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Microsoft Cloud Authors: Liz McMillan, Greg O'Connor, Aleksei Gavrilenko, Elizabeth White, Pat Romanski

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Covance Reports Third Quarter Pro Forma Net Revenue Of $542 Million, Pro Forma EPS Of $0.72 And Adjusted Net Orders Of $701 Million

-- FY2012 Pro Forma EPS Target now $2.65 to $2.70 versus previous range of $2.50 to $2.70 --

PRINCETON, N.J., Nov. 5, 2012 /PRNewswire/ -- Covance Inc. (NYSE: CVD) today reported results for its third quarter ended September 30, 2012.  On a GAAP basis, net revenue was $545 million.  Excluding revenue from facilities in wind-down, pro forma net revenue was $542 million.  On a GAAP basis, the company reported earnings of $0.69 per diluted share in the third quarter.  Excluding losses from facilities in wind-down, restructuring costs and other charges and favorable income tax developments during the quarter, the company reported earnings per diluted share of $0.72.

"Third quarter pro forma earnings were better than expected, increasing $0.07 sequentially, due to significantly improved profitability in toxicology coupled with continued strong performances in clinical development and central laboratories. Our performance this quarter demonstrates the leverage in our scalable business model when commercial success is combined with our lower cost infrastructure," said Joe Herring, Chairman and Chief Executive Officer.  "On the sales front, clinical development and central laboratories continued to deliver strong new orders, driving adjusted net orders of $701 million and an adjusted book-to-bill of 1.29 to 1.  We continue to have significant pending proposals. In addition, our strategic information technology projects continue to progress on-time and on-budget.

"Late-Stage Development revenues grew 6.9% year-on-year, or 13.1% on a constant currency basis. Revenue growth was led by 18% growth in clinical development and continued year-on-year and sequential growth in central laboratories, which more than offset a decline in our market access services. Pro forma operating margins increased 70 basis points year-on-year to 20.0%, but declined as expected from the second quarter level on increased spending on strategic IT projects, continued hiring in clinical development, and lower profitability in market access services, all of which offset sequential operating margin expansion in central laboratories.

"In Early Development, pro forma revenue and earnings improved sequentially for the second consecutive quarter. Pro forma net revenues increased $2.4 million sequentially to $217.8 million, and pro forma operating margin increased 370 basis points sequentially to 12.4% as stronger performance in toxicology coupled with a faster than expected ramp in savings from our cost reduction actions more than offset weaker performance in clinical pharmacology.  

"On a consolidated basis, we expect pro forma revenue in the fourth quarter to be up slightly from the third quarter level and pro forma EPS to be approximately $0.70, reflecting the impact of increased IT spending on Late-Stage Development tools as well as the corporate data center initiative. When combining our fourth quarter projection with our third quarter results, we are narrowing our full-year pro forma EPS target to the high-end of our previous range, or $2.65 to $2.70 (excluding impairment charges, restructuring and other costs, losses from facilities in wind-down, favorable income tax developments and using September 30 foreign exchange rates)."

Consolidated Results

($ in millions except EPS)

3Q12

3Q11

Change

YTD12

YTD11

Change

Total Revenues

$597.6

$578.9


$1,756.6

$1,654.1


Less: Reimbursable Out-of-Pockets 

$52.8

$35.6


$138.2

$90.6


Net Revenues

$544.8

$543.3

0.3%

$1,618.4

$1,563.5

3.5%

Operating Income

$30.6

$51.0

(40.0%)

$72.8

$141.7

(48.6%)

   Operating Margin

5.6%

9.4%


4.5%

9.1%


Net Income

$37.8

$40.7

(7.0%)

$60.8

$111.0

(45.2%)

Earnings per Share

$0.69

$0.67

2.5%

$1.07

$1.82

(41.0%)

Revenue from facilities in wind-down**

$2.9

-


$7.3

-


Net Revenue, continuing ops*

$541.9

$543.3

(0.3%)

$1,611.2

$1,563.5

3.1%

Restructuring Costs and other charges

($18.1)

($5.3)


($66.5)

($15.7)


Loss from facilities in wind-down**

($2.6)

-


($6.4)

-


Operating Income, excluding items*

$51.3

$56.3

(8.9%)

$145.7

$157.4

(7.4%)

  Operating Margin, excluding items*

9.5%

10.4%


9.0%

10.1%


Impairment of Equity Investment

-

-


($7.4)

-


Gain on Sale of Investment

$1.5

-


$1.5

-


Favorable Income Tax Developments

$11.5

$0.7


$11.5

$0.7


Net Income, excluding items*

$39.6

$43.4

(8.7%)

$111.6

$120.5

(7.3%)

Diluted EPS, excluding items*

$0.72

$0.71

0.7%

$1.97

$1.97

(0.2%)

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

** Facilities in wind-down include Chandler, Honolulu and Basel.

 

Operating Segment Results

Early Development

($ in millions)

3Q12

3Q11

Change

YTD12

YTD11

Change

Net Revenues

$220.7

$240.2

(8.1%)

$652.1

$696.1

(6.3%)

Operating Income (Loss)

$7.1

$33.2

(78.6%)

($14.7)

$87.7

(116.8%)

Operating Margin

3.2%

13.8%


(2.3%)

12.6%


Revenue from facilities in wind-down**

$2.9

-


$7.3

-


Net Revenue, continuing ops

$217.8

$240.2

(9.3%)

$644.8

$696.1

(7.4%)

Restructuring Costs and other charges

($17.2)

($1.9)


($65.1)

($6.7)


Loss from facilities in wind-down**

($2.6)

-


($6.4)

-


Operating Income, excluding items

$26.9

$35.0

(23.2%)

$56.9

$94.4

(39.8%)

Operating Margin, excluding items

12.4%

14.6%


8.8%

13.6%


** Facilities in wind-down 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 third quarter of 2012 declined 8.1% year-on-year on a GAAP basis to $220.7 million and 9.3% on a pro forma basis to $217.8 million, due to the following: declines in toxicology services, research products, and clinical pharmacology; the impact of the sale of environmental services (which had contributed approximately $2.0 million in quarterly revenue); and the inclusion of the Chandler, Honolulu and Basel sites in last year's results. In the quarter, foreign exchange was a 90 basis point year-on-year headwind. Sequentially, pro forma revenues increased $2.4 million as an increase in toxicology revenues more than offset a decline in clinical pharmacology.

GAAP operating income in the third quarter of 2012 was $7.1 million, and included $17.2 million in costs associated with our restructuring actions and $2.6 million in losses at locations in wind-down. GAAP operating income for the third quarter of 2011 was $33.2 million, and included $1.9 million in restructuring costs. Pro forma operating income, excluding these items, was $26.9 million in the third quarter of this year, up from $18.7 million last quarter, and compared to $35.0 million in the third quarter of last year. Pro forma operating margins were 12.4% for the third quarter of this year, up from 8.7% last quarter and compared to 14.6% in the third quarter of 2011. Sequentially, pro forma operating income increased primarily due to a significant increase in North American toxicology profitability.  

Late-Stage Development                

($ in millions)

3Q12

3Q11

Change

YTD12

YTD11

Change

Net Revenues

$324.1

$303.0

6.9%

$966.3

$867.4

11.4%

Operating Income

$64.4

$56.3

14.5%

$204.9

$168.1

21.9%

Operating Margin

19.9%

18.6%


21.2%

19.4%


Restructuring Costs

($0.4)

($2.1)


($0.6)

($3.7)


Operating Income, excluding items

$64.8

$58.4

11.1%

$205.5

$171.8

19.6%

Operating Margin, excluding items

20.0%

19.3%


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 third quarter of 2012 grew 6.9% year-on-year to $324.1 million. In the quarter, foreign exchange negatively impacted year-on-year revenue growth by 620 basis points.  Growth was driven by the continued strong performance in clinical development, which offset a decline in market access revenue. Central laboratory, which grew revenue 2.3% year-on-year on a reported basis and 10.7% on a constant currency basis, had an increase in kit volumes for the fourth consecutive quarter.

Operating income for the third quarter was $64.4 million on a GAAP basis or $64.8 million on a pro forma basis.  This compares to $56.3 million on a GAAP basis and $58.4 million on a pro forma basis in the third quarter of the prior year and to $68.2 million on a pro forma basis last quarter. Pro forma operating margins were 20.0% for the third quarter of 2012 compared to pro forma operating margins of 21.1% last quarter and 19.3% in the third quarter of last year. The year-on-year increase in profitability was driven by both clinical development and central laboratories, while the sequential decrease primarily resulted from increased spending on strategic IT projects, lower profitability in market access services, and increased hiring and staff costs in clinical development.

Corporate Information

The company reported third quarter adjusted net orders of $701 million. Backlog at September 30, 2012 was $6.37 billion compared to $6.23 billion at June 30, 2012 and $6.08 billion at September 30, 2011. Foreign exchange favorably impacted backlog sequentially by $69 million

Corporate expenses totaled $40.9 million in the third quarter of 2012 (including $0.5 million in restructuring costs) compared to $38.9 million last quarter (including $0.3 million in restructuring costs) and $38.4 million in the third quarter of last year (including $1.4 million in restructuring costs).  We expect corporate expenses, excluding restructuring costs, to increase in the fourth quarter as spending ramps on the corporate data center consolidation component of our strategic IT spending. However, in order to support longer-term earnings growth, we expanded our cost reduction actions in the third quarter to include corporate and functional support spending.

Cash and cash equivalents at September 30, 2012 were $441 million compared to $398 million at June 30, 2012 and $400 million at September 30, 2011.  Debt outstanding is now $340 million, originating from borrowings related to our share repurchase program. Covance repurchased $20 million of shares outstanding within the third quarter.

Free cash flow (defined as operating cash flow less capital expenditures) for the third quarter of 2012 was $35 million, consisting of operating cash flow of $71 million less capital expenditures of $36 million.  Free cash flow year-to-date was $48 million, consisting of operating cash flow of $153 million less capital expenditures of $105 million.  

Net Days Sales Outstanding (DSO) were 38 days at September 30, 2012 compared to 35 days at June 30, 2012 and 38 days at September 30, 2011.

The Company's investor conference call will be webcast on November 6 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 greater than $2 billion, global operations in more than 30 countries, and 11,500 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 AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011












(Dollars in thousands, except per share data)












(UNAUDITED)














Three Months Ended September 30


Nine Months Ended September 30




2012


2011


2012


2011










Net revenues


$       544,818


$         543,254


$   1,618,441


$   1,563,460


Reimbursable out-of-pocket expenses


52,844


35,622


138,174


90,601


     Total revenues


597,662


578,876


1,756,615


1,654,061












Costs and expenses:










  Cost of revenue


389,724


383,347


1,174,382


1,095,199


  Reimbursable out-of-pocket expenses


52,844


35,622


138,174


90,601


  Selling, general and administrative


94,401


81,292


266,031


247,292


  Depreciation and amortization


30,102


27,592


87,285


79,291


  Goodwill impairment charge


-


-


17,959


-


        Total costs and expenses


567,071

(a)

527,853

(c)

1,683,831

(b)

1,512,383

(d)











Income from operations


30,591

(a)

51,023

(c)

72,784

(b)

141,678

(d)











Other (income) expense, net:










  Interest expense, net


920


343


2,353


1,640


  Foreign exchange transaction loss, net


281


777


1,301


892


  Impairment of equity investment


-


-


7,373


-


  Gain on sale of investment


(1,459)


-


(1,459)


-


  Loss on sale of business


-


-


169


-


        Other (income) expense, net


(258)


1,120


9,737


2,532












Income before taxes and equity investee results


30,849

(a)

49,903

(c)

63,047

(b)

139,146

(d)











Taxes on income


(6,971)

(a)

9,781

(c)

2,229

(b)

28,402

(d)











Equity investee earnings


-


547


17


305












Net income 


$         37,820

(a)

$           40,669

(c)

$         60,835

(b)

$       111,049

(d)











Basic earnings per share


$             0.70

(a)

$                0.68

(c)

$             1.10

(b)

$             1.86

(d)











Weighted average shares outstanding - basic


53,687,748


59,695,336


55,206,190


59,596,294












Diluted earnings per share


$             0.69

(a)

$                0.67

(c)

$             1.07

(b)

$             1.82

(d)











Weighted average shares outstanding - diluted


55,201,552


60,926,604


56,701,280


61,093,960






















(a) Three months ended September 30, 2012 include, as applicable, $14,072 in restructuring costs ($9,647 net of tax), $4,000 in costs associated with the  


       expected settlement of an inventory supply agreement ($2,756 net of tax), $2,609 in losses at sites in wind-down ($1,821 net of tax), $1,459 gain on sale


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








(b) Nine months ended September 30, 2012 include, as applicable, $23,739 in restructuring costs ($16,177 net of tax), $24,781 in inventory impairment charges 

      and costs associated with the expected settlement of an inventory supply agreement ($17,147 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), $6,424 in losses at sites in wind-down ($4,567 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 September 30, 2011 include, as applicable, $5,270 in restructuring costs ($3,392 net of tax) and favorable income tax items totaling $700.

(d) Nine months ended September 30, 2011 include, as applicable,  $15,702 in restructuring costs ($10,106 net of tax) and favorable income tax items totaling $700.





















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


agreement, losses at sites in wind-down, gain on sale of investment and favorable tax items:
















Income from operations


$         51,272


$           56,293


$       145,687


$       157,380












Taxes on income


$         10,473


$           12,359


$         30,269


$         34,698












Net income 


$         39,598


$           43,361


$       111,612


$       120,455












Basic earnings per share


$             0.74


$                0.73


$             2.02


$             2.02












Diluted earnings per share


$             0.72


$                0.71


$             1.97


$             1.97


 

COVANCE INC.







CONSOLIDATED BALANCE SHEETS







SEPTEMBER 30, 2012 and DECEMBER 31, 2011







(Dollars in thousands)
















September 30


December 31




2012


2011




(UNAUDITED)



ASSETS





Current Assets:






Cash & cash equivalents


$       441,372


$       389,103


Accounts receivable, net


321,421


312,127


Unbilled services


141,020


114,095


Inventory


48,199


74,698


Deferred income taxes


54,635


52,078


Prepaid expenses and other current assets


173,917


144,809


    Total Current Assets


1,180,564


1,086,910







Property and equipment, net


872,261


849,551

Goodwill


109,820


127,779

Other assets


48,637


43,768


    Total Assets


$   2,211,282


$   2,108,008







LIABILITIES and STOCKHOLDERS' EQUITY





Current Liabilities:






Accounts payable


$         38,958


$         36,393


Accrued payroll and benefits


118,928


142,229


Accrued expenses and other current liabilities


141,344


119,308


Unearned revenue


234,152


202,210


Short-term debt 


340,000


30,000


Income taxes payable


6,875


6,889


    Total Current Liabilities


880,257


537,029







Deferred income taxes


21,299


42,295

Other liabilities


67,016


70,889


    Total Liabilities


968,572


650,213







Stockholders' Equity:






Common stock


788


781


Paid-in capital


725,727


689,584


Retained earnings


1,566,729


1,505,894


Accumulated other comprehensive income


15,004


4,622


Treasury stock


(1,065,538)


(743,086)


    Total Stockholders' Equity


1,242,710


1,457,795


    Total Liabilities and Stockholders'  Equity


$   2,211,282


$   2,108,008

 

COVANCE INC.






CONSOLIDATED STATEMENTS OF CASH FLOWS






FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011






(Dollars in thousands)






(UNAUDITED)








Nine Months Ended September 30








2012


2011

Cash flows from operating activities:





  Net income


$           60,835


$         111,049

  Adjustments to reconcile net income to net cash provided by





    operating activities:





    Depreciation and amortization


87,285


79,291

    Non-cash impairment charges


44,610


-

    Non-cash compensation expense associated with employee benefit





       and stock compensation plans


29,774


29,305

    Deferred income tax benefit


(23,648)


(9,680)

    Gain on sale of investment


(1,459)


-

    Loss on sale of business


169


-

    Loss on disposal of property and equipment


674


431

    Equity investee earnings


(17)


(305)

    Changes in operating assets and liabilities, net of businesses sold





       and acquired:





       Accounts receivable


(10,404)


(23,396)

       Unbilled services


(27,561)


(31,601)

       Inventory


9,115


839

       Accounts payable


2,565


6,184

       Accrued liabilities


(1,396)


31,505

       Unearned revenue


33,374


(4,688)

       Income taxes payable


568


(13,988)

       Other assets and liabilities, net


(51,581)


(33,992)

Net cash provided by operating activities


152,903


140,954






Cash flows from investing activities:





  Capital expenditures


(105,199)


(86,289)

  Proceeds from sale of investment


4,682


-

  Other, net


1,006


(210)

Net cash used in investing activities


(99,511)


(86,499)






Cash flows from financing activities:





  Net borrowings under revolving credit facility


310,000


55,000

  Repayments under long-term debt


-


(97,500)

  Stock issued under employee stock purchase and option plans


5,794


8,465

  Purchase of treasury stock


(322,452)


(7,731)

Net cash used in financing activities


(6,658)


(41,766)

Effect of exchange rate changes on cash


5,535


9,783

Net change in cash and cash equivalents


52,269


22,472






Cash and cash equivalents, beginning of period


389,103


377,223






Cash and cash equivalents, end of period


$         441,372


$         399,695

 

COVANCE INC.













GAAP to Pro Forma Reconciliation













Q3 2012













(Dollars in thousands, except per share data)













(UNAUDITED)
















Adjustments



GAAP


 Restructuring Activities (1)


Other
Items (2)


Operating Results at Sites in Wind-Down (3)


Income Tax Items (4)


Pro Forma













Net revenues

$     544,818






$          (2,967)




$     541,851

Reimbursable out-of-pocket expenses

52,844










52,844

     Total revenues

597,662


-


-


(2,967)


-


594,695













Costs and expenses:












  Cost of revenue

389,724




(4,000)


(4,544)




381,180

  Reimbursable out-of-pocket expenses

52,844










52,844

  Selling, general and administrative

94,401


(12,989)




(162)




81,250

  Depreciation and amortization

30,102


(1,083)




(870)




28,149

  Goodwill impairment charge

-




-






-

        Total costs and expenses

567,071


(14,072)


(4,000)


(5,576)


-


543,423













Income from operations

30,591


14,072


4,000


2,609


-


51,272













Other (income) expense, net:












  Interest expense, net

920










920

  Foreign exchange transaction loss, net

281










281

  Impairment of equity investment

-










-

  Gain on sale of investment

(1,459)




1,459






-

  Loss on sale of business

-










-

        Other (income) expense, net

(258)


-


1,459


-


-


1,201













Income before taxes and equity investee earnings

30,849


14,072


2,541


2,609


-


50,071













Taxes on income

(6,971)


4,425


730


788


11,501


10,473













Equity investee earnings

-










-













Net income 

$       37,820


$            9,647


$            1,811


$            1,821


$        (11,501)


$       39,598













Basic earnings per share

$            0.70


$              0.18


$              0.03


$              0.03


$             (0.21)


$            0.74













Weighted average shares outstanding - basic

53,687,748


53,687,748


53,687,748


53,687,748


53,687,748


53,687,748













Diluted earnings per share

$            0.69


$              0.17


$              0.03


$              0.03


$             (0.21)


$            0.72













Weighted average shares outstanding - diluted

55,201,552


55,201,552


55,201,552


55,201,552


55,201,552


55,201,552

























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

(2) Consists of costs associated with the expected settlement of an inventory supply agreement ($4,000) and a gain on the sale of an investment
      $1,459.



(3) Represents results of operations at sites where wind-down activities have commenced.






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








 

COVANCE INC.









GAAP to Pro Forma Reconciliation









Q3 2011









(Dollars in thousands, except per share data)









(UNAUDITED)












Adjustments




GAAP


Restructuring Activities (1)


Income Tax Items (2)


Pro Forma









Net revenues

$     543,254






$    543,254

Reimbursable out-of-pocket expenses

35,622






35,622

     Total revenues

578,876


-


-


578,876









Costs and expenses:








  Cost of revenue

383,347






383,347

  Reimbursable out-of-pocket expenses

35,622






35,622

  Selling, general and administrative

81,292


(4,216)




77,076

  Depreciation and amortization

27,592


(1,054)




26,538

        Total costs and expenses

527,853


(5,270)


-


522,583









Income from operations

51,023


5,270




56,293









Other expense, net:








  Interest expense, net

343






343

  Foreign exchange transaction loss, net

777






777

        Other expense, net

1,120


-


-


1,120









Income before taxes and equity investee earnings

49,903


5,270




55,173









Taxes on income

9,781


1,878


700


12,359









Equity investee earnings

547






547









Net income

$       40,669


$            3,392


$              (700)


$       43,361









Basic earnings per share

$           0.68


$              0.06


$             (0.01)


$           0.73









Weighted average shares outstanding - basic

59,695,336


59,695,336


59,695,336


59,695,336









Diluted earnings per share

$           0.67


$              0.06


$             (0.01)


$           0.71









Weighted average shares outstanding - diluted

60,926,604


60,926,604


60,926,604


60,926,604

















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

(2) Represents favorable resolutions of income tax matters.





 

COVANCE INC.

















GAAP to Pro Forma Reconciliation

















YTD Q3 2012

















(Dollars in thousands, except per share data)

















(UNAUDITED)




















Adjustments





GAAP


 Restructuring Activities (1)


Other
Items (2)


Operating Results at Sites in Wind-Down (3)


Income Tax Items (4)


Pro Forma

















Net revenues

$      1,618,441






$          (7,256)




$  1,611,185



Reimbursable out-of-pocket expenses

138,174










138,174



     Total revenues

1,756,615


-


-


(7,256)


-


1,749,359

















Costs and expenses:














  Cost of revenue

1,174,382




(24,781)


(11,483)




1,138,118



  Reimbursable out-of-pocket expenses

138,174










138,174



  Selling, general and administrative

266,031


(21,446)




(384)




244,201



  Depreciation and amortization

87,285


(2,293)




(1,813)




83,179



  Goodwill impairment charge

17,959




(17,959)






-



        Total costs and expenses

1,683,831


(23,739)


(42,740)


(13,680)


-


1,603,672

















Income from operations

72,784


23,739


42,740


6,424


-


145,687

















Other (income) expense, net:














  Interest expense, net

2,353










2,353



  Foreign exchange transaction loss, net

1,301










1,301



  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 (income) expense, net

9,737


-


(5,914)


-


-


3,823

















Income before taxes and equity investee earnings

63,047


23,739


48,654


6,424


-


141,864

















Taxes on income

2,229


7,562


7,120


1,857


11,501


30,269

















Equity investee earnings

17










17

















Net income 

$           60,835


$          16,177


$          41,534


$            4,567


$        (11,501)


$     111,612































Basic earnings per share

$                1.10


$              0.29


$              0.75


$              0.08


$             (0.21)


$            2.02

















Weighted average shares outstanding - basic

55,206,190


55,206,190


55,206,190


55,206,190


55,206,190


55,206,190

















Diluted earnings per share

$                1.07


$              0.29


$              0.73


$              0.08


$             (0.20)


$            1.97

















Weighted average shares outstanding - diluted

56,701,280


56,701,280


56,701,280


56,701,280


56,701,280


56,701,280































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

(2) Consists of inventory impairment and costs associated with the expected settlement of an inventory supply agreement ($24,781), 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 where wind-down activities have commenced.








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










 

COVANCE INC.









GAAP to Pro Forma Reconciliation









YTD Q3 2011









(Dollars in thousands, except per share data)









(UNAUDITED)












Adjustments




GAAP


Restructuring Activities (1)


Income Tax Items (2)


Pro Forma









Net revenues

$ 1,563,460






$ 1,563,460

Reimbursable out-of-pocket expenses

90,601






90,601

     Total revenues

1,654,061


-


-


1,654,061









Costs and expenses:








  Cost of revenue

1,095,199






1,095,199

  Reimbursable out-of-pocket expenses

90,601






90,601

  Selling, general and administrative

247,292


(13,838)




233,454

  Depreciation and amortization

79,291


(1,864)




77,427

        Total costs and expenses

1,512,383


(15,702)


-


1,496,681









Income from operations

141,678


15,702




157,380









Other expense, net:








  Interest expense, net

1,640






1,640

  Foreign exchange transaction loss, net

892






892

        Other expense, net

2,532


-


-


2,532









Income before taxes and equity investee earnings

139,146


15,702




154,848









Taxes on income

28,402


5,596


700


34,698









Equity investee earnings

305






305









Net income

$     111,049


$          10,106


$              (700)


$    120,455

















Basic earnings per share

$           1.86


$              0.17


$             (0.01)


$           2.02









Weighted average shares outstanding - basic

59,596,294


59,596,294


59,596,294


59,596,294









Diluted earnings per share

$           1.82


$              0.17


$             (0.01)


$           1.97









Weighted average shares outstanding - diluted

61,093,960


61,093,960


61,093,960


61,093,960

















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

(2) Represents favorable resolutions of income tax matters.





 

SOURCE Covance Inc.

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