Quantcast

Covance Reports Third Quarter Financial Results and Takes Actions to Strengthen Future Performance

November 3, 2010

PRINCETON, N.J., Nov. 3, 2010 /PRNewswire-FirstCall/ — Covance Inc. (NYSE: CVD) today reported results for its third quarter ended September 30, 2010, which included a GAAP loss of $0.49 per diluted share. Included in results is a $1.16 per diluted share non-cash impairment charge related to a write-down of preclinical assets, partially offset by a gain of $0.16 per diluted share from favorable income tax resolutions in the quarter. Excluding these items, earnings per diluted share were $0.50.

“Despite a tougher environment for our toxicology services, we achieved our consolidated revenue and earnings expectations in the third quarter. In addition, as evidence of the success of our long-term business strategy, we were selected by sanofi-aventis as its R&D partner, executing a 10-year alliance which we expect to generate revenues ranging from a minimum commitment of $1.2 billion to at least $2.2 billion when including the sole-source components. This alliance drove year-on-year backlog growth of 26% to more than $6 billion,” said Joe Herring, Chairman and Chief Executive Officer.

“In order to address softer market conditions across much of our portfolio, we are taking decisive actions to reduce capacity and significantly lower our cost structure while maintaining service quality. These actions will enable us to enter 2011 as a leaner, more competitive company. First, the weakening in the market for outsourced toxicology services in the third quarter drove us to reassess our toxicology service offering. This has resulted in a decision to consolidate our North American toxicology services by closing our toxicology facility in Vienna, Virginia. In addition, we have taken an asset impairment charge in the third quarter totaling $119 million reflecting the excess of the carrying value of our Chandler, Arizona and Manassas, Virginia assets over their estimated fair market value. We will also be reducing spending across the company, including corporate overhead; realizing savings from process improvements and automation investments; and restructuring the executive management team. The future cost of these actions is expected to total approximately $35 million to $40 million, with more than half of the cost being incurred in the fourth quarter of 2010 and the remainder in 2011. We expect savings, net of costs, to generate incremental operating income of at least $25 million in 2011.

“Looking ahead to the fourth quarter of 2010, we expect consolidated revenue, excluding the sanofi-aventis alliance, to be roughly flat sequentially, reflecting market conditions in toxicology and, in Late-Stage Development, the slower start-up, delays, and cancellations of clinical trials. These factors are expected to result in earnings per share in the range of $0.50 to $0.55, including earnings from the sanofi-aventis alliance and excluding the site closure and other costs associated with the restructuring actions.”

Consolidated Results


    ($ in millions
     except EPS)     3Q10    3Q09    Change    2010YTD   2009YTD   Change
    --------------   ----    ----    ------    -------   -------   ------
    Total Revenues   $513.3  $497.6            $1,519.0  $1,455.3
    Less:
     Reimbursable
     Out-of-
     Pockets          $36.3   $22.3               $84.9     $72.7
    Net Revenues     $477.0  $475.3       0.4% $1,434.1  $1,382.6      3.7%
    Operating
     Income (Loss)   $(76.7)  $57.8   (232.8)%    $18.6    $173.7   (89.3)%
    Net Income
     (Loss)          $(30.9)  $51.1   (160.6)%    $39.9    $134.3   (70.3)%
    Earnings
     (Loss) Per
     Share           $(0.49)  $0.79   (161.2)%    $0.61     $2.09   (70.7)%
    -----------      ------   -----   -------     -----     -----   ------
    Impairment
     charge*        $(119.2)      -             $(119.2)        -
    Favorable
     Income Tax
     Items*           $10.4    $2.1               $10.4      $2.1
    Gain on Sale,
     net of tax*          -    $5.9                   -      $6.3
    Operating
     Income,
     excluding
     items*           $42.5   $57.8    (26.5)%   $137.9    $173.7   (20.6)%
      Operating
       Margin %, ex
       items*           8.9%   12.2%                9.6%     12.6%
    Net Income,
     excluding
     items*           $32.6   $43.1    (24.3)%   $103.4    $126.0   (17.9)%
    Diluted EPS,
     excluding
     items*           $0.50   $0.67    (25.0)%    $1.59     $1.96   (18.9)%
    ------------      -----   -----    ------     -----     -----   ------
    * See attached pro forma income statements for reconciliation of GAAP
    to Pro Forma amounts.

Operating Segment Results

Early Development


    ($ in millions)   3Q10     3Q09  Change   2010 YTD  2009 YTD    Change
                      ----     ----  ------   --------  --------    ------
    Net Revenues     $206.5  $196.4      5.1%   $619.7     $588.7      5.3%
    Operating
     Income (Loss)   $(98.5)  $22.4  (539.1)%   $(53.1)     $76.7  (169.3)%
    --------------   ------   -----  -------    ------      -----  -------
    Impairment
     charge         $(119.2)      -            $(119.2)         -
    2Q10 Cost
     Actions          $(1.3)      -              $(8.0)         -
    Operating
     Income,
     excluding
     items            $22.0   $22.4    (1.8)%    $74.1      $76.7    (3.3)%
    Margin % ex
     items             10.7%   11.4%              12.0%      13.0%
    -----------        ----    ----               ----       ----

The Company’s Early Development segment includes preclinical toxicology, analytical chemistry, clinical pharmacology services, and research products. Early Development net revenues for the third quarter of 2010 grew 5.1% to $206.5 million compared to $196.4 million in the third quarter of 2009. Year-on-year growth was led by chemistry services. Revenues declined sequentially in toxicology which more than offset growth in chemistry and clinical pharmacology. In the quarter, foreign exchange negatively impacted year-on-year revenue growth by 190 basis points.

Operating loss for the third quarter was $98.5 million and included an asset impairment charge of $119.2 million and continuing costs of $1.3 million from our second quarter actions. Operating income, excluding these items, was $22.0 million, compared to $22.4 million in the third quarter of last year. Operating margins for the third quarter, excluding the impairment charge and second quarter cost actions, were 10.7% compared to 11.4% in the third quarter of 2009 and 14.0% last quarter. Year-over-year and sequentially, operating margins were impacted by a lower level of new orders, delays of scheduled study starts, and the mix of pricing in toxicology.

Late-Stage Development


    ($ in millions)   3Q10   3Q09 Change  2010 YTD 2009 YTD Change
                      ----   ---- ------  -------- -------- ------
    Net Revenues    $270.5 $278.9  (3.0)%   $814.4   $793.9    2.6%
    Operating
     Income          $55.2  $68.9 (19.9)%   $177.9   $190.7  (6.7)%
    Margin %         20.4%  24.7%            21.8%    24.0%

The Late-Stage Development segment includes central laboratory, Phase II-III clinical development, and commercialization services (periapproval and market access services). Late-Stage Development net revenues for the third quarter of 2010 declined 3.0% year-on-year to $270.5 million compared to $278.9 million in the third quarter of 2009. Foreign exchange positively impacted year-on-year revenue growth in the quarter by 30 basis points. While the previously-announced delayed clinical trials are performing largely as we forecasted in July, several factors lead us to moderate our near-term expectations. These factors include a longer duration between the time a project is awarded and revenue generation begins, a higher level of project scope reductions and other project cancellations, and a shifting mix of central lab tests performed and kits returned.

Operating income for the third quarter of 2010 decreased 19.9% to $55.2 million compared to $68.9 million in the third quarter of the prior year. Operating margins were 20.4% for the third quarter of 2010 compared to 24.7% in the third quarter of last year and 21.2% last quarter. Late-stage margins were impacted by the longer time period between project award and commencement of revenue and, in addition, central laboratory margins continue to be impacted by testing mix and geographic mix of kit receipts.

Corporate Information

The Company’s backlog at September 30, 2010 grew 25.6% year-over-year to $6.02 billion compared to $4.79 billion at September 30, 2009 and $4.83 billion at June 30, 2010. Foreign exchange positively impacted sequential backlog growth by $125 million. Adjusted net orders (orders adjusted for dedicated capacity contracts such as the $1.2 billion order from sanofi-aventis) were $549 million in the third quarter of 2010, representing an adjusted book-to-bill ratio of 1.15 to 1. On a trailing twelve month basis, our Late-Stage Development adjusted book-to-bill was approximately 1.2 to 1.

Corporate expenses totaled $33.4 million in the third quarter (or 7.0% of revenue), compared to $36.5 million (or 7.7% of revenue) last quarter. We expect corporate expenses as a percent of revenue, excluding severance and other restructuring costs, to continue to trend lower.

Cash and cash equivalents at September 30, 2010 were $389 million compared to $291 million at June 30, 2010 and $266 million at September 30, 2009. The company remains debt free.

Free cash flow (defined as operating cash flow less capital expenditures) for the third quarter of 2010 was $75 million, consisting of operating cash flow of $108 million less capital expenditures of $33 million. Free cash flow year to date was $89 million, consisting of operating cash flow of $189 million less capital expenditures of $100 million. In 2010, we now expect free cash flow to be approximately $115 million, consisting of operating cash flow of approximately $250 million less capital expenditures of approximately $135 million. The free cash flow target for 2010 assumes net Days Sales Outstanding (DSO) at 43 days.

Net Days Sales Outstanding (DSO) were 45 days at September 30, 2010 compared to 47 days at June 30, 2010 and 42 days at September 30, 2009.

Taxes in the third quarter included a benefit of $10.4 million, primarily as a result of the favorable resolution of an income tax inquiry. The tax rate for the quarter excluding this benefit and the tax benefit associated with the impairment charge was 23.0%. We expect the tax rate for the company to be approximately 23% in the fourth quarter, reflecting the prospective impact of the favorable income tax resolution and continued favorable trends in the mix of earnings relative to various tax jurisdictions.

The Company’s investor conference call will be webcast on November 4 at 9:00 am EDT. 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 $1.8 billion, global operations in more than 30 countries, and more than 10,000 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 of large contracts, 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, fluctuations in currency exchange rates, 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, 2010 AND 2009

              (Dollars in thousands, except per share data)

                               (UNAUDITED)

                                                 Three Months Ended
                                                    September 30
                                                   ------------------
                                                 2010              2009
                                                 ----              ----

    Net revenues                             $477,022          $475,284
    Reimbursable out-of-pocket expenses        36,258            22,282
         Total revenues                       513,280           497,566
                                              -------           -------

    Costs and expenses:
      Cost of revenue                         337,698           324,311
      Reimbursable out-of-pocket expenses      36,258            22,282
      Selling, general and administrative      70,731            69,526
      Depreciation and amortization            26,105            23,649
      Asset impairment charges                119,229                 -
            Total costs and expenses          590,021  (a)      439,768
                                              -------           -------

    (Loss) income from operations             (76,741) (a)       57,798

    Other expense (income), net:
      Interest (income) expense, net             (236)              181
      Foreign exchange transaction loss
       (gain), net                                681              (903)
      Gain on sale of businesses                    -            (9,026)
            Other expense (income), net           445            (9,748) (b)
                                                  ---            ------

    (Loss) income before taxes and equity
     investee earnings                        (77,186) (a)       67,546  (b)

    Tax (benefit) expense                     (46,003) (a)       16,650  (b)

    Equity investee earnings                      253               166

    Net (loss) income                        $(30,930) (a)      $51,062  (b)
                                             ========           =======

    Basic (loss) earnings per share            $(0.49) (a)        $0.80  (b)

    Weighted average shares outstanding -
     basic                                 63,739,910        63,895,975

    Diluted (loss) earnings per share          $(0.49) (a)        $0.79  (b)

    Weighted average shares outstanding -
     diluted                               63,739,910        64,472,572


                                                 Nine Months Ended
                                                    September 30
                                                   -----------------
                                                 2010             2009
                                                 ----             ----

    Net revenues                           $1,434,117       $1,382,569
    Reimbursable out-of-pocket expenses        84,901           72,729
         Total revenues                     1,519,018        1,455,298
                                            ---------        ---------

    Costs and expenses:
      Cost of revenue                       1,001,574          939,246
      Reimbursable out-of-pocket expenses      84,901           72,729
      Selling, general and administrative     217,576          203,049
      Depreciation and amortization            77,105           66,536
      Asset impairment charges                119,229                -
            Total costs and expenses        1,500,385  (a)   1,281,560
                                            ---------        ---------

    (Loss) income from operations              18,633  (a)     173,738

    Other expense (income), net:
      Interest (income) expense, net             (378)             258
      Foreign exchange transaction loss
       (gain), net                              2,595             (108)
      Gain on sale of businesses                    -           (9,681)
            Other expense (income), net         2,217           (9,531) (c)
                                                -----           ------

    (Loss) income before taxes and equity
     investee earnings                         16,416  (a)     183,269  (c)

    Tax (benefit) expense                     (22,534) (a)      49,050  (c)

    Equity investee earnings                      926              128

    Net (loss) income                         $39,876  (a)    $134,347  (c)
                                              =======         ========

    Basic (loss) earnings per share             $0.63  (a)       $2.11  (c)

    Weighted average shares outstanding -
     basic                                 63,601,302       63,768,728

    Diluted (loss) earnings per share           $0.61  (a)       $2.09  (c)

    Weighted average shares outstanding -
     diluted                               65,069,901       64,235,983
    (a) Includes the impact of $119,229 in asset impairment charges
    ($73,922 net of tax) and favorable income tax items totaling $10,352
    during the three and nine months ended September 30, 2010.
    (b) Includes the impact of a $9,026 gain on sale of Interactive Voice
    & Web Response Services ($5,867 net of tax) and favorable income tax
    items totaling  $2,072 during the three months ended September 30,
    2009.
    (c) Includes the impact of a $9,026 gain on sale of Interactive Voice
    & Web Response Services ($5,867 net of tax) and a $655 gain on sale
    of Cardiac Safety Services ($426 net of tax) and favorable income
    tax items totaling $2,072 during the nine months ended September 30,
    2009.


    Excluding the impact of the asset impairment charges, favorable
    income tax items and gain on sale of businesses:
    ---------------------------------------------------------------

    Income before taxes and equity
     investee earnings             $42,043 $58,520 $135,645 $173,588

    Taxes on income                 $9,656 $15,563  $33,125  $47,734

    Net income                     $32,640 $43,123 $103,446 $125,982

    Basic earnings per share         $0.51   $0.67    $1.63    $1.98

    Diluted earnings per share       $0.50   $0.67    $1.59    $1.96

                              COVANCE INC.

                       CONSOLIDATED BALANCE SHEETS

                SEPTEMBER 30, 2010 and DECEMBER 31, 2009

                         (Dollars in thousands)

                                                September        December
                                                    30               31
                                                      2010            2009
                                                      ----            ----
                                               (UNAUDITED)
    ASSETS
    Current Assets:
      Cash & cash equivalents                     $389,024        $289,469
      Accounts receivable, net                     281,677         285,119
      Unbilled services                            103,660          97,279
      Inventory                                     82,314          80,926
      Deferred income taxes                         41,951          31,512
      Prepaid expenses and other current
       assets                                       93,058          93,367
                                                    ------          ------
          Total Current Assets                     991,684         877,672

    Property and equipment, net                    817,956         921,995
    Goodwill, net                                  127,653         127,653
    Other assets                                    45,468          47,624
                                                    ------          ------
          Total Assets                          $1,982,761      $1,974,944
                                                ==========      ==========

    LIABILITIES and STOCKHOLDERS'
     EQUITY
    Current Liabilities:
      Accounts payable                             $35,395         $36,834
      Accrued payroll and benefits                 100,797         111,365
      Accrued expenses and other current
       liabilities                                  80,374          73,383
      Unearned revenue                             149,496         166,890
      Income taxes payable                          13,867          14,272
                                                    ------          ------
          Total Current Liabilities                379,929         402,744

    Deferred income taxes                           55,530          98,945
    Other liabilities                               57,965          62,251
                                                    ------          ------
          Total Liabilities                        493,424         563,940
                                                   -------         -------

    Stockholders' Equity:
      Common stock                                     772             764
      Paid-in capital                              626,209         587,995
      Retained earnings                          1,345,327       1,305,451
      Accumulated other comprehensive
       income (loss)                                   555          (5,281)
      Treasury stock                              (483,526)       (477,925)
          Total Stockholders' Equity             1,489,337       1,411,004
                                                 ---------       ---------
          Total Liabilities and Stockholders'
            Equity                              $1,982,761      $1,974,944
                                                ==========      ==========

                                    COVANCE INC.

                       CONSOLIDATED STATEMENTS OF CASH FLOWS

               FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

                               (Dollars in thousands)

                                    (UNAUDITED)

                                                   Nine Months Ended
                                                      September 30
                                                     -----------------

                                                   2010             2009
                                                   ----             ----
    Cash flows from operating activities:
      Net income                                $39,876         $134,347
      Adjustments to reconcile net income to
       net cash provided by
        operating activities:
        Depreciation and amortization            77,105           66,536
        Asset impairment charges                119,229                -
        Non-cash compensation expense
         associated with employee benefit
           and stock compensation plans          24,815           20,295
        Deferred income tax benefit             (53,185)          (2,981)
        Gain on sale of businesses                    -           (9,681)
        Loss on sale of property and equipment      961              838
        Equity investee earnings                   (926)            (128)
        Changes in operating assets and
         liabilities, net of businesses
           acquired and sold:
           Accounts receivable                    3,442          (61,341)
           Unbilled services                     (6,381)           1,342
           Inventory                             (1,388)         (11,070)
           Accounts payable                      (1,439)          (5,426)
           Accrued liabilities                   (3,577)         (12,518)
           Unearned revenue                     (17,394)          18,770
           Income taxes payable                     362           31,494
           Other assets and liabilities, net      7,658            3,658
    Net cash provided by operating
     activities                                 189,158          174,135
                                                -------          -------

    Cash flows from investing activities:
      Capital expenditures                     (100,488)         (98,020)
      Acquisition of businesses, net of cash
       acquired                                       -          (28,370)
      Proceeds from sale of businesses                -           10,373
      Other, net                                     73               26
    Net cash used in investing activities      (100,415)        (115,991)
                                               --------         --------

    Cash flows from financing activities:
      Stock issued under employee stock
       purchase and option plans                 12,640            7,251
      Purchase of treasury stock                 (5,601)          (2,509)
      Net repayments under revolving credit
       facility                                       -          (25,000)
      Payment of debt assumed upon
       acquisition of business                        -           (5,431)
    Net cash provided by (used in)
     financing activities                         7,039          (25,689)
                                                  -----          -------
    Effect of exchange rate changes on cash       3,773           12,459
                                                  -----           ------
    Net change in cash and cash equivalents      99,555           44,914

    Cash and cash equivalents, beginning of
     period                                     289,469          221,334
                                                -------          -------

    Cash and cash equivalents, end of
     period                                    $389,024         $266,248
                                               ========         ========

                                                COVANCE INC.

                                      GAAP to Pro Forma Reconciliation

                                                   Q3 2010

                                (Dollars in thousands, except per share data)

                                                 (UNAUDITED)

                                            GAAP
                                            ----

    Net revenues                           $477,022
    Reimbursable out-of-pocket
     expenses                                36,258
         Total revenues                     513,280
                                            -------

    Costs and expenses:
      Cost of revenue                       337,698
      Reimbursable out-of-pocket
       expenses                              36,258
      Selling, general and
       administrative                        70,731
      Depreciation and amortization          26,105
      Asset impairment charges              119,229
            Total costs and expenses        590,021
                                            -------

    (Loss) income from operations           (76,741)

    Other expense (income), net:
      Interest (income) expense, net           (236)
      Foreign exchange transaction
       loss (gain), net                         681
      Gain on sale of businesses                  -
            Other expense (income), net         445
                                                ---

    (Loss) income before taxes and
     equity investee earnings               (77,186)

    Tax (benefit) expense                   (46,003)

    Equity investee earnings                    253

    Net (loss) income                      $(30,930)
                                           ========

    Basic (loss) earnings per
     share                                   $(0.49)

    Weighted average shares
     outstanding -basic                  63,739,910

    Diluted (loss) earnings per
     share                                   $(0.49)

    Weighted average shares
     outstanding -diluted                63,739,910


                                        Adjustments
                                        -----------
                                            Income    Inclusion
                              Asset          Tax          of
                                                        Common
                            Impairment      Items        Stock
                                                     Equivalents
                            ----------      -----         in
                                                     Diluted EPS
                                                     Computation
                                                           (1)
                                                     ------------

    Net revenues
    Reimbursable out-of-
     pocket expenses

         Total revenues              -            -             -
                                   ---          ---           ---

    Costs and expenses:
      Cost of revenue
      Reimbursable out-of-
       pocket expenses
      Selling, general and
       administrative
      Depreciation and
       amortization
      Asset impairment
       charges                (119,229)
                              --------
            Total costs and
             expenses         (119,229)           -             -
                              --------          ---           ---

    (Loss) income from
     operations                119,229            -             -

    Other expense
     (income), net:
      Interest (income)
       expense, net
      Foreign exchange
       transaction loss
       (gain), net
      Gain on sale of
       businesses

            Other expense
             (income), net           -            -             -
                                   ---          ---           ---

    (Loss) income before
     taxes and equity
     investee earnings         119,229            -             -

    Tax (benefit) expense       45,307       10,352             -

    Equity investee
     earnings

    Net (loss) income          $73,922     $(10,352)           $-
                               =======     ========           ===

    Basic (loss) earnings
     per share                   $1.16       $(0.16)

    Weighted average
     shares outstanding -
     basic                  63,739,910   63,739,910

    Diluted (loss)
     earnings per share          $1.16       $(0.16)       $(0.01)

    Weighted average
     shares outstanding -
     diluted                63,739,910   63,739,910     1,270,798  (1)


                                         Pro Forma
                                         ---------

    Net revenues                           $477,022
    Reimbursable out-of-pocket
     expenses                                36,258
                                             ------
         Total revenues                     513,280
                                            -------

    Costs and expenses:
      Cost of revenue                       337,698
      Reimbursable out-of-pocket
       expenses                              36,258
      Selling, general and
       administrative                        70,731
      Depreciation and amortization          26,105
      Asset impairment charges                    -
                                                ---
            Total costs and expenses        470,792
                                            -------

    (Loss) income from operations            42,488

    Other expense (income), net:
      Interest (income) expense, net           (236)
      Foreign exchange transaction
       loss (gain), net                         681
      Gain on sale of businesses                  -
                                                ---
            Other expense (income), net         445
                                                ---

    (Loss) income before taxes and
     equity investee earnings                42,043

    Tax (benefit) expense                     9,656

    Equity investee earnings                    253

    Net (loss) income                       $32,640
                                            =======

    Basic (loss) earnings per
     share                                    $0.51

    Weighted average shares
     outstanding -basic                  63,739,910

    Diluted (loss) earnings per
     share                                    $0.50

    Weighted average shares
     outstanding -diluted                65,010,708    (1)
    (1) Reflects inclusion of impact of common stock equivalents in
    computation of diluted earnings per share as GAAP loss transitions
    to Pro Forma income.

                                               COVANCE INC.

                                     GAAP to Pro Forma Reconciliation

                                                  Q3 2009

                               (Dollars in thousands, except per share data)

                                                (UNAUDITED)

                                              GAAP
                                              ----

    Net revenues                             $475,284
    Reimbursable out-of-pocket expenses        22,282
         Total revenues                       497,566
                                              -------

    Costs and expenses:
      Cost of revenue                         324,311
      Reimbursable out-of-pocket expenses      22,282
      Selling, general and administrative      69,526
      Depreciation and amortization            23,649
      Asset impairment charges                      -
            Total costs and expenses          439,768
                                              -------

    (Loss) income from operations              57,798

    Other expense (income), net:
      Interest (income) expense, net              181
      Foreign exchange transaction loss
       (gain), net                               (903)
      Gain on sale of businesses               (9,026)
            Other expense (income), net        (9,748)
                                               ------

    (Loss) income before taxes and equity
     investee earnings                         67,546

    Tax (benefit) expense                      16,650

    Equity investee earnings                      166

    Net (loss) income                         $51,062
                                              =======

    Basic (loss) earnings per share             $0.80

    Weighted average shares outstanding -
     basic                                 63,895,975

    Diluted (loss) earnings per share           $0.79

    Weighted average shares outstanding -
     diluted                               64,472,572


                                                     Adjustments
                                                     -----------
                                                            Gain on sale
                                           Income Tax            of
                                              Items             IVRS
                                              -----             ----

    Net revenues
    Reimbursable out-of-pocket expenses
         Total revenues                             -                  -
                                                  ---                ---

    Costs and expenses:
      Cost of revenue
      Reimbursable out-of-pocket expenses
      Selling, general and administrative
      Depreciation and amortization
      Asset impairment charges
            Total costs and expenses                -                  -
                                                  ---                ---

    (Loss) income from operations                   -                  -

    Other expense (income), net:
      Interest (income) expense, net
      Foreign exchange transaction loss
       (gain), net
      Gain on sale of businesses                                   9,026
            Other expense (income), net             -              9,026
                                                  ---              -----

    (Loss) income before taxes and equity
     investee earnings                              -             (9,026)

    Tax (benefit) expense                       2,072             (3,159)

    Equity investee earnings

    Net (loss) income                         $(2,072)           $(5,867)
                                              =======            =======

    Basic (loss) earnings per share            $(0.03)            $(0.09)

    Weighted average shares outstanding -
     basic                                 63,895,975         63,895,975

    Diluted (loss) earnings per share          $(0.03)            $(0.09)

    Weighted average shares outstanding -
     diluted                               64,472,572         64,472,572


                                           Pro Forma
                                           ---------

    Net revenues                             $475,284
    Reimbursable out-of-pocket expenses        22,282
         Total revenues                       497,566
                                              -------

    Costs and expenses:
      Cost of revenue                         324,311
      Reimbursable out-of-pocket expenses      22,282
      Selling, general and administrative      69,526
      Depreciation and amortization            23,649
      Asset impairment charges                      -
            Total costs and expenses          439,768
                                              -------

    (Loss) income from operations              57,798

    Other expense (income), net:
      Interest (income) expense, net              181
      Foreign exchange transaction loss
       (gain), net                               (903)
      Gain on sale of businesses                    -
            Other expense (income), net          (722)
                                                 ----

    (Loss) income before taxes and equity
     investee earnings                         58,520

    Tax (benefit) expense                      15,563

    Equity investee earnings                      166

    Net (loss) income                         $43,123
                                              =======

    Basic (loss) earnings per share             $0.67

    Weighted average shares outstanding -
     basic                                 63,895,975

    Diluted (loss) earnings per share           $0.67

    Weighted average shares outstanding -
     diluted                               64,472,572

                                             COVANCE INC.

                                   GAAP to Pro Forma Reconciliation

                                              YTD Q3 2010

                             (Dollars in thousands, except per share data)

                                              (UNAUDITED)

                                              GAAP
                                              ----

    Net revenues                           $1,434,117
    Reimbursable out-of-pocket expenses        84,901
         Total revenues                     1,519,018
                                            ---------

    Costs and expenses:
      Cost of revenue                       1,001,574
      Reimbursable out-of-pocket expenses      84,901
      Selling, general and administrative     217,576
      Depreciation and amortization            77,105
      Asset impairment charges                119,229
            Total costs and expenses        1,500,385
                                            ---------

    (Loss) income from operations              18,633

    Other expense (income), net:
      Interest (income) expense, net             (378)
      Foreign exchange transaction loss
       (gain), net                              2,595
      Gain on sale of businesses                    -
            Other expense (income), net         2,217
                                                -----

    (Loss) income before taxes and equity
     investee earnings                         16,416

    Tax (benefit) expense                     (22,534)

    Equity investee earnings                      926

    Net (loss) income                         $39,876
                                              =======

    Basic (loss) earnings per share             $0.63

    Weighted average shares outstanding -
     basic                                 63,601,302

    Diluted (loss) earnings per share           $0.61

    Weighted average shares outstanding -
     diluted                               65,069,901


                                                   Adjustments
                                                   -----------
                                                              Income
                                              Asset             Tax
                                            Impairment         Items
                                            ----------         -----

    Net revenues
    Reimbursable out-of-pocket expenses
         Total revenues                              -               -
                                                   ---             ---

    Costs and expenses:
      Cost of revenue
      Reimbursable out-of-pocket expenses
      Selling, general and administrative
      Depreciation and amortization
      Asset impairment charges                (119,229)
            Total costs and expenses          (119,229)              -
                                              --------             ---

    (Loss) income from operations              119,229               -

    Other expense (income), net:
      Interest (income) expense, net
      Foreign exchange transaction loss
       (gain), net
      Gain on sale of businesses
            Other expense (income), net              -               -
                                                   ---             ---

    (Loss) income before taxes and equity
     investee earnings                         119,229               -

    Tax (benefit) expense                       45,307          10,352

    Equity investee earnings

    Net (loss) income                          $73,922        $(10,352)
                                               =======        ========

    Basic (loss) earnings per share              $1.16          $(0.16)

    Weighted average shares outstanding -
     basic                                  63,601,302      63,601,302

    Diluted (loss) earnings per share            $1.14          $(0.16)

    Weighted average shares outstanding -
     diluted                                65,069,901      65,069,901


                                           Pro Forma
                                           ---------

    Net revenues                           $1,434,117
    Reimbursable out-of-pocket expenses        84,901
         Total revenues                     1,519,018
                                            ---------

    Costs and expenses:
      Cost of revenue                       1,001,574
      Reimbursable out-of-pocket expenses      84,901
      Selling, general and administrative     217,576
      Depreciation and amortization            77,105
      Asset impairment charges                      -
            Total costs and expenses        1,381,156
                                            ---------

    (Loss) income from operations             137,862

    Other expense (income), net:
      Interest (income) expense, net             (378)
      Foreign exchange transaction loss
       (gain), net                              2,595
      Gain on sale of businesses                    -
            Other expense (income), net         2,217
                                                -----

    (Loss) income before taxes and equity
     investee earnings                        135,645

    Tax (benefit) expense                      33,125

    Equity investee earnings                      926

    Net (loss) income                        $103,446
                                             ========

    Basic (loss) earnings per share             $1.63

    Weighted average shares outstanding -
     basic                                 63,601,302

    Diluted (loss) earnings per share           $1.59

    Weighted average shares outstanding -
     diluted                               65,069,901

                                                 COVANCE INC.

                                       GAAP to Pro Forma Reconciliation

                                                 YTD Q3 2009

                                (Dollars in thousands, except per share data)

                                                 (UNAUDITED)

                                              GAAP
                                              ----

    Net revenues                           $1,382,569
    Reimbursable out-of-pocket expenses        72,729
         Total revenues                     1,455,298
                                            ---------

    Costs and expenses:
      Cost of revenue                         939,246
      Reimbursable out-of-pocket expenses      72,729
      Selling, general and administrative     203,049
      Depreciation and amortization            66,536
      Asset impairment charges                      -
            Total costs and expenses        1,281,560
                                            ---------

    (Loss) income from operations             173,738

    Other expense (income), net:
      Interest (income) expense, net              258
      Foreign exchange transaction loss
       (gain), net                               (108)
      Gain on sale of businesses               (9,681)
            Other expense (income), net        (9,531)
                                               ------

    (Loss) income before taxes and equity
     investee earnings                        183,269

    Tax (benefit) expense                      49,050

    Equity investee earnings                      128

    Net (loss) income                        $134,347
                                             ========

    Basic (loss) earnings per share             $2.11

    Weighted average shares outstanding -
     basic                                 63,768,728

    Diluted (loss) earnings per share           $2.09

    Weighted average shares outstanding -
     diluted                               64,235,983


                                                     Adjustments
                                                     -----------
                                            Income Tax        Gain on Sale
                                               Items               of
                                                               Businesses
                                            -----------             (1)
                                                              -----------

    Net revenues
    Reimbursable out-of-pocket expenses

         Total revenues                               -                  -
                                                    ---                ---

    Costs and expenses:
      Cost of revenue
      Reimbursable out-of-pocket expenses
      Selling, general and administrative
      Depreciation and amortization
      Asset impairment charges

            Total costs and expenses                  -                  -
                                                    ---                ---

    (Loss) income from operations                     -                  -

    Other expense (income), net:
      Interest (income) expense, net
      Foreign exchange transaction loss
       (gain), net
      Gain on sale of businesses                                     9,681
                                                                     -----
            Other expense (income), net               -              9,681
                                                    ---              -----

    (Loss) income before taxes and equity
     investee earnings                                -             (9,681)

    Tax (benefit) expense                         2,072             (3,388)

    Equity investee earnings

    Net (loss) income                           $(2,072)           $(6,293)
                                                =======            =======

    Basic (loss) earnings per share              $(0.03)            $(0.10)

    Weighted average shares outstanding -
     basic                                   63,768,728         63,768,728

    Diluted (loss) earnings per share            $(0.03)            $(0.10)

    Weighted average shares outstanding -
     diluted                                 64,235,983         64,235,983


                                           Pro Forma
                                           ---------

    Net revenues                           $1,382,569
    Reimbursable out-of-pocket expenses        72,729
                                               ------
         Total revenues                     1,455,298
                                            ---------

    Costs and expenses:
      Cost of revenue                         939,246
      Reimbursable out-of-pocket expenses      72,729
      Selling, general and administrative     203,049
      Depreciation and amortization            66,536
      Asset impairment charges                      -
                                                  ---
            Total costs and expenses        1,281,560
                                            ---------

    (Loss) income from operations             173,738

    Other expense (income), net:
      Interest (income) expense, net              258
      Foreign exchange transaction loss
       (gain), net                               (108)
      Gain on sale of businesses                    -
                                                  ---
            Other expense (income), net           150
                                                  ---

    (Loss) income before taxes and equity
     investee earnings                        173,588

    Tax (benefit) expense                      47,734

    Equity investee earnings                      128

    Net (loss) income                        $125,982
                                             ========

    Basic (loss) earnings per share             $1.98

    Weighted average shares outstanding -
     basic                                 63,768,728

    Diluted (loss) earnings per share           $1.96

    Weighted average shares outstanding -
     diluted                               64,235,983
    (1) Includes the impact of a $9,026 gain on sale of Interactive Voice
    & Web Response Services ($5,867 net of tax) and a $655 gain on sale
    of Cardiac Safety Services ($426 net of tax).

SOURCE Covance Inc.


Source: newswire



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