in its contracts with clients or the Company hedges the
transaction risk with foreign exchange contracts or options. The Company
recognizes changes in value in income only when contracts are settled or options
are exercised. There were no open foreign exchange contracts or options relating
to service contracts at December 31, 1996.

TAXES

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

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INFLATION

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

RECENTLY ISSUED ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" ("FASB 128"), which is required to be adopted on
December 31, 1997. At the time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating basic earnings per share,
the dilutive effect of stock options and other common stock equivalents will be
excluded. Under FASB 128, the basic earnings per share would have been $0.21,
$0.50 and $0.36 for 1996, 1995 and 1994, respectively. The impact of FASB 128 on
the calculation of dilutive earnings per share for 1996, 1995 and 1994 is not
expected to be material.

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

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

10
<PAGE> 11

SIX MONTHS ENDED JUNE 30, 1997

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH
THREE MONTHS ENDED JUNE 30, 1996

Net revenue increased 47.9% to $194.2 million for the second quarter of
1997, as compared to $131.3 million for the second quarter of 1996. In general,
growth occurred across each of the Company's three geographic regions. Factors
contributing to this growth include the provision of increased services rendered
under existing contracts and the initiation of services under contracts awarded
subsequent to the second quarter of 1996.

Direct costs, which include compensation and related fringe benefits for
billable employees and any other expenses directly related to contracts,
increased 56.1% to $100.7 million for the quarter ended June 30, 1997 from $64.5
million for the quarter ended June 30, 1996. Direct costs, as a percentage of
net revenue, were 51.8% for the second quarter of 1997 versus 49.1% for the
second quarter of 1996. The increase is primarily due to direct costs for sales
and marketing services as a percentage of net revenue being higher than direct
costs for the contract research services as a percentage of net revenue. Sales
and marketing services represent a larger proportion of the total net revenues
for the three months ended June 30, 1997 as compared to the three months ended
June 30, 1996.

General and administrative expense, which includes compensation and fringe
benefits for administrative employees, non-billable travel, professional
services, advertising, computer and facility expenses, increased 32.2% to $63.6
million from $48.1 million for the quarters ended June 30, 1997 and 1996,
respectively. General and administrative expense, as a percentage of net revenue
was 32.8% for the second quarter of 1997 versus 36.6% for the second quarter of
1996. The decrease is primarily due to a proportionately greater increase in
sales and marketing services during the second quarter of 1997 as compared to
the second quarter of 1996. Generally, lower overheads are associated with sales
and marketing services.

Depreciation and amortization increased to $8.8 million for the second
quarter of 1997 from $5.8 million for the second quarter of 1996.

Income from operations was $21.1 million or 10.9% of net revenue for the
second quarter of 1997 versus $12.9 million or 9.8% of net revenue for the
second quarter of 1996.

Other expense decreased 60.7% to $333,000 for the second quarter of 1997
from $848,000 for the second quarter of 1996. Net interest expense decreased
approximately $1.1 million due to a decrease in interest expense of
approximately $539,000 and an increase in interest income of approximately
$573,000. Offsetting these amounts were approximately $800,000 in acquisition
costs in the second quarter of 1997 which are non-deductible for tax purposes.

Income taxes, as a percentage of income before income taxes, increased to
38.1% for the second quarter of 1997 versus 33.0% for the second quarter of
1996. This increase is primarily due to an increase in profits in locations with
higher tax rates and the non-deductible acquisition costs that were incurred
during the second quarter of 1997.

Net income available to common shareholders increased to $12.9 million for
the second quarter of 1997 from $7.6 million for the second quarter of 1996.

SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH
SIX MONTHS ENDED JUNE 30, 1996

Net revenue increased 52.6% to $374.1 million for the six months of 1997,
as compared to $245.1 million for the first six months of 1996. In general,
growth occurred across each of the Company's three geographic regions. Factors
contributing to this growth include the provision of increased services rendered
under existing contracts and the initiation of services under contracts awarded
subsequent to the first six months of 1996.

11
<PAGE> 12

Direct costs, which include compensation and related fringe benefits for
billable employees and any other expenses directly related to contracts,
increased 57.2% to $192.7 million for the six months ended June 30, 1997 from
$122.6 million for the six months ended June 30, 1996. Direct costs, as a
percentage of net revenue, were 51.5% for the first six months of 1997 versus
50.0% for the six months of 1996. This increase is primarily due to direct costs
for sales and marketing services as a percentage of net revenue being higher
than direct costs for contract research services as a percentage of net revenue.
The sales and marketing services represent a larger proportion of the total net
revenues for the six months ended June 30, 1997 as compared to the six months
ended June 30, 1996.

General and administrative expense, which includes compensation and fringe
benefits for administrative employees, non-billable travel, professional
services, advertising, computer and facility expenses, increased 45.2% to $124.5
million from $85.7 million for the six months ended June 30, 1997 and 1996,
respectively. General and administrative expense, as a percentage of net
revenue, decreased to 33.3% for the first six months of 1997 from 35.0% for the
first six months of 1996. The decrease is primarily due to a proportionately
greater increase in sales and marketing services during the first six months of
1997 as compared to the first six months of 1996. Generally, lower overheads are
associated with sales and marketing services.

Depreciation and amortization increased to $16.9 million for the first six
months of 1997 from $11.2 million for the first six months of 1996.

Income from operations was $40.0 million or 10.7% of net revenue for the
first six months of 1997 versus $20.9 million or 8.5% of net revenue for the
second quarter of 1996. Excluding non-recurring costs, income from operations
was $25.6 million or 10.4% of net revenue for the first six months of 1996.
During the first six months of 1996, two non-recurring charges were recognized:
a $2.4 million expense for an Innovex Limited internal reorganization and a
related $2.3 million special pension contribution.

Other expense was $1.1 million for the first six months of 1997 as compared
to $528,000 for the first six months of 1996. The net increase is primarily due
to $800,000 of acquisition costs incurred in the first six months of 1997 as
compared to $30,000 in the first six months of 1996, both of which are non-
deductible for tax purposes. Offsetting these amounts is an increase of
approximately $167,000 of net interest income.

Income taxes, as a percentage of income before income taxes, increased to
37.6% for the first six months of 1997 versus 35.7% for the first six months of
1996. This increase is primarily due to an increase in profits in locations with
higher tax rates and the non-deductible acquisition costs that were incurred
during the second quarter of 1997.

Net income available to common shareholders increased to $24.3 million for
the first six months of 1997 from $12.3 million for the first six months of
1996. Excluding non-recurring costs, net income available to common shareholders
was $15.9 million for the first six months of 1996.

LIQUIDITY AND CAPITAL RESOURCES

Cash inflows from operations were $21.3 million for the six months ended
June 30, 1997 versus $1.4 million for the comparable period of 1996. Investing
activities, for the six months ended June 30, 1997, consisted primarily of
capital asset purchases, acquisitions, investment security purchases and
maturities and payment of non-recurring transaction costs accrued in 1996. These
investing activities required an outlay of cash of $53.0 million for the first
six months of 1997 compared to an outlay of $90.9 million for investing
activities during the same period in 1996.

As of June 30, 1997, total working capital was $152.7 million versus $99.3
million as of December 31, 1996. Net receivables from clients (accounts
receivable and unbilled services net of unearned income) increased to $117.7
million at June 30, 1997 as compared to $104.3 million at the end of 1996.

On March 12, 1997, the Company closed a public offering of 5,520,000 shares
of its Common Stock at a price to the public of $62.875 per share. Of the
5,520,000 shares sold, 1,415,000 shares were sold

12
<PAGE> 13

by the Company and 4,105,000 shares were sold by selling shareholders. Net
proceeds to the Company amounted to approximately $84.6 million.

The Company has a L15.0 million (approximately $25.0 million) unsecured
line of credit with a U.K. bank and a L5.0 million (approximately $8.3 million)
secured overdraft facility with a second U.K. bank. At June 30, 1997, the
Company had L18.5 million (approximately $30.8 million) available under these
arrangements. A $4.0 million secured line of credit with a U.S. bank and a $15.0
million unsecured line of credit with a second U.S. bank expired in accordance
with their terms during the six months ended June 30, 1997.

The Company's primary cash needs on both a short-term basis and a long-term
basis are for working capital, geographic expansion, addition of new services,
potential acquisitions, general corporate purposes and capital expenditures.
Based on its current operating plan, the Company believes that its available
cash and cash equivalents as of June 30, 1997, together with cash flow from
operations and borrowings under its line of credit agreements, will be
sufficient to meet its foreseeable cash needs.

As part of its business strategy, the Company reviews many acquisition
candidates in the ordinary course of business, and in addition to acquisitions
already made, the Company continually is evaluating new acquisition and
expansion possibilities. The Company may from time to time seek to obtain debt
or equity financing to facilitate possible acquisitions or expansion.

RECENTLY ISSUED ACCOUNTING STANDARDS

In February 1997, FASB issued Statement No. 128, "Earnings per Share"
("FASB 128"), which is required to be adopted in December 1997. Upon adoption,
the Company will be required to change its method of computing, presenting and
disclosing earnings per share information, as well as, restating all prior
periods presented. Under the new requirements for calculating primary earnings
per share, the dilutive effect of stock options will be excluded. The impact is
expected to result in an increase in basic earnings per share for the three and
six months ended June 30, 1997 and 1996. Under FASB 128, the basic earnings per
share would have been $0.35 and $0.23 for the three months ended June 30, 1997
and 1996, respectively and $0.68 and $0.37 for the six months ended June 30,
1997 and 1996, respectively. The impact of FASB 128 on the calculation of fully
diluted earnings per share for these periods is not expected to be material.

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

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

13
<PAGE> 14

INDEX TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Auditors.............................. 15

Supplemental Consolidated Statements of Income for Each of
the Three Years in the Period Ended December 31, 1996..... 16

Supplemental Consolidated Balance Sheets as of December 31,
1996 and 1995............................................. 17

Supplemental Consolidated Statements of Shareholders' Equity
for Each of the Three Years in the Period Ended December
31, 1996.................................................. 18

Supplemental Consolidated Statements of Cash Flows for Each
of the Three Years in the Period Ended December 31, 1996.. 19

Notes to Supplemental Consolidated Financial Statements..... 20

Condensed Supplemental Consolidated Statements of Income
(unaudited) for the Three Months Ended June 30, 1997 and
1996 and the Six Months Ended June 30, 1997 and 1996...... 35

Condensed Supplemental Consolidated Balance Sheets as of
June 30, 1997 (unaudited) and December 31, 1997........... 36

Condensed Supplemental Consolidated Statements of Cash Flows
(unaudited) for the Six Months Ended June 30, 1997 and
1996...................................................... 37

Notes to Condensed Supplemental Consolidated Financial
Statements (unaudited).................................... 38
</TABLE>

14
<PAGE> 15

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders of
Quintiles Transnational Corp.

We have audited the supplemental consolidated balance sheets of Quintiles
Transnational Corp. (formed as a result of the consolidation of Quintiles
Transnational Corp. and the companies identified in Note 3 to the supplemental
consolidated financial statements) as of December 31, 1996 and 1995 and the
related supplemental consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1996. The supplemental consolidated financial statements give retroactive effect
to the merger of Quintiles Transnational Corp. and the companies identified in
Note 3, which have been accounted for using the pooling of interests method as
described in the notes to the supplemental consolidated financial statements.
These supplemental financial statements are the responsibility of the management
of Quintiles Transnational Corp. Our responsibility is to express an opinion on
these supplemental financial statements based on our audits. We did not audit
the 1995 and 1994 consolidated financial statements of BRI International, Inc.
and Innovex Limited, each of which was combined with the Company in 1996 in
transactions accounted for as poolings of interests. Total assets of the two
businesses represent 33% of the consolidated assets for 1995, and total revenues
constituted 41% of consolidated revenue for 1995 and 1994. Those statements were
audited by other auditors whose reports have been provided to us, and our
opinion, insofar as it relates to amounts included for BRI International, Inc.,
and Innovex Limited for 1995 and 1994, is based solely on the reports of the
other auditors.

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

In our opinion, based on our audits and the report of other auditors, the
supplemental financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Quintiles
Transnational Corp. at December 31, 1996 and 1995, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996, after giving retroactive effect to the merger of the
companies identified in Note 3 to the supplemental consolidated financial
statements, in conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP

Raleigh, North Carolina
October 14, 1997

15
<PAGE> 16

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Professional fee income............................. $642,697 $412,925 $259,032
Less reimbursed costs............................. 88,470 75,919 52,010
-------- -------- --------
Net revenue......................................... 554,227 337,006 207,022
Costs and expenses:
Direct............................................ 278,981 171,571 103,333
General and administrative........................ 192,184 116,948 76,151
Depreciation and amortization..................... 25,195 17,241 10,500
Non-recurring costs:
Restructuring.................................. 13,102 2,373 --
Special pension contribution................... 2,329 2,329 --
-------- -------- --------
511,791 310,462 189,984
-------- -------- --------
Income from operations.............................. 42,436 26,544 17,038
Other income (expense):
Interest income................................... 7,089 2,548 1,276
Interest expense.................................. (9,526) (3,765) (2,795)
Non-recurring transaction costs................... (17,118) -- --
Other............................................. 16 34 526
-------- -------- --------
(19,539) (1,183) (993)
-------- -------- --------
Income before income taxes.......................... 22,897 25,361 16,045
Income taxes........................................ 14,015 9,293 5,374
-------- -------- --------
Net income.......................................... 8,882 16,068 10,671
Non-equity dividend................................. (1,785) (719) (400)
-------- -------- --------
Net income available for common shareholders........ $ 7,097 $ 15,349 $ 10,271
======== ======== ========
Net income per share................................ $ 0.20 $ 0.48 $ 0.36
======== ======== ========
Weighted average shares outstanding................. 34,670 31,894 28,672
======== ======== ========
</TABLE>

See accompanying notes.

16
<PAGE> 17

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 68,730 $ 85,693
Accounts receivable and unbilled services................. 183,288 107,525
Investments............................................... 37,623 --
Prepaid expenses and other current assets................. 12,868 11,355
-------- --------
Total current assets.............................. 302,509 204,573
Property and equipment:
Land, buildings and leasehold improvements................ 50,187 41,537
Equipment and software.................................... 68,708 47,360
Furniture and fixtures.................................... 31,275 15,124
Motor vehicles............................................ 30,353 20,023
-------- --------
180,523 124,044
Less accumulated depreciation............................. 55,289 35,921
-------- --------
125,234 88,123
Intangible and other assets:
Intangibles............................................... 68,595 47,971
Investments............................................... 25,083 --
Deposits and other assets................................. 11,156 3,095
-------- --------
104,834 51,066
-------- --------
Total assets...................................... $532,577 $343,762
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Lines of credit........................................... $ 9,048 $ 8,667
Accounts payable.......................................... 36,074 19,217
Accrued expenses.......................................... 54,392 35,894
Unearned income........................................... 78,962 43,710
Income taxes payable...................................... 4,978 3,642
Current portion of obligations held under capital
leases................................................. 11,816 7,403
Current portion of long-term debt......................... 1,897 8,021
Other current liabilities................................. 6,032 5,444
-------- --------
Total current liabilities......................... 203,199 131,998
Long-term liabilities:
Obligations held under capital leases, less current
portion................................................ 5,465 3,379
Long-term debt and obligation, less current portion....... 163,285 33,223
Deferred income taxes..................................... 4,747 3,491
Other liabilities......................................... 5,336 6,489
-------- --------
178,833 46,582
-------- --------
Total liabilities................................. 382,032 178,580
Commitments and contingencies
Shareholders' Equity:
Preferred Stock, none issued and outstanding.............. -- --
Common Stock and additional paid-in capital, 34,188,610
and 33,015,916 shares issued and outstanding in 1996
and 1995, respectively................................. 139,710 132,611
Retained earnings......................................... 11,513 32,512
Other equity.............................................. (678) 59
-------- --------
Total shareholders' equity........................ 150,545 165,182
-------- --------
Total liabilities and shareholders' equity........ $532,577 $343,762
======== ========
</TABLE>

See accompanying notes.

17
<PAGE> 18

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

SUPPLEMENTAL CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
EMPLOYEE
STOCK
OWNERSHIP
ADDITIONAL PLAN LOAN CURRENCY
COMMON PAID-IN RETAINED GUARANTEE TRANSLATION
STOCK CAPITAL EARNINGS & OTHER ADJUSTMENTS TOTAL
------ ---------- -------- --------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993, as
previously reported......... $180 $ 26,800 $ 15,620 $(2,878) $ 374 $ 40,096
Adjustments for poolings of
interests................... 8 334 1,723 -- (182) 1,883
---- -------- -------- ------- ------- --------
Balance, December 31, 1993.... 188 27,134 17,343 (2,878) 192 41,979
Issuance of common stock...... 21 36,175 -- -- -- 36,196
Principal payments on ESOP
loan........................ -- -- -- 920 -- 920
Non-equity dividend........... -- -- (400) -- -- (400)
Purchase of shares by pooled
entity...................... -- -- (1,314) -- -- (1,314)
Other equity transactions..... -- (171) (6) -- 1,140 963
Net income.................... -- -- 10,671 -- -- 10,671
---- -------- -------- ------- ------- --------
Balance, December 31, 1994.... 209 63,138 26,294 (1,958) 1,332 89,015
Issuance of common stock...... 10 56,893 -- -- -- 56,903
Principal payments on ESOP
loan........................ -- -- -- 401 -- 401
Common stock issued for
acquisitions................ 4 11,799 31 -- -- 11,834
Reduction of liability under
stock option plan, net of
tax......................... -- 693 -- -- -- 693
Dividends paid by pooled
entity...................... -- -- (9,162) -- -- (9,162)
Non-equity dividend........... -- -- (719) -- -- (719)
Two-for-one stock split....... 107 (107) -- -- -- --
Other equity transactions..... -- (135) -- -- 284 149
Net income.................... -- -- 16,068 -- -- 16,068
---- -------- -------- ------- ------- --------
Balance, December 31, 1995.... 330 132,281 32,512 (1,557) 1,616 165,182
Common stock issued for
acquisitions................ 3 516 608 -- -- 1,127
Issuance of common stock...... 9 3,838 -- -- -- 3,847
Principal payments on ESOP
loan........................ -- -- -- 420 -- 420
Effect due to change in fiscal
year of pooled company...... -- -- 324 -- -- 324
Recapitalization of pooled
entity...................... -- (202) (29,028) -- -- (29,230)
Tax benefit from the exercise
of non-qualified stock
options..................... -- 2,920 -- -- -- 2,920
Non-equity dividend........... -- -- (1,785) -- -- (1,785)
Other equity transactions..... -- 15 -- 45 (1,202) (1,142)
Net income.................... -- -- 8,882 -- -- 8,882
---- -------- -------- ------- ------- --------
Balance, December 31, 1996.... $342 $139,368 $ 11,513 $(1,092) $ 414 $150,545
==== ======== ======== ======= ======= ========
</TABLE>

See accompanying notes.

18
<PAGE> 19

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net income.................................................. $ 8,882 $16,068 $10,671
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 25,812 17,241 10,500
Non-recurring transaction costs........................... 17,118 -- --
Net gain on sale of property and equipment................ (134) (172) (847)
Provision for deferred income tax expense (benefit)....... 731 1,904 (591)
Change in operating assets and liabilities:
Accounts receivable and unbilled services............... (68,525) (36,201) (14,767)
Prepaid expenses and other current assets............... (11,389) (838) (3,518)
Accounts payable and accrued expenses................... 23,682 17,299 13,614
Unearned income......................................... 42,460 20,013 4,113
Income taxes payable and other current liabilities...... 3,491 547 349
Change in fiscal year of pooled entity.................... (9,378) -- --
Other..................................................... (27) (25) (335)
-------- ------- -------
Net cash provided by operating activities................... 32,723 35,836 19,189
Investing activities:
Proceeds from disposition of property and equipment....... 1,434 4,311 3,158
Purchase of investments held to maturity.................. (95,939) -- --
Maturities of investments held to maturity................ 43,345 -- --
Purchase of investments available for sale................ (19,003) -- --
Proceeds from sale of investments available for sale...... 8,936 -- --
Acquisition of property and equipment..................... (39,744) (25,964) (16,474)
Acquisition of businesses, net of cash acquired........... (35,109) (16,571) (1,357)
Payment of non-recurring transaction costs................ (11,440) -- --
Change in fiscal year of pooled entity.................... 2,606 -- --
Other..................................................... -- (108) (33)
-------- ------- -------
Net cash used in investing activities....................... (144,914) (38,332) (14,706)
Financing activities:
Increase (decrease) in lines of credit, net............... 2,570 3,917 (609)
Proceeds from issuance of debt............................ 139,650 568 1,355
Repayment of debt......................................... (56,792) (1,371) (4,151)
Principal payments on capital lease obligations........... (9,516) (6,621) (2,932)
Issuance of common stock.................................. 3,678 56,746 35,426
Issuance of debt for capitalization of pooled entity...... 45,197 -- --
Recapitalization of pooled entity......................... (29,230) -- (1,211)
Non-equity dividend....................................... (1,756) (677) (357)
Dividend paid by pooled entity............................ -- (9,162) --
Change in fiscal year of pooled entity.................... 1,399 -- --
Other..................................................... (249) (6,047) 918
-------- ------- -------
Net cash provided by financing activities................... 94,951 37,353 28,439
Effect of foreign currency exchange rate changes on cash.... 277 (100) 773
-------- ------- -------
(Decrease) increase in cash and cash equivalents............ (16,963) 34,757 33,695
Cash and cash equivalents at beginning of year.............. 85,693 50,936 17,241
-------- ------- -------
Cash and cash equivalents at end of year.................... $ 68,730 $85,693 $50,936
======== ======= =======
Supplemental Cash Flow Information:
Interest paid............................................. $ 9,468 $ 2,660 $ 2,631
Income taxes paid......................................... 12,781 9,819 5,205
Non-cash Investing and Financing Activities:
Capitalized leases........................................ 12,979 11,774 4,608
Equity impact of mergers and acquisitions................. (23,253) 11,803 687
</TABLE>

See accompanying notes.

19
<PAGE> 20

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

The Company is a leading provider of comprehensive contract research and
sales and marketing services to the worldwide pharmaceutical, biotechnology and
medical device industries. Additionally, the Company supports the developing
information needs of the broader healthcare industry by providing health
economics and healthcare policy consulting and disease and health information
management services.

Principles of Consolidation

The accompanying supplemental 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.

Prior to the Company's November 29, 1996 share exchange with Innovex,
Innovex had a fiscal year end of March 31 and the Company had (and continues to
have) a fiscal year end of December 31. As a result, the pooled data presented
for 1992 through 1995 include Innovex's March 31 fiscal year data in combination
with the Company's December 31 fiscal year data. In connection with the share
exchange, Innovex changed its fiscal year end to December 31. Accordingly, the
pooled data presented for 1996 include both Innovex's and the Company's data on
a December 31 year end basis. Because of the difference between Innovex's fiscal
year end in 1995 compared with 1996, Innovex's quarter ended March 31, 1996 data
are included in the Company's pooled data for both 1995 and 1996.

Use of Estimates

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

Foreign Currencies

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

Revenue Recognition

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

20
<PAGE> 21

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Unbilled Services and Unearned Income

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

Reimbursed Costs

Investigator payments are recognized as expense based upon patient
enrollment over the life of the contract. Investigator payments are made based
on predetermined contractual arrangements, which may differ from the recognition
of the expense. Payments to investigators in excess of the expense recognized
are classified as prepaid expenses, and recognized expenses in excess of amounts
paid are classified as accrued expenses.

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 has
excluded from cash and cash equivalents in the accompanying balance sheets cash
held for clients for investigator payments in the amount of $4.6 million and
$3.7 million at December 31, 1996 and 1995, respectively, that pursuant to
agreements with these clients, remains the property of the clients.

The Company's investments in debt and equity securities are classified as
held-to-maturity and available for sale. Investments classified as
held-to-maturity are recorded at amortized cost. Investments classified as
available for sale are measured at market value and net unrealized gains and
losses are recorded as a separate component of stockholders' equity until
realized. Any gains or losses on sales of investments are computed by specific
identification.

Property and Equipment

Property and equipment are carried at historical cost and are depreciated
using the straight-line method over the shorter of the asset's estimated useful
life or the lease term ranging from three to 50 years.

Intangible Assets

Intangibles consist principally of the excess cost over the fair value of
net assets acquired ("goodwill") and are being amortized on a straight-line
basis over periods not exceeding 40 years. Accumulated amortization totaled
$10.5 million and $5.2 million at December 31, 1996 and 1995, respectively.

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

Long-Lived Assets

The Company adopted Financial Accounting Standard Board ("FASB") Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("Statement 121") in the first quarter of 1996. The
adoption of Statement 121 had no material effect on the financial statements in
1996.

21
<PAGE> 22

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Net Income Per Share

Net income per share has been computed using the weighted average number of
common shares (including the common shares held by the Employee Stock Ownership
Plan) and common share equivalents outstanding during each period. Common
equivalent shares are excluded from the computation in periods in which they
have an anti-dilutive effect. All share and per share data in the financial
statements and notes thereto have been retroactively adjusted to give effect to
the two-for-one stock split in November 1995 and to the pooling of interests
combinations with BRI, Innovex, MAC, CVA and Clindepharm (see Note 3). For all
periods presented, the difference between primary and fully diluted net income
per common share is not significant.

Income Taxes

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

Research and Development Costs

Research and development costs relating principally to new software
applications and computer technology are charged to expense as incurred. These
expenses totaled $2.3 million, $1.9 million and $1.7 million in 1996, 1995 and
1994, respectively.

Foreign Currency Hedging

The Company uses foreign exchange contracts and options to hedge the risk
of changes in foreign currency exchange rates associated with contracts in which
the expenses for providing services are incurred in one currency and paid for by
the client in another currency. The Company recognizes changes in value in
income only when contracts are settled or options are exercised. There were no
open foreign exchange contracts or options relating to service contracts at
December 31, 1996.

Recently Issued Accounting Standards

22
<PAGE> 23

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

in annual financial statements and also requires those companies to report
selected segment information in interim financial statements to shareholders.
The Statement also establishes standards for related disclosures about products
and services, geographic areas, and major customers. The Company will adopt
Statement No. 131 in 1998 resulting in additional segment disclosures as
required by the Statement. The application of the new rules will not have an
impact on the Company's financial position or results from operations.

2. SHAREHOLDERS' EQUITY

The Company is authorized to issue 25 million shares of preferred stock,
$.01 per share par value. At December 31, 1996, 200 million common shares of
$.01 par value were authorized.

On November 26, 1996, the Company's shareholders approved an increase in
the number of authorized shares of the Common Stock from 50,000,000 to
200,000,000.

On July 25, 1996, the Board of Directors authorized an employee stock
purchase plan for all eligible employees effective October 1, 1996. Under the
plan, shares of the Company's Common Stock may be purchased at three month
intervals at 85% of the lower of the fair market value on the first or the last
day of each three month period. Employees may purchase shares having a value not
exceeding the lesser of 15% of their gross compensation during an offering
period or $25,000. During 1996, employees purchased 4,788 shares at $56.3125 per
share. At December 31, 1996, 95,212 shares were reserved for future issuance.

On April 3, 1996, in anticipation of a planned initial public offering,
Innovex was recapitalized by the purchase of the entire issued share capital of
Innovex Holdings Limited (the former holding company of the Innovex Group) from
its shareholders in exchange for a combination of newly issued Ordinary Shares,
Preferred Ordinary Shares (the "Preferred Shares"), loan notes and cash. In
exchange for its holdings in Innovex Holdings Limited, the principal shareholder
received 67,994,225 newly issued Ordinary Shares of Innovex Limited,
approximately $26.0 million of loan notes and approximately $2.4 million of
cash. In exchange for their respective holdings, certain investors received
14,285,720 newly issued Preferred Shares, and certain members of management
received 4,637,080 Ordinary Shares. Pursuant to an investment agreement, Innovex
also issued 28,533,345 additional preferred shares and created and issued 11
million 7.5% preference shares (the "Preference Shares") and approximately $10.7
million of loan stock. In connection with the Preference Shares, the Company
paid $846,000 of non-equity dividends in 1996. Prior to the recapitalization,
Innovex paid a dividend of $9.2 million to the principal shareholder and made a
special pension contribution of $2.3 million. In connection with the Innovex
merger, the Company has paid off $56.8 million of Innovex obligations.

On October 4, 1995, the Company completed a stock offering of 3,500,000
shares of its Common Stock. Of the shares sold, 2,019,960 shares were sold by
the Company and 1,480,040 shares by certain selling shareholders. The offering
provided the Company with approximately $55.9 million, net of expenses.

On October 16, 1995, the Board of Directors authorized a two-for-one split
of the Company's Common Stock in the form of a 100% stock dividend. A total of
10,678,575 shares of Common Stock were issued in connection with the split. The
stated par value of each share was not changed from $.01. A total of $107,000
was reclassified from additional paid in capital to Common Stock. All references
in the financial statements to number of shares, per share amounts, stock option
data and market prices of Common Stock have been restated to retroactively
reflect the stock split.

23
<PAGE> 24

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. MERGERS AND ACQUISITIONS

On June 11, 1997, the Company acquired 100% of the stock of MAC, a leading
international strategic medical communications consultancy, for 565,697 shares
of the Company's Common Stock. On July 2, 1997, the Company acquired CVA, a CRO
that is a leader in stroke clinical trials, through an exchange of 100% of CVA's
stock for 233,968 shares of the Company's Common Stock. On August 29, 1997, the
Company acquired Clindepharm in exchange for 238,983 shares of the Company's
Common Stock. These transactions were accounted for by the pooling of interests
method and are included in the accompanying supplemental consolidated financial
statements.

The following are reconciliations of net revenue and net income available
for common shareholders previously reported by the Company for the years ended
December 31, 1996, 1995 and 1994, with the combined amounts currently presented
in the financial statements for those years:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------
HISTORICAL SUPPLEMENTAL
(IN THOUSANDS) COMPANY MAC(1) CVA CLINDEPHARM CONSOLIDATED
-------------- ---------- ------ ------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net revenue.............................. $537,608 $9,772 $4,546 $2,301 $554,227
Net income available for common
shareholders........................... $ 4,365 $ 857 $1,269 $ 606 $ 7,097
</TABLE>

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

(1) Net revenue has been reduced by reimbursed costs of approximately $2.9
million to comply with the Company's revenue recognition policy. Prior
years' net revenues have not been adjusted since amounts are considered
immaterial.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------
HISTORICAL SUPPLEMENTAL
(IN THOUSANDS) COMPANY MAC CVA CONSOLIDATED
-------------- ---------- ------- ------- ------------
<S> <C> <C> <C> <C>
Net revenue..................................... $323,692 $11,163 $ 2,151 $337,006
Net income available for common shareholders.... $ 13,901 $ 1,100 $ 348 $ 15,349
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
-------------------------------------------
HISTORICAL SUPPLEMENTAL
(IN THOUSANDS) COMPANY MAC CVA CONSOLIDATED
-------------- ---------- ------ ------ ------------
<S> <C> <C> <C> <C>
Net revenue....................................... $195,900 $9,588 $1,534 $207,022
Net income available for common shareholders...... $ 9,047 $ 996 $ 228 $ 10,271
</TABLE>

On November 29, 1996, the Company acquired 100% of the outstanding stock of
Innovex, an international contract pharmaceutical organization based in Marlow,
United Kingdom, for 9,214,239 shares of the Company's Common Stock and the
exchange of options to purchase 786,226 shares of the Company's Common Stock. On
November 22, 1996, the Company acquired BRI, a global contract research
organization, through an exchange of 100% of BRI's stock for 1,614,862 shares of
the Company's Common Stock. Related to the Innovex and BRI transactions, the
Company recognized approximately $17.1 million in non-recurring transaction
costs and approximately $10.7 million in non-recurring restructuring costs.
These transactions were accounted for by the pooling of interests method and
were previously included in the Company's historical consolidated financial
statements.

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

24
<PAGE> 25

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

4. CREDIT ARRANGEMENTS AND OBLIGATIONS

On May 23, 1996, the Company completed a private placement of $143.75
million of 4.25% Convertible Subordinated Notes ("Notes") due May 31, 2000. Net
proceeds to the Company amounted to approximately $139.7 million. The Notes are
convertible into 1,737,160 shares of Common Stock, at the option of the holder,
at a conversion price of $82.75 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 L15.0 million (approximately $24.1 million) line of
credit which is guaranteed by the Company's United Kingdom subsidiaries.
Interest is charged at the bank's base rate (6.0% at December 31, 1996), plus
1.25%, with a minimum of 5.75%. The line of credit had an outstanding balance of
$6.6 million and $160,000 at December 31, 1996 and 1995, respectively.

The Company has a L5.0 million (approximately $8.0 million) line of credit
with a second U.K. bank. The line of credit is charged interest at the bank's
published base rate (6.0% at December 31, 1996) plus 1.5%. The line of credit
had an outstanding balance of $2.4 million and $5.9 million at December 31, 1996
and 1995, respectively.

In March, 1995, Quintiles Scotland Limited, a wholly-owned subsidiary of
the Company, acquired assets of a drug development facility in Edinburgh,
Scotland from Syntex Pharmaceuticals Limited, a member of the Roche group based
in Basel, Switzerland for a purchase commitment valued at L13.0 million
(approximately $21.8 million), with payment due in December 1999. As of December
31, 1996, the Company has committed to purchasing approximately L600,000
(approximately $852,000) under foreign exchange contracts. The Company is
obligated to purchase up to an additional L8.6 million through December 28, 1999
in varying amounts as the daily dollar-to-pound exchange rate ranges between
1.5499 and 1.6800.

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

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- -------
<S> <C> <C>
4.25% Convertible Subordinated Notes due 2000............... $143,750 $ --
Employee Stock Ownership Plan notes payable, due 1997....... 1,138 1,556
Other notes payable......................................... 1,953 9,459
Loan stock at 10% (15.1% effective interest rate)........... -- 10,715
Long-term obligation........................................ 21,823 19,514
-------- -------
168,664 41,244
Less: current portion............................. 1,897 8,021
unamortized issuance costs.................. 3,482 --
-------- -------
$163,285 $33,223
======== =======
</TABLE>

25
<PAGE> 26

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Maturities of long-term debt and obligation at December 31, 1996 are as
follows (in thousands):

5. INVESTMENTS

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

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

<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED MARKET
AVAILABLE-FOR-SALE SECURITIES: COST GAINS LOSSES VALUE
- ------------------------------ ------- ---------- ---------- -------
<S> <C> <C> <C> <C>
U.S. Government Securities -- Maturing
between one and three years................ $10,008 $59 $-- $10,067
Money Funds.................................. 1,019 6 -- 1,025
------- --- --- -------
$11,027 $65 $-- $11,092
======= === === =======
</TABLE>

Differences between cost and market of $65,000 (less deferred taxes of
$20,190) were credited to shareholders' equity.

6. ACCOUNTS RECEIVABLE AND UNBILLED SERVICES

Accounts receivable consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
-------- --------
<S> <C> <C>
Trade:
Billed.................................................... $121,803 $ 65,219
Unbilled services......................................... 52,772 35,610
-------- --------
174,575 100,829
Other....................................................... 10,759 7,450
Allowance for doubtful accounts............................. (2,046) (754)
-------- --------
$183,288 $107,525
======== ========
</TABLE>

26
<PAGE> 27

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
DECEMBER 31,
-------------
REGION 1996 1995
- ------ ----- -----
<S> <C> <C>
Americas.................................................... 45% 40%
Europe...................................................... 53 58
Asia-Pacific and Africa..................................... 2 2
--- ---
100% 100%
=== ===
</TABLE>

7. ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
------- -------
<S> <C> <C>
Compensation and payroll taxes.............................. $22,621 $16,269
Transaction and restructuring costs......................... 16,047 --
Other....................................................... 15,724 19,625
------- -------
$54,392 $35,894
======= =======
</TABLE>

8. 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 $21.0 million,
$10.4 million and $7.3 million for the years ended December 31, 1996, 1995 and
1994, respectively. The Company leases certain assets, primarily vehicles, under
capital leases. Capital lease amortization is included with depreciation and
amortization expense and accumulated depreciation in the accompanying financial
statements.

27
<PAGE> 28

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a summary of future minimum payments under capitalized
leases and under operating leases that have initial or remaining noncancelable
lease terms in excess of one year at December 31, 1996 (in thousands):

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1997........................................................ $13,086 $23,598
1998........................................................ 5,733 20,785
1999........................................................ 62 13,720
2000........................................................ 4 8,013
2001........................................................ 4 4,860
Thereafter.................................................. -- 18,663
------- -------
Total minimum lease payments................................ 18,889 $89,639
=======
Amounts representing interest............................... 1,608
-------
Present value of net minimum payments....................... 17,281
Current portion............................................. 11,816
-------
Long-term capital lease obligations......................... $ 5,465
=======
</TABLE>

9. INCOME TAXES

The U.S.-based and U.K.-based subsidiaries file consolidated tax returns in
the U.S. and U.K., respectively. The other foreign subsidiaries are taxed
separately under the laws of their respective countries. Income before income
taxes from foreign operations was approximately $24 million, $11 million and $7
million for the years 1996, 1995 and 1994, respectively.

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Current:
Federal................................................. $ 5,185 $4,313 $3,170
State................................................... 1,735 856 724
Foreign................................................. 5,839 2,345 2,065
------- ------ ------
12,759 7,514 5,959
Deferred expense (benefit):
Federal................................................. (682) 598 (854)
Foreign................................................. 1,938 1,181 269
------- ------ ------
$14,015 $9,293 $5,374
======= ====== ======
</TABLE>

28
<PAGE> 29

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Federal taxes at statutory rate........................... $ 7,992 $8,636 $5,489
State and local income taxes net of federal benefit....... 1,040 653 499
Non-deductible transaction costs.......................... 4,761 -- --
Foreign earnings taxed at different rates................. (191) (14) (139)
Foreign losses for which no benefit has been recognized... -- 646 404
Utilization of net operating loss carryforwards........... -- (1,520) (1,244)
Other..................................................... 413 892 365
------- ------ ------
$14,015 $9,293 $5,374
======= ====== ======
</TABLE>

Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $23 million at December 31, 1996. Those earnings are considered to
be indefinitely reinvested, and accordingly, no U.S. federal and state income
taxes have been provided thereon. Upon distribution of those earnings in the
form of dividends or otherwise, the Company would be subject to both U.S. income
taxes (subject to an adjustment for foreign tax credits) and withholding taxes
payable to the various countries.

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

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1996 1995
------- -------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization............................. $16,359 $ 6,945
Prepaid expenses.......................................... 1,034 573
Other..................................................... 213 560
------- -------
Total deferred tax liabilities.............................. 17,606 8,078
Deferred tax assets:
Net operating loss carryforwards.......................... 7,028 5,745
Accrued expenses and unearned income...................... 5,345 928
Benefit plans............................................. 675 2,512
Non-deductible transaction costs.......................... 2,206 --
Other..................................................... 2,445 866
------- -------
Total deferred tax assets................................... 17,699 10,051
Valuation allowance for deferred tax assets................. (4,840) (5,464)
------- -------
Net deferred tax assets..................................... 12,859 4,587
------- -------
Net deferred tax liabilities................................ $ 4,747 $ 3,491
======= =======
</TABLE>

The decrease in the Company's valuation allowance for deferred tax assets
from $5,464,000 at December 31, 1995 to $4,840,000 at December 31, 1996 is
primarily due to the net operating losses utilized in 1996 which had been fully
reserved in prior years.

29
<PAGE> 30

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
------- ------ -----
<S> <C> <C> <C>
Excess (deficiency) of tax over financial reporting:
Depreciation and amortization............................ $ 9,414 $1,681 $ 793
Net operating loss carryforwards......................... (1,907) 1,025 (550)
Accrued expenses and unearned income..................... (4,417) 110 (374)
Benefit plans............................................ -- (656) --
Other items, net......................................... (1,834) (381) (454)
------- ------ -----
$ 1,256 $1,779 $(585)
======= ====== =====
</TABLE>

The U.K. subsidiaries qualify for Scientific Research Allowances (SRAs) for
100% of capital expenditures on certain assets under the Inland Revenue Service
guidelines. For 1996, 1995 and 1994, these allowances were $11 million, $6
million and $3 million, respectively, which helped to generate net operating
loss carryforwards of $3 million to be used to offset taxable income in that
country. Assuming the U.K. subsidiaries continue to invest in qualified capital
expenditures at an adequate level, the portion of the deferred tax liability
relating to the U.K. subsidiaries may be deferred indefinitely. Quintiles
Transnational has state net operating loss carryforwards of approximately $10
million which begin to expire in 2001. Innovex has German net operating loss
carryforwards that do not expire of $10 million to be used to offset taxable
income in that country. In addition, Innovex, Inc. has U.S. net operating loss
carryforwards of approximately $5 million which will expire beginning 2005.

10. EMPLOYEE BENEFIT PLANS

The Company has numerous employee benefit plans for which contributions are
discretionary. Plans exist in the United States, Germany, the United Kingdom,
Ireland, Belgium, France, and Australia which cover substantially all eligible
employees in those countries. Plans include Approved Profit Sharing Schemes in
Great Britain and Ireland which are funded with Company stock, a defined
contribution plan funded by Company stock in Belgium and Australia, defined
contribution plans in Great Britain, a profit sharing scheme in France, and
defined benefit plans in Great Britain and Germany. The defined benefit plan in
Germany is an unfunded plan which is provided for in the balance sheet.

The Company has two leveraged Employee Stock Ownership Plans ("ESOPs")
which provide benefits to eligible employees. Contributions and related
compensation expenses for these plans totaled $585,000, $734,000, and $174,000
in 1996, 1995 and 1994, respectively. Interest paid by the Company on the ESOP
loan was approximately $130,000, $157,000, and $179,000 for 1996, 1995, and
1994, respectively. Shares allocated to participants totaled 938,000 at December
31, 1996. Unallocated shares totaled 178,000 as of December 31, 1996 with a fair
market value of $11,820,000.

The Company has two employee savings and investment plans (401(k) Plans)
available to all eligible employees meeting certain specified criteria. The
Company matches employee deferrals at varying percentages, set at the discretion
of the Board of Directors. For the years ended December 31, 1996, 1995 and 1994,
the Company expensed $539,000, $177,000 and $0, respectively as matching
contributions.

On July 25, 1996, the Company's Board of Directors adopted the Quintiles
Transnational Corp. Employee Stock Purchase Plan (the "Purchase Plan") which is
intended to provide eligible employees an opportunity to acquire the Company's
Common Stock. Participating employees have the option to purchase shares at 85%
of the lower of the closing price per share of Common Stock on the first or last
day of the calendar quarter. The Purchase Plan is intended to qualify as an
"employee stock purchase

30
<PAGE> 31

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
Board of Directors has reserved 100,000 shares of Common Stock for issuance
under the Purchase Plan. As of December 31, 1996, 4,788 shares were purchased
under the Purchase Plan at a cost of $56.3125 per share.

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, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" ("Statement 123"),
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.

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

Information with respect to the consolidated option plans is as follows:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Options outstanding January 1, 1994...................... 687,861 $ 5.56
Granted................................................ 289,647 12.16
Exercised.............................................. (9,666) 3.37
Canceled............................................... (86,477) 6.42
---------
Outstanding at December 31, 1994......................... 881,365 7.83
Granted................................................ 581,238 26.85
Exercised.............................................. (155,870) 5.15
Canceled............................................... (19,580) 10.33
---------
Outstanding at December 31, 1995......................... 1,287,153 16.17
Granted................................................ 2,073,284 68.54
Exercised.............................................. (667,418) 4.98
Canceled............................................... (208,132) 71.84
---------
Outstanding at December 31, 1996......................... 2,484,887 $31.03
=========
</TABLE>

Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995: risk-free interest rate of 6%; dividend yields of
0%; volatility factors of the expected market price of the Company's Common
Stock of 0.4; and an average expected life of the option of one year from the
date of vesting.

31
<PAGE> 32

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

For options outstanding and exercisable at December 31, 1996 the following
number of options, range of exercise prices, weighted average exercise prices
and weighted average contractual lives existed:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------ ----------------------------
NUMBER OF WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER OF WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE EXERCISE PRICE CONTRACTUAL LIFE OPTIONS EXERCISE PRICE
- --------- ---------------- ---------------- ---------------- --------- ----------------
<C> <S> <C> <C> <C> <C>
254,255 $0.015 - $2.07 $ 1.39 6.2 230,907 $ 1.33
288,770 $2.615 - $6.45 5.22 4.5 262,106 5.20
331,914 $8.635 - $12.625 9.63 6.1 308,572 9.61
389,556 $13.24 - $19.00 16.08 7.1 245,056 14.48
167,081 $21.375 - $31.50 28.75 8.8 65,688 28.77
512,641 $41.00 - $61.31 48.82 8.6 48,144 41.15
480,920 $62.50 - $66.25 65.86 8.0 107,022 65.65
59,750 $68.50 - $77.00 75.24 6.7 14,711 77.00
- --------- ---------
2,484,887 $30.89 7.1 1,282,206 $15.73
========= =========
</TABLE>

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

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The grant date
Black-Scholes value of the options for 1996 was $10,239,100. Of this amount,
$6,484,100 relates to options issued and exchanged to employees of acquired
companies. The remaining $3,755,000 relates to Quintiles options, representing
6.5% of operating income. The Black-Scholes value of the options for 1995 was
$753,600 which includes $100,000 relating to acquired companies.

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

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1996 1995
------- -------
<S> <C> <C>
Net income available for common shareholders................ $ 7,097 $15,349
Pro forma (loss) net income available for common
shareholders.............................................. (3,142) 14,595
Pro forma (loss) earnings per share......................... $ (0.09) $ 0.46
</TABLE>

The effects on net income available for common shareholders and earnings
per share are not likely to be representative of the effects on reported net
income for future years since 1995 reflects expense for only one year's vesting.

32
<PAGE> 33

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. OPERATIONS

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

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net revenue:
Americas.......................................... $240,118 $134,350 $ 85,765
Europe............................................ 299,097 195,669 118,056
Asia-Pacific and Africa........................... 15,012 6,987 3,201
-------- -------- --------
$554,227 $337,006 $207,022
======== ======== ========
Income (loss) from operations:
Americas.......................................... $ 17,158 $ 12,469 $ 7,392
Europe............................................ 24,371 14,515 9,969
Asia-Pacific and Africa........................... 907 (440) (323)
-------- -------- --------
$ 42,436 $ 26,544 $ 17,038
======== ======== ========
Identifiable assets:
Americas.......................................... $270,770 $154,273 $ 97,877
Europe............................................ 249,349 184,313 102,039
Asia-Pacific and Africa........................... 12,458 5,176 2,279
-------- -------- --------
$532,577 $343,762 $202,195
======== ======== ========
</TABLE>

33
<PAGE> 34

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. PRO FORMA QUARTERLY FINANCIAL DATA (UNAUDITED)

Prior to the Innovex merger, Innovex had a March 31 fiscal year. The pro
forma unaudited quarterly financial data presented below reflect the financial
results of the combined companies on a calendar year basis including
nonrecurring costs. The non-recurring costs consist of transaction and
restructuring costs of $27.8 million in the fourth quarter of 1996 and $4.7
million of one-time restructuring costs and special pension contribution in the
first quarter of 1996. The Company's Supplemental Consolidated Statements of
Income contained herein reports financial results on a fiscal year basis (which
includes Innovex results for the quarter ended March 31, 1996 in both 1995 and
1996 fiscal years). The following pro forma quarterly financial information
reflects actual calendar quarter results of operations (in thousands, except for
per share data and stock prices):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net revenue................ $ 113,813 $ 131,328 $ 141,916 $ 167,170
Income from operations..... 7,979 12,900 14,659 6,898
Net income (loss) available
for common
shareholders............. 4,798 7,551 8,562 (13,814)
Earnings (loss) per
share.................... $ 0.14 $ 0.22 $ 0.24 $ (0.41)
Range of stock prices...... $37.000-69.250 $56.500-82.000 $52.500-83.250 $58.250-83.250
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net revenue................ $ 65,735 $ 75,792 $ 81,798 $ 92,798
Income from operations..... 6,804 5,832 6,673 9,436
Net income available for
common shareholders...... 4,542 2,995 3,971 6,086
Earnings per share......... $ 0.15 $ 0.10 $ 0.13 $ 0.18
Range of stock prices...... $14.500-19.438 $17.250-24.125 $22.000-32.125 $26.250-46.000
</TABLE>

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

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

34
<PAGE> 35

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

CONDENSED SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenue................................. $194,180 $131,328 $374,065 $245,141
Costs and expenses:
Direct.................................... 100,654 64,494 192,689 122,599
General and administrative................ 63,622 48,125 124,483 85,740
Depreciation and amortization ............ 8,793 5,809 16,851 11,221
Non-recurring:
Restructuring.......................... -- -- -- 2,373
Special pension contribution........... -- -- -- 2,329
-------- -------- -------- --------
Total costs and expenses.................... 173,069 118,428 334,023 224,262
-------- -------- -------- --------
Income from operations...................... 21,111 12,900 40,042 20,879
Other expense, net.......................... (333) (848) (1,056) (528)
-------- -------- -------- --------
Income before income taxes.................. 20,778 12,052 38,986 20,351
Income taxes................................ 7,915 3,974 14,644 7,264
-------- -------- -------- --------
Net income.................................. 12,863 8,078 24,342 13,087
Non-equity dividend......................... -- (527) -- (738)
-------- -------- -------- --------
Net income available for common
shareholders.............................. $ 12,863 $ 7,551 $ 24,342 $ 12,349
======== ======== ======== ========
Net income per share........................ $ 0.35 $ 0.22 $ 0.67 $ 0.35
======== ======== ======== ========
</TABLE>

See accompanying notes.

35
<PAGE> 36

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

CONDENSED SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
(UNAUDITED) (NOTE 1)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $106,065 $ 68,730
Accounts receivable and unbilled services................. 209,015 183,288
Investments............................................... 29,297 37,623
Other..................................................... 22,946 12,868
-------- --------
Total current assets............................... 367,323 302,509
Property and equipment...................................... 223,761 180,523
Less accumulated depreciation............................... 69,632 55,289
-------- --------
154,129 125,234
Non-current assets:
Investments............................................... 39,099 25,083
Intangibles............................................... 73,723 68,595
Deferred income taxes..................................... 62,460 --
Deposits and other........................................ 11,832 11,156
-------- --------
Total non-current assets........................... 187,114 104,834
-------- --------
Total assets....................................... $708,566 $532,577
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... 91,884 90,466
Credit arrangements, current.............................. 14,611 22,761
Unearned income........................................... 91,364 78,962
Income taxes and other.................................... 16,807 11,010
-------- --------
Total current liabilities.......................... 214,666 203,199
Long-term liabilities:
Credit arrangements, less current portion................. 148,769 146,927
Long-term obligation...................................... 21,525 21,823
Deferred income taxes and other........................... 4,670 10,083
-------- --------
174,964 178,833
-------- --------
Total liabilities.................................. 389,630 382,032
Shareholders' equity:
Common stock and additional paid-in capital, 36,341,454
and 34,188,610 shares issued and outstanding at June 30,
1997 and December 31, 1996, respectively ............... 295,106 139,710
Retained earnings......................................... 30,180 11,513
Other equity.............................................. (6,350) (678)
-------- --------
Total shareholders' equity......................... 318,936 150,545
-------- --------
Total liabilities and shareholders' equity......... $708,566 $532,577
======== ========
</TABLE>

See accompanying notes.

36
<PAGE> 37

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

CONDENSED SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 24,342 $ 13,087
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 16,851 11,221
Change in operating assets and liabilities................ (15,891) (13,440)
Other..................................................... (3,422) (50)
Change in fiscal year of pooled entity.................... (581) (9,378)
-------- --------
Net cash provided by operating activities................... 21,299 1,440
INVESTING ACTIVITIES
Proceeds from disposition of property and equipment......... 626 34
Acquisition of businesses, net of cash acquired............. (3,504) (30,434)
Acquisition of property and equipment....................... (38,930) (16,987)
Security investments, net................................... (5,575) (46,132)
Payment of non-recurring transaction costs.................. (5,648) --
Change in fiscal year of pooled entity...................... (17) 2,606
-------- --------
Net cash used in investing activities....................... (53,048) (90,913)
FINANCING ACTIVITIES
Proceeds from borrowings and line of credit................. 5,938 141,137
Principal payments on credit arrangements................... (22,740) (4,731)
Issuance of debt for capitalization of pooled entity........ -- 45,197
Recapitalization of pooled entity........................... -- (29,230)
Proceeds from issuance of common stock...................... 93,304 1,475
Stock issuance costs........................................ (4,548) (78)
Non-equity dividend......................................... (1,563) --
Other....................................................... -- (218)
Change in fiscal year of pooled entity...................... 57 1,398
-------- --------
Net cash provided by financing activities................... 70,448 154,950
Effect of foreign currency exchange rate changes on cash.... (1,364) (402)
-------- --------
Increase in cash and cash equivalents....................... 37,335 65,075
Cash and cash equivalents at beginning of period............ 68,730 85,693
-------- --------
Cash and cash equivalents at end of period.................. $106,065 $150,768
======== ========
</TABLE>

See accompanying notes.

37
<PAGE> 38

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

NOTES TO CONDENSED SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended June
30, 1997 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1997. For further information, refer to the
supplemental consolidated financial statements included herein.

The balance sheet at December 31, 1996 has been derived from the audited
financial statements of the Company. The balance sheet does not include all of
the information and notes required by generally accepted accounting principles
for complete financial statements.

Net income per share is based on the weighted average number of shares of
common stock outstanding during each period. Weighted average shares outstanding
for the three and six month periods ended June 30 were as follows:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE SHARES
OUTSTANDING
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Three months ended June 30................................ 37,030,377 34,969,557
Six months ended June 30.................................. 36,485,459 34,914,138
</TABLE>

2. MERGERS

On August 29, 1997, the Company acquired Rapid Deployment Services and its
affiliated companies ("RDS"), South Africa's leading contract sales
organization, in exchange for 60,834 shares of the Company's Common Stock. The
acquisition has been accounted for as a pooling of interests, and as such, all
condensed supplemental consolidated financial data for periods subsequent to
January 1, 1997 have been restated to include the results of RDS. Since the
financial data of RDS prior to January 1, 1997 have no material impact on the
consolidated financial data previously reported by the Company, the consolidated
supplemental financial data presented for periods prior to January 1, 1997 have
not been restated to include the historical financial data of RDS.

On August 29, 1997, the Company acquired Clindepharm, International (Pty)
Limited ("Clindepharm") in exchange for 238,983 shares of the Company's Common
Stock. The acquisition has been accounted for as a pooling of interests, and as
such, all historical financial data have been restated to include the historical
financial data of Clindepharm since its inception in 1996.

On August 29, 1997, the Company acquired 100% of the capital stock of
Intelligent Imaging, Inc. ("Intelligent Imaging") in exchange for 85,940 shares
of the Company's Common Stock. The transaction has been accounted for as a
pooling of interests, and as such, all condensed consolidated supplemental
financial data for periods subsequent to January 1, 1997 have been restated to
include the results of Intelligent Imaging. Since the financial data of
Intelligent Imaging prior to January 1, 1997 have no material effect on the
consolidated financial data previously reported by the Company, the consolidated
supplemental financial data presented for periods prior to January 1, 1997 have
not been restated to include the historical financial data of Intelligent
Imaging.

38
<PAGE> 39

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

NOTES TO CONDENSED SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

On July 2, 1997, the Company acquired CerebroVascular Advances, Inc.
("CVA"), a CRO based in San Antonio, Texas that is a leader in stroke clinical
trials. The Company exchanged 233,968 shares of its Common Stock for all of
CVA's outstanding shares of capital stock and exchanged options exercisable for
17,019 shares of the Company's Common Stock. The acquisition was accounted for
as a pooling of interests, and accordingly, the Company has restated all
historical financial data to include the historical financial data of CVA.

On June 11, 1997, the Company acquired MAC, a leading international
strategic medical communications consultancy. The Company acquired all of the
stock of MAC for 565,697 shares of the Company's Common Stock. The Company also
granted stock options for 62,850 shares of the Company's Common Stock. The
acquisition has been accounted for as a pooling of interests, and as such, all
historical financial data have been restated to include the historical financial
data of MAC.

On June 2, 1997, the Company acquired Butler Communications Inc. ("Butler")
and its affiliated companies, including Butler Clinical Recruitment, Inc., which
specialize in communication programs to accelerate the recruitment of patients
for clinical trials. The Company acquired the Butler businesses in exchange for
214,305 shares of the Company's Common Stock. In addition, the Company assumed
approximately $2.8 million in existing Butler debt. The acquisition has been
accounted for as a pooling of interests, and as such, all consolidated
supplemental financial data for periods subsequent to January 1, 1997 have been
restated to include the results of Butler. Since the financial data of Butler
prior to January 1, 1997 have no material impact on the consolidated financial
data previously reported by the Company, the consolidated supplemental financial
data presented for periods prior to January 1, 1997 have not been restated to
include the historical financial data of Butler.

Reconciliation of results of operations previously reported by the separate
entities prior to the mergers and as restated for the combined company follows
(in thousands, except per share data):

<TABLE>
<CAPTION>
HISTORICAL SUPPLEMENTAL
COMPANY CVA CLINDEPHARM OTHER CONSOLIDATED
---------- ------ ----------- ----- ------------
<S> <C> <C> <C> <C> <C>
For the three months ended June 30,
1997:
Net revenue........................ $190,545 $1,459 $1,226 $950 $194,180
Net income (loss) available to
common shareholders.............. 12,225 272 382 (16) 12,863
Net income per share............... $ 0.34 $ 0.35
</TABLE>

<TABLE>
<CAPTION>
HISTORICAL SUPPLEMENTAL
COMPANY MAC CVA CLINDEPHARM OTHER CONSOLIDATED
---------- ------ ------ ----------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
For the six months ended
June 30, 1997:
Net revenue.............. $352,581 $7,151 $2,381 $2,326 $9,626 $374,065
Net income available to
shareholders........... 21,385* 1,294 331 694 638 24,342
Net income per share..... $ 0.61* $ 0.67
</TABLE>

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

* Includes approximately $800,000 of acquisition costs which are non-deductible
for tax purposes. Excluding these costs, the net income per share would have
been $0.63.

39
<PAGE> 40

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

NOTES TO CONDENSED SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

<TABLE>
<CAPTION>
HISTORICAL SUPPLEMENTAL
COMPANY MAC CVA CLINDEPHARM CONSOLIDATED
---------- ------ ------ ----------- ------------
<S> <C> <C> <C> <C> <C>
For the three months ended June
30, 1996:
Net revenue...................... $127,416 $2,217 $1,256 $439 $131,328
Net income available to common
shareholders................... 6,884 111 440 116 7,551
Net income per share............. $ 0.20 $ 0.22

For the six months ended June 30,
1996:
Net revenue...................... $238,008 $4,417 $2,277 $439 $245,141
Net income available to common
shareholders................... 11,320 220 693 116 12,349
Net income per share............. $ 0.33 $ 0.35
</TABLE>

3. SIGNIFICANT CUSTOMER

No customer accounted for greater than 10% of consolidated net revenue for
the three and six months ended June 30, 1997. One customer accounted for 11.9%
and 12.2% of consolidated net revenue for the three and six months ended June
30, 1996, respectively.

4. SHAREHOLDERS' EQUITY

On March 12, 1997, the Company closed a public offering of 5,520,000 shares
of Common Stock at a price to the public of $62.875 per share. Of the 5,520,000
shares sold, 1,415,000 shares were sold by the Company. Net proceeds to the
Company, which exclude underwriting discounts and offering expenses, amounted to
approximately $84.6 million.

5. INCOME TAXES

In the first quarter of 1997, the Company recorded an estimate of the
deferred tax asset related to tax basis goodwill created by the Innovex
acquisition, which is amortizable for U.S. tax purposes starting January 1,
1997. The gross amount of this deferred tax asset is estimated to be $99.5
million, for which a valuation allowance of $36.8 million was recorded to
reflect possible limitations in the use of these tax benefits. A corresponding
$62.7 million increase in additional paid in capital was recorded in accordance
with generally accepted accounting principles.

6. RECENTLY ISSUED ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings per Share" ("FASB 128"), which is required to be
adopted in December 1997. Upon adoption, the Company will be required to change
its method of computing, presenting and disclosing earnings per share
information, as well as, restating all prior periods presented. Under the new
requirements for calculating basic earnings per share, the dilutive effect of
stock options will be excluded. The impact is expected to result in an increase
in basic earnings per share for the three and six months ended June 30, 1997 and
1996. Under FASB 128, the primary earnings per share would have been $0.35 and
$0.23 for the three months ended June 30, 1997 and 1996, respectively and $0.68
and $0.37 for the six months ended June 30, 1997 and 1996, respectively. The
impact of FASB 128 on the calculation of fully diluted earnings per share for
these periods is not expected to be material.

40
<PAGE> 41

QUINTILES TRANSNATIONAL CORP. AND SUBSIDIARIES

NOTES TO CONDENSED SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

41
<PAGE> 42

ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.

Exhibit
Number Description of Exhibit
------- ----------------------

23.01 Consent of Ernst & Young LLP

23.02 Consent of Coopers & Lybrand L.L.P.

23.03 Consent of KPMG

27.01 Restated Financial Data Schedule (for SEC use only)

27.02 Restated Financial Data Schedule (for SEC use only)

27.03 Restated Financial Data Schedule (for SEC use only)

27.04 Restated Financial Data Schedule (for SEC use only)

27.05 Restated Financial Data Schedule (for SEC use only)

99.01 Report of Coopers & Lybrand L.L.P.

99.02 Report of KPMG

<PAGE> 43

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

QUINTILES TRANSNATIONAL CORP.

By: /s/ Rachel R. Selisker
------------------------
Dated: October 17, 1997 Rachel R. Selisker
Chief Financial Officer and Executive Vice
President Finance

<PAGE> 44

EXHIBIT INDEX

Exhibit
Number Description of Exhibit
- ------- ----------------------

23.01 Consent of Ernst & Young LLP

23.02 Consent of Coopers & Lybrand L.L.P.

23.03 Consent of KPMG

27.01 Restated Financial Data Schedule (for SEC use only)

27.02 Restated Financial Data Schedule (for SEC use only)

27.03 Restated Financial Data Schedule (for SEC use only)

27.04 Restated Financial Data Schedule (for SEC use only)

27.05 Restated Financial Data Schedule (for SEC use only)

99.01 Report of Coopers & Lybrand L.L.P.

99.02 Report of KPMG

<PAGE> 1

EXHIBIT 23.01

Consent of Independent Auditors

We consent to the incorporation by reference into the Company's Registration
Statements on Form S-8 (Registration Nos. 33-91026, 33-16553 and 333-03603) and
the Registration Statements on Form S-3 (Registration Nos. 333-19009 and
333-28919) of our report dated October 14, 1997 with respect to the supplemental
consolidated financial statements of Quintiles Transnational Corp. included in
its Current Report on Form 8-K dated October 17, 1997 filed with the Securities
and Exchange Commission.

/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP

Raleigh, North Carolina
October 14, 1997

<PAGE> 1

EXHIBIT 23.02

Consent of Independent Accountants

We consent to the incorporation by reference into the Quintiles Transnational
Corp. Registration Statements on Form S-8 (Registration Nos. 33-91026, 33-16553
and 333-03603) and the Registration Statements on Form S-3 (Registration Nos.
333-19009 and 333-28919) of our report dated May 15, 1996, on our audits of the
consolidated financial statements of BRI International, Inc. as of November 30,
1995 and 1994, and for the years then ended, which report is included in this
Current Report on Form 8-K filed with the Securities and Exchange Commission.

/s/ Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.

Rockville, Maryland
October 17, 1997

<PAGE> 1

EXHIBIT 23.03

Consent of Independent Auditors

We consent to the incorporation by reference into the Registration Statements
of Quintiles Transnational Corp. on Form S-8 (Registration Nos. 33-91026,
33-16553 and 333-03603) and the Registration Statements on Form S-3
(Registration Nos. 333-19009 and 333-28919) of our report dated July 24, 1996,
with respect to the consolidated financial statements of Innovex Companies,
which report is included in this Current Report on Form 8-K filed with the
Securities and Exchange Commission.

/s/ KPMG
---------------------
KPMG

Reading, England
14 October 1997

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF QUINTILES TRANSPORTATION CORP. FOR THE YEAR ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 68,730
<SECURITIES> 37,623
<RECEIVABLES> 183,288
<ALLOWANCES> 2,046
<INVENTORY> 0
<CURRENT-ASSETS> 302,509
<PP&E> 180,523
<DEPRECIATION> 55,289
<TOTAL-ASSETS> 532,577
<CURRENT-LIABILITIES> 203,199
<BONDS> 168,750
0
0
<COMMON> 342
<OTHER-SE> 150,203
<TOTAL-LIABILITY-AND-EQUITY> 532,577
<SALES> 0
<TOTAL-REVENUES> 554,227
<CGS> 0
<TOTAL-COSTS> 511,791
<OTHER-EXPENSES> 10,013
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,526
<INCOME-PRETAX> 22,897
<INCOME-TAX> 14,015
<INCOME-CONTINUING> 8,882
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,097
<EPS-PRIMARY> .20
<EPS-DILUTED> 0

</TABLE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF QUINTILES TRANSPORTATION CORPORATION FOR THE 9 MONTHS
PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 387,057
<CGS> 0
<TOTAL-COSTS> 351,518
<OTHER-EXPENSES> (1,267)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,824
<INCOME-PRETAX> 33,982
<INCOME-TAX> 11,764
<INCOME-CONTINUING> 22,218
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,218
<EPS-PRIMARY> .60
<EPS-DILUTED> 0

</TABLE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF QUINTILES TRANSPORTATION CORPORATION FOR THE 6 MONTHS
ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 245,141
<CGS> 0
<TOTAL-COSTS> 224,262
<OTHER-EXPENSES> (2,295)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,824
<INCOME-PRETAX> 20,351
<INCOME-TAX> 7,264
<INCOME-CONTINUING> 13,087
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,087
<EPS-PRIMARY> .35
<EPS-DILUTED> 0

</TABLE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF QUINTILES TRANSPORTATION CORPORATION FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 106,065
<SECURITIES> 29,297
<RECEIVABLES> 209,015
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 367,323
<PP&E> 223,761
<DEPRECIATION> 69,632
<TOTAL-ASSETS> 708,566
<CURRENT-LIABILITIES> 214,666
<BONDS> 148,769
363
0
<COMMON> 0
<OTHER-SE> 318,573
<TOTAL-LIABILITY-AND-EQUITY> 708,566
<SALES> 0
<TOTAL-REVENUES> 374,065
<CGS> 0
<TOTAL-COSTS> 334,023
<OTHER-EXPENSES> (3,145)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,201
<INCOME-PRETAX> 38,986
<INCOME-TAX> 14,644
<INCOME-CONTINUING> 24,342
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,342
<EPS-PRIMARY> .67
<EPS-DILUTED> 0

</TABLE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF QUINTILES TRANSPORTATION CORPORATION FOR THE SIX MONTHS
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 179,885
<CGS> 0
<TOTAL-COSTS> 160,954
<OTHER-EXPENSES> (1,931)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,654
<INCOME-PRETAX> 18,208
<INCOME-TAX> 6,729
<INCOME-CONTINUING> 11,479
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,479
<EPS-PRIMARY> .32
<EPS-DILUTED> 0

</TABLE>

<PAGE> 1

EXHIBIT 99.01

[Coopers & Lybrand logo]

Report of Independent Accountants

To the Board of Directors
of BRI International, Inc.

We have audited the accompanying consolidated balance sheet of BRI
International, Inc., formerly Biometric Research Institute, Inc., (the Company)
as of November 30, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years 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 conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of BRI
International, Inc. as of November 30, 1995 and 1994, and the consolidated
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.

Certain stockholders' equity amounts as of November 30, 1993 have been
restated to give effect to the pooling of interests described in Note 3 and to
correct for prior period adjustments described in Note 12.

/s/ Coopers & Lybrand L.L.P.

Rockville, Maryland
May 15, 1996

<PAGE> 1

EXHIBIT 99.02

INDEPENDENT AUDITORS' REPORT

To the Shareholders and Board of Directors of
Innovex PLC and Innovex Holdings Limited

We have audited the combined balance sheets of the Innovex Companies, which
comprise a combination of Innovex PLC and Innovex Holdings Limited and its
subsidiaries, as at March 31, 1995 and 1996 and the related combined income
statements and statements of cash flows for each of the years in the three-year
period ended March 31, 1996. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.

We conducted our audits in accordance with auditing standards in the United
Kingdom and the United States of America. 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, amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the aforementioned combined financial statements present
fairly, in all material respects, the financial position of the Innovex
Companies, as at March 31, 1995 and 1996 and the results of their operations and
their cash flows for each of the years in the three-year period ended March 31,
1996 in conformity with generally accepted accounting principles in the United
Kingdom.

Generally accepted accounting principles in the United Kingdom vary in
certain significant respects from generally accepted accounting principles in
the United States. Application of generally accepted accounting principles in
the United States would have affected the results of operations and
shareholders' equity as at and for the years ended March 31, 1995 and 1996, to
the extent summarized in Note 27 to the combined financial statements.

Reading, England KPMG
24 July 1996 Chartered Accountants
Registered Auditors