January 24, 2013 at 16:03 PM EST
Covance Reports Fourth Quarter Pro Forma Net Revenue Of $561 Million, Pro Forma EPS Of $0.73 And Adjusted Net Orders Of $769 Million
-- Issues FY2013 Pro Forma EPS Target of $2.85 to $3.15 --

PRINCETON, N.J., Jan. 24, 2013 /PRNewswire/ -- Covance Inc. (NYSE: CVD) today reported results for its fourth quarter and year ended December 31, 2012.  On a GAAP basis, net revenue was $562 million in the fourth quarter and $2,181 million for the full year.  Excluding revenue from facilities that were closed in 2012, pro forma net revenue was $561 million in the fourth quarter and $2,172 million for the full year.  On a GAAP basis, the company reported earnings of $0.61 per diluted share in the fourth quarter.  Excluding losses from facilities that were closed in 2012, restructuring costs and other items during the quarter, the company reported earnings per diluted share of $0.73.  For the full year, diluted earnings per share on a GAAP basis were $1.68.  Excluding losses from facilities closed in 2012, restructuring costs and other charges and favorable income tax developments during the year, the company reported earnings per diluted share of $2.70.

"In 2012, Covance took several important actions which are expected to drive future EPS growth, including reducing our preclinical capacity and overhead cost structure, advancing our strategic IT initiatives, and repurchasing over 10% of our outstanding shares. In addition, our intensified selling efforts led to record adjusted net orders for the year of $2.87 billion, a year-on-year increase of 13.5%, resulting in an adjusted net book-to-bill of 1.32 to 1 for the year," said Joe Herring, Chairman and Chief Executive Officer.  "For the fourth quarter, pro forma revenue of $561 million and pro forma earnings per share of $0.73 were better than expected primarily due to significantly higher kit volumes in central laboratories and continued strength in clinical development. Adjusted net orders in the fourth quarter were a record $769 million, representing an adjusted book-to-bill of 1.37 to 1.

"Late-Stage Development fourth quarter revenues grew 15.7% year-on-year to $345 million. This increase was led by 22% growth in clinical development and 16% growth in central laboratories, which more than offset a decline in our market access services. Late-Stage Development pro forma operating margins increased 130 basis points both year-on-year and sequentially to 21.3%.  In Early Development, pro forma revenue of $216 million and pro forma operating margin of 12.0% declined modestly from the third quarter level on lower demand for discovery support services.

"Looking ahead to 2013, for the full year, we are forecasting mid- to high-single digit year-on-year revenue growth and pro forma diluted earnings per share, which exclude costs from ongoing restructuring activities, in the range of $2.85 to $3.15 (assuming foreign exchange rates remain at year-end 2012 levels).  In the first quarter of 2013, we expect revenue to be up slightly from the fourth quarter level and pro forma earnings per share to be in the range of $0.71 to $0.73 as we forecast an increase in Late-Stage Development net revenues and earnings to be off-set by seasonally-lower first quarter Early Development results." 

Consolidated Results

($ in millions except EPS)

4Q12

4Q11

Change

FY12

FY11

Change

Total Revenues

$609.1

$582.4


$2,365.7

$2,236.4


Less: Reimbursable Out-of-Pockets 

$46.9

$49.9


$185.1

$140.5


Net Revenues

$562.2

$532.5

5.6%

$2,180.6

$2,095.9

4.0%

Operating Income

$43.1

$39.0

10.6%

$115.9

$180.6

(35.8%)

   Operating Margin

7.7%

7.3%


5.3%

8.6%


Net Income

$33.9

$21.1

60.3%

$94.7

$132.2

(28.3%)

Diluted Earnings per Share

$0.61

$0.35

77.5%

$1.68

$2.16

(22.2%)

Revenue from facilities closed in 2012**

$1.5

-


$8.8

-


Net Revenue, continuing ops*

$560.7

$532.5

5.3%

$2,171.9

$2,236.4

3.6%

Restructuring costs and other items

($6.6)

($19.0)


($73.1)

($34.7)


Loss from facilities closed in 2012**

($2.9)

-


($9.3)

-


Operating Income, excluding items*

$52.5

$57.9

(9.3%)

$198.2

$215.3

(7.9%)

  Operating Margin, excluding items*

9.4%

10.9%


9.1%

10.3%


Impairment of Equity Investment

-

($12.1)


($7.4)

($12.1)


Gain on Sale of Investment

-

-


$1.5

-


Favorable Income Tax Developments

-

$1.8


$11.5

$2.5


Net Income, excluding items*

$40.3

$44.6

(9.5%)

$151.9

$165.0

(7.9%)

Diluted EPS, excluding items*

$0.73

$0.73

0.1%

$2.70

$2.70

(0.1%)

 * See attached pro forma income statement for reconciliation of 2012 & 2011 GAAP to pro forma amounts.

 ** Facilities closed in 2012  include Chandler, Honolulu and Basel.

Operating Segment Results

Early Development

($ in millions)

4Q12

4Q11

Change

FY12

FY11

Change

Net Revenues

$217.4

$234.5

(7.3%)

$869.5

$930.6

(6.6%)

Operating Income

$18.7

$17.7

5.8%

$4.0

$105.3

(96.2%)

Operating Margin

8.6%

7.5%


0.5%

11.3%


Revenue from facilities closed in 2012**

$1.5

-


$8.8

-


Net Revenue, continuing ops

$215.9

$234.5

(7.9%)

$860.8

$930.6

(7.5%)

Restructuring costs and other items

($4.3)

($15.0)


($69.5)

($21.7)


Loss from facilities closed in 2012**

($2.9)

-


($9.3)

-


Operating Income, excluding items

$25.9

$32.6

(20.7%)

$82.7

$127.0

(34.9%)

Operating Margin, excluding items

12.0%

13.9%


9.6%

13.7%


** Facilities closed in 2012 include Chandler, Honolulu and Basel.

The Early Development segment includes preclinical toxicology, analytical chemistry, clinical pharmacology, discovery support, and research products.  Net revenues in the fourth quarter of 2012 declined 7.3% year-on-year on a GAAP basis to $217.4 million and 7.9% on a pro forma basis to $215.9 million, due to the following: declines in toxicology, discovery support, and clinical pharmacology; the impact of the sale of environmental services (which had contributed approximately $2.0 million in quarterly revenue); and the closure of sites in 2012. In the quarter, foreign exchange had a 20 basis point year-on-year favorable impact. Sequentially, pro forma revenues decreased $1.9 million on a decline in discovery support. Toxicology revenues were flat sequentially.

GAAP operating income in the fourth quarter of 2012 was $18.7 million, and included $4.3 million in costs associated with our on-going restructuring actions and $2.9 million in losses at closed facilities. GAAP operating income for the fourth quarter of 2011 was $17.7 million, and included $15.0 million in restructuring costs.  Pro forma operating income, excluding these items, was $25.9 million in the fourth quarter of this year, versus $26.9 million last quarter and $32.6 million in the fourth quarter of 2011. Pro forma operating margins were 12.0% for the fourth quarter of this year, versus 12.4% last quarter and compared to 13.9% in the fourth quarter of 2011. Sequentially, pro forma operating income decreased primarily due to a decline in profitability in discovery support.  

Late-Stage Development

($ in millions)

4Q12

4Q11

Change

FY12

FY11

Change

Net Revenues

$344.8

$298.0

15.7%

$1,311.1

$1,165.4

12.5%

Operating Income

$72.7

$58.2

24.8%

$277.6

$226.3

22.7%

Operating Margin

21.1%

19.5%


21.2%

19.4%


Restructuring Costs

($0.7)

($1.3)


($1.3)

($5.0)


Operating Income, excluding items

$73.4

$59.5

23.3%

$278.8

$231.3

20.6%

Operating Margin, excluding items

21.3%

20.0%


21.3%

19.8%


The Late-Stage Development segment includes central laboratory, Phase IIb-IV clinical development, and market access services.  Net revenues for the fourth quarter of 2012 grew 15.7% year-on-year to $344.8 million, a sequential increase of $20.7 million from the third quarter level. In the quarter, foreign exchange negatively impacted year-on-year revenue growth by 130 basis points. Year-over-year growth was driven by both the continued strong performance in clinical development, where net revenue was up 22%, and a strong increase in central labs, where net revenue was up 16%, which more than offset a year-over-year decline in market access services net revenue. Sequentially, the increase in net revenue was led by central laboratory followed by clinical development and then by market access services.  Central laboratory had an increase in kit volumes for the fifth consecutive quarter.

Operating income for the fourth quarter was $72.7 million on a GAAP basis and $73.4 million on a pro forma basis.  This represents growth of 24.8% and 23.3%, respectively, compared to the fourth quarter of the prior year and a significant increase from the $64.4 million on a GAAP basis and $64.8 million on a pro forma basis last quarter. Pro forma operating margins expanded to 21.3% for the fourth quarter of 2012, up from pro forma operating margins of 20.0% both last quarter and in the fourth quarter of 2011. The year-on-year and sequential increases in profitability were driven by operating leverage in both clinical development and central laboratories, which more than offset increased spending on strategic IT projects.

Corporate Information

The company reported fourth quarter adjusted net orders of $769 million. Backlog at December 31, 2012 was $6.64 billion compared to $6.37 billion at September 30, 2012 and $6.14 billion at December 31, 2011. Foreign exchange favorably impacted backlog sequentially by $44 million.  In addition, contributing $110 million to fourth quarter backlog growth (but excluded from adjusted net orders) was the extension of a contractual minimum volume commitment and the addition of a small new minimum volume commitment.

Corporate expenses totaled $48.3 million in the fourth quarter of 2012 (including $1.5 million in restructuring costs) compared to $40.9 million last quarter (including $0.5 million in restructuring costs) and $37.0 million in the fourth quarter of 2011 (including $2.7 million in restructuring costs). The largest driver of the sequential increase in corporate expenses was spending on our corporate data center consolidation, one of our strategic IT initiatives, coupled with increased incentive compensation accruals related to stronger business performance toward year end.

Cash and cash equivalents at December 31, 2012 were $493 million compared to $441 million at September 30, 2012 and $389 million at December 31, 2011.  Debt outstanding is now $320 million, originating from borrowings related to our share repurchase program.

Free cash flow (defined as operating cash flow less capital expenditures) for the fourth quarter of 2012 was $61 million, consisting of operating cash flow of $107 million less capital expenditures of $46 million.  Free cash flow for full-year 2012 was $108 million, consisting of operating cash flow of $260 million less capital expenditures of $152 million.  

Net Days Sales Outstanding (DSO) were 36 days at December 31, 2012 compared to 38 days at both September 30, 2012 and December 31, 2011.

The Company's investor conference call will be webcast on January 25 at 9:00 am ET.  Management's commentary and presentation slides will be available through www.covance.com

Covance, with headquarters in Princeton, New Jersey, is one of the world's largest and most comprehensive drug development services companies with annual revenues of approximately $2.2 billion, global operations in more than 30 countries, and more than 11,750 employees worldwide.  Information on Covance's products and services, recent press releases, and SEC filings can be obtained through its website at www.covance.com.

Statements contained in this press release, which are not historical facts, such as statements about prospective earnings, savings, revenue, operations, revenue and earnings growth and other financial results are forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  All such forward-looking statements including the statements contained herein regarding anticipated trends in the Company's business are based largely on management's expectations and are subject to and qualified by risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.  These risks and uncertainties include, without limitation, competitive factors, outsourcing trends in the pharmaceutical industry, levels of industry research and development spending, the Company's ability to continue to attract and retain qualified personnel, the fixed price nature of contracts or the loss or delay of large studies, risks associated with acquisitions and investments, the Company's ability to increase order volume, the pace of translation of orders into revenue in late-stage development services, testing mix and geographic mix of kit receipts in central laboratories,  fluctuations in currency exchange rates, the realization of savings from the Company's announced restructuring actions, the cost and pace of completion of our information technology projects and the realization of benefits therefrom,  and other factors described in the Company's filings with the Securities and Exchange Commission including its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.  The Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations.

Financial Exhibits Follow

COVANCE INC.












CONSOLIDATED INCOME STATEMENTS












FOR THE THREE MONTHS AND YEARS ENDED DECEMBER 31, 2012 AND 2011












(Dollars in thousands, except per share data)
























Three Months Ended December 31


Years Ended December 31




2012


2011


2012


2011




(UNAUDITED)














Net revenues


$       562,180


$         532,478


$   2,180,621


$   2,095,938


Reimbursable out-of-pocket expenses


46,964


49,907


185,138


140,508


     Total revenues


609,144


582,385


2,365,759


2,236,446












Costs and expenses:










  Cost of revenue


395,841


371,852


1,570,223


1,467,051


  Reimbursable out-of-pocket expenses


46,964


49,907


185,138


140,508


  Selling, general and administrative


92,823


95,752


358,854


343,044


  Depreciation and amortization


30,423


25,923


117,708


105,214


  Goodwill impairment charge


-


-


17,959


-


        Total costs and expenses


566,051

(a)

543,434

(c)

2,249,882

(b)

2,055,817

(d)











Income from operations


43,093

(a)

38,951

(c)

115,877

(b)

180,629

(d)











Other expense, net:










  Interest expense, net


1,153


339


3,506


1,979


  Foreign exchange transaction loss, net


173


356


1,474


1,248


  Impairment of equity investment


-


12,119


7,373


12,119


  Gain on sale of investment


-


-


(1,459)


-


  Loss on sale of business


-


-


169


-


        Other expense, net


1,326


12,814

(c)

11,063


15,346

(d)











Income before taxes and equity investee earnings


41,767

(a)

26,137

(c)

104,814

(b)

165,283

(d)











Taxes on income


7,870

(a)

5,172

(c)

10,099

(b)

33,574

(d)











Equity investee earnings


-


175


17


480












Net income 


$         33,897

(a)

$           21,140

(c)

$         94,732

(b)

$       132,189

(d)











Basic earnings per share


$             0.63

(a)

$                0.35

(c)

$             1.73

(b)

$             2.22

(d)











Weighted average shares outstanding - basic


53,698,334


59,730,270


54,844,641


59,629,788












Diluted earnings per share


$             0.61

(a)

$                0.35

(c)

$             1.68

(b)

$             2.16

(d)











Weighted average shares outstanding - diluted


55,197,968


61,080,387


56,290,010


61,091,354












(a) Three months ended December 31, 2012 include, as applicable, $10,191 in restructuring costs ($6,968 net of tax), $3,613 favorable inventory 


      adjustment ($2,502 net of tax) and $2,850 in losses at sites that were closed during the period ($1,966 net of tax).





(b) Year ended December 31, 2012 includes, as applicable, $33,930 in restructuring costs ($23,145 net of tax), $21,168 in inventory impairment charges 


      and costs associated with the expected settlement of an inventory supply agreement ($14,645 net of tax), $17,959 of goodwill impairment charges ($17,959

       net of tax), $7,373 of impairment of equity investment ($7,373 net of tax), $9,274 in losses at sites that were closed during the year ($6,533 net of tax), $1,459 

       gain on sale of investment ($945 net of tax) and favorable income tax items totaling $11,501.






(c) Three months ended December 31, 2011 include, as applicable, $8,667 in restructuring costs ($5,961 net of tax), $10,287 in costs associated with the termination 

       of an inventory supply agreement and related inventory write-down ($7,130 net of tax), $12,119 impairment of equity investment ($12,119 net of tax) and 


      favorable income tax items totaling $1,769.










(d) Year ended December 31, 2011 includes, as applicable, $24,369 in restructuring costs ($16,067 net of tax), $10,287 in costs associated with the termination of 

      an inventory supply agreement and related inventory write-down ($7,130 net of tax), $12,119 impairment of equity investment ($12,119 net of tax) and 


      favorable income tax items totaling $2,469.






























Excluding the impact of restructuring charges, impairment charges, costs associated with the expected settlement of an inventory supply 

agreement, losses at sites that were closed during the period, gain on sale of investment and favorable tax items, as applicable:












Income from operations


$         52,521


$           57,905


$       198,208


$       215,285












Taxes on income


$         10,866


$           12,804


$         41,135


$         47,502












Net income 


$         40,329


$           44,581


$       151,941


$       165,036












Basic earnings per share


$             0.75


$                0.75


$             2.77


$             2.77












Diluted earnings per share


$             0.73


$                0.73


$             2.70


$             2.70












COVANCE INC.







CONSOLIDATED BALANCE SHEETS







DECEMBER 31, 2012 and DECEMBER 31, 2011







(Dollars in thousands)
















December 31


December 31




2012


2011







ASSETS





Current Assets:






Cash & cash equivalents


$       492,824


$       389,103


Accounts receivable, net


339,558


312,127


Unbilled services


136,878


114,095


Inventory


49,270


74,698


Deferred income taxes


44,903


52,078


Income taxes receivable


3,642


-


Prepaid expenses and other current assets


167,629


144,809


    Total Current Assets


1,234,704


1,086,910







Property and equipment, net


891,319


849,551

Goodwill


109,820


127,779

Other assets


52,499


43,768


    Total Assets


$   2,288,342


$   2,108,008







LIABILITIES and STOCKHOLDERS' EQUITY





Current Liabilities:






Accounts payable


$         34,430


$         36,393


Accrued payroll and benefits


144,681


142,229


Accrued expenses and other current liabilities


127,686


119,308


Unearned revenue


255,776


202,210


Short-term debt 


320,000


30,000


Income taxes payable


-


6,889


    Total Current Liabilities


882,573


537,029







Deferred income taxes


27,912


42,295

Other liabilities


70,665


70,889


    Total Liabilities


981,150


650,213







Stockholders' Equity:






Common stock


791


781


Paid-in capital


744,114


689,584


Retained earnings


1,600,626


1,505,894


Accumulated other comprehensive income


28,520


4,622


Treasury stock


(1,066,859)


(743,086)


    Total Stockholders' Equity


1,307,192


1,457,795


    Total Liabilities and Stockholders'  Equity


$   2,288,342


$   2,108,008







 

COVANCE INC.






CONSOLIDATED STATEMENTS OF CASH FLOWS






FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011






(Dollars in thousands)













Years Ended December 31








2012


2011

Cash flows from operating activities:





  Net income


$           94,732


$         132,189

  Adjustments to reconcile net income to net cash provided by





    operating activities:





    Depreciation and amortization


117,708


105,214

    Non-cash impairment charges


41,736


12,119

    Non-cash compensation expense associated with employee benefit





       and stock compensation plans


40,759


40,057

    Deferred income tax benefit


(8,404)


(6,128)

    Gain on sale of investment


(1,459)


-

    Loss on sale of business


169


-

    Loss on disposal of property and equipment


1,181


1,618

    Equity investee earnings


(17)


(480)

    Changes in operating assets and liabilities, net of businesses sold





       and acquired:





       Accounts receivable


(28,541)


(50,754)

       Unbilled services


(23,419)


(23,366)

       Inventory


10,918


8,226

       Accounts payable


(1,963)


2,297

       Accrued liabilities


8,205


56,409

       Unearned revenue


54,998


15,909

       Income taxes


(10,522)


(21,070)

       Other assets and liabilities, net


(35,920)


(28,762)

Net cash provided by operating activities


260,161


243,478






Cash flows from investing activities:





  Capital expenditures


(151,679)


(134,633)

  Proceeds from sale of investment


4,682


-

  Other, net


1,017


(219)

Net cash used in investing activities


(145,980)


(134,852)






Cash flows from financing activities:





  Net borrowings (repayments) under revolving credit facility


290,000


(5,000)

  Repayments under long-term debt


-


(97,500)

  Stock issued under employee stock purchase and option plans


13,772


9,325

  Purchase of treasury stock


(323,773)


(8,810)

Net cash used in financing activities


(20,001)


(101,985)

Effect of exchange rate changes on cash


9,541


5,239

Net change in cash and cash equivalents


103,721


11,880






Cash and cash equivalents, beginning of period


389,103


377,223






Cash and cash equivalents, end of period


$         492,824


$         389,103






 

COVANCE INC.











GAAP to Pro Forma Reconciliation











Q4 2012











(Dollars in thousands, except per share data)











(UNAUDITED)














Adjustments



GAAP


 Restructuring Activities (1)


Other
Items (2)


Operating Results at Sites Wound-Down (3)


Pro Forma











Net revenues

$     562,180






$          (1,498)


$     560,682

Reimbursable out-of-pocket expenses

46,964








46,964

     Total revenues

609,144


-


-


(1,498)


607,646











Costs and expenses:










  Cost of revenue

395,841




3,613


(3,697)


395,757

  Reimbursable out-of-pocket expenses

46,964








46,964

  Selling, general and administrative

92,823


(9,013)




(117)


83,693

  Depreciation and amortization

30,423


(1,178)




(534)


28,711

  Goodwill impairment charge

-




-




-

        Total costs and expenses

566,051


(10,191)


3,613


(4,348)


555,125











Income from operations

43,093


10,191


(3,613)


2,850


52,521











Other expense, net:










  Interest expense, net

1,153








1,153

  Foreign exchange transaction loss, net

173








173

  Impairment of equity investment

-








-

  Gain on sale of investment

-








-

  Loss on sale of business

-








-

        Other expense, net

1,326


-


-


-


1,326











Income before taxes and equity investee earnings

41,767


10,191


(3,613)


2,850


51,195











Taxes on income

7,870


3,223


(1,111)


884


10,866











Equity investee earnings

-








-











Net income 

$       33,897


$            6,968


$          (2,502)


$            1,966


$       40,329











Basic earnings per share

$            0.63


$              0.13


$             (0.05)


$              0.04


$            0.75











Weighted average shares outstanding - basic

53,698,334


53,698,334


53,698,334


53,698,334


53,698,334











Diluted earnings per share

$            0.61


$              0.13


$             (0.05)


$              0.04


$            0.73











Weighted average shares outstanding - diluted

55,197,968


55,197,968


55,197,968


55,197,968


55,197,968





















(1) Represents costs incurred to better align capacity to preclinical market demand and reduce overall cost structure.

(2) Reduction of inventory impairment based upon determination of actual impaired inventory.







(3) Represents results of operations at sites that were closed during the period.

















 

COVANCE INC.











GAAP to Pro Forma Reconciliation











Q4 2011











(Dollars in thousands, except per share data)











(UNAUDITED)














Adjustments




GAAP


 Restructuring Activities (1)


Other
Charges (2)


Income Tax Items (3)


Pro Forma











Net revenues

$     532,478








$     532,478

Reimbursable out-of-pocket expenses

49,907








49,907

     Total revenues

582,385


-


-


-


582,385











Costs and expenses:










  Cost of revenue

371,852








371,852

  Reimbursable out-of-pocket expenses

49,907








49,907

  Selling, general and administrative

95,752


(8,754)


(10,287)




76,711

  Depreciation and amortization

25,923


87






26,010

        Total costs and expenses

543,434


(8,667)


(10,287)


-


524,480











Income from operations

38,951


8,667


10,287


-


57,905











Other expense, net:










  Interest expense, net

339








339

  Foreign exchange transaction loss, net

356








356

  Impairment of equity investment

12,119




(12,119)




-

        Other expense, net

12,814


-


(12,119)


-


695











Income before taxes and equity investee earnings

26,137


8,667


22,406


-


57,210











Tax expense

5,172


2,706


3,157


1,769


12,804











Equity investee earnings

175








175











Net income 

$       21,140


$            5,961


$          19,249


$          (1,769)


$       44,581











Basic earnings per share

$            0.35


$              0.10


$              0.32


$             (0.03)


$            0.75











Weighted average shares outstanding - basic

59,730,270


59,730,270


59,730,270


59,730,270


59,730,270











Diluted earnings per share

$            0.35


$              0.10


$              0.32


$             (0.03)


$            0.73











Weighted average shares outstanding - diluted

61,080,387


61,080,387


61,080,387


61,080,387


61,080,387





















(1) Represents costs incurred in connection with capacity rationalization, streamlining operations and other cost reduction actions.

(2) Represents costs incurred in connection with termination of an inventory supply agreement and related inventory write-down and 

      an impairment of a related equity investment.










(3) Represents favorable resolutions of income tax matters.









 

COVANCE INC.















GAAP to Pro Forma Reconciliation















For the year ended December 31, 2012















(Dollars in thousands, except per share data)















(UNAUDITED)


















Adjustments




GAAP


 Restructuring Activities (1)


Other
Items (2)


Operating Results at Sites Wound-Down (3)


Income Tax Items (4)


Pro Forma















Net revenues

$      2,180,621






$          (8,754)




$  2,171,867


Reimbursable out-of-pocket expenses

185,138










185,138


     Total revenues

2,365,759


-


-


(8,754)


-


2,357,005















Costs and expenses:













  Cost of revenue

1,570,223




(21,168)


(15,180)




1,533,875


  Reimbursable out-of-pocket expenses

185,138










185,138


  Selling, general and administrative

358,854


(30,460)




(501)




327,893


  Depreciation and amortization

117,708


(3,470)




(2,347)




111,891


  Goodwill impairment charge

17,959




(17,959)






-


        Total costs and expenses

2,249,882


(33,930)


(39,127)


(18,028)


-


2,158,797















Income from operations

115,877


33,930


39,127


9,274


-


198,208















Other expense, net:













  Interest expense, net

3,506










3,506


  Foreign exchange transaction loss, net

1,474










1,474


  Impairment of equity investment

7,373




(7,373)






-


  Gain on sale of investment

(1,459)




1,459






-


  Loss on sale of business

169










169


        Other expense, net

11,063


-


(5,914)


-


-


5,149















Income before taxes and equity investee earnings

104,814


33,930


45,041


9,274


-


193,059















Taxes on income

10,099


10,785


6,009


2,741


11,501


41,135















Equity investee earnings

17










17















Net income 

$           94,732


$          23,145


$          39,032


$            6,533


$        (11,501)


$     151,941















Basic earnings per share

$                1.73


$              0.42


$              0.71


$              0.12


$             (0.21)


$            2.77















Weighted average shares outstanding - basic

54,844,641


54,844,641


54,844,641


54,844,641


54,844,641


54,844,641















Diluted earnings per share

$                1.68


$              0.41


$              0.69


$              0.12


$             (0.20)


$            2.70















Weighted average shares outstanding - diluted

56,290,010


56,290,010


56,290,010


56,290,010


56,290,010


56,290,010




























(1) Represents costs incurred to better align capacity to preclinical market demand and reduce overall cost structure.

(2) Consists of inventory impairment and costs associated with the expected settlement of an inventory supply agreement ($21,168), goodwill impairment ($17,959), 

      impairment of equity investment ($7,373) and a gain on the sale of an investment $1,459.










(3) Represents results of operations at sites that were closed during the period.










(4) Primarily represents favorable resolutions of income tax matters.

























 

COVANCE INC.











GAAP to Pro Forma Reconciliation











For the year ended December 31, 2011











(Dollars in thousands, except per share data)











(UNAUDITED)














Adjustments




GAAP


 Restructuring Activities (1)


Other
Charges (2)


Income Tax Items (3)


Pro Forma











Net revenues

$  2,095,938








$  2,095,938

Reimbursable out-of-pocket expenses

140,508








140,508

     Total revenues

2,236,446


-


-


-


2,236,446











Costs and expenses:










  Cost of revenue

1,467,051








1,467,051

  Reimbursable out-of-pocket expenses

140,508








140,508

  Selling, general and administrative

343,044


(22,592)


(10,287)




310,165

  Depreciation and amortization

105,214


(1,777)






103,437

        Total costs and expenses

2,055,817


(24,369)


(10,287)


-


2,021,161











Income from operations

180,629


24,369


10,287


-


215,285











Other expense, net:










  Interest expense, net

1,979








1,979

  Foreign exchange transaction loss, net

1,248








1,248

  Impairment of equity investment

12,119




(12,119)




-

        Other expense, net

15,346


-


(12,119)


-


3,227











Income before taxes and equity investee earnings

165,283


24,369


22,406


-


212,058











Tax expense

33,574


8,302


3,157


2,469


47,502











Equity investee earnings

480








480











Net income 

$     132,189


$          16,067


$          19,249


$          (2,469)


$     165,036











Basic earnings per share

$            2.22


$              0.27


$              0.32


$             (0.04)


$            2.77











Weighted average shares outstanding - basic

59,629,788


59,629,788


59,629,788


59,629,788


59,629,788











Diluted earnings per share

$            2.16


$              0.26


$              0.32


$             (0.04)


$            2.70











Weighted average shares outstanding - diluted

61,091,354


61,091,354


61,091,354


61,091,354


61,091,354





















(1) Represents costs incurred in connection with capacity rationalization, streamlining operations and other cost reduction actions.

(2) Represents costs incurred in connection with termination of an inventory supply agreement and related inventory write-down and 

      an impairment of a related equity investment.










(3) Represents favorable resolutions of income tax matters.



















 

SOURCE Covance Inc.

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