Covance
Covance Reports Fourth Quarter Revenue of $485M and EPS of $0.64 Per Share

- Record Adjusted Net Orders of $643 Million; 1.33 Adjusted Book-to-Bill -
- Issues 2010 Targets: Revenue Growth of ~10% and EPS of $2.50 to $2.75 -

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PRINCETON, N.J., Jan 27, 2010 /PRNewswire via COMTEX/ -- Covance Inc. (NYSE: CVD) today reported earnings for its fourth quarter ended December 31, 2009 of $0.64 per diluted share. For the full-year, earnings per share were $2.73 on a GAAP basis, inclusive of $0.10 per share in gains related to sales of businesses and $0.03 from favorable income tax resolutions in the third quarter. Excluding the gains on sales and the tax item, full-year earnings per share were $2.60.

"During a challenging 2009, we made progress on a number of fronts, delivering full-year net revenue growth of 8.1% (11.2% excluding the impact of foreign exchange), record adjusted net orders of $2.4 billion, a full-year adjusted book-to-bill of 1.27 to 1, and market share gains across most of our portfolio," said Joe Herring, Chairman and Chief Executive Officer. "In the fourth quarter, net revenue grew 10.6% (6.9% excluding the impact on foreign exchange) and operating margin was 11.3%. Early Development revenues grew $6.7 million sequentially and operating income was up slightly from the third quarter. Sequential growth in toxicology revenue and operating margin was offset by weaker performance in clinical pharmacology and some chemistry services. In Late-Stage Development, continued strong performances in clinical development and central laboratories drove revenue growth of 25.6% (19.3% excluding the impact on foreign exchange) and operating margin of 22.6%. As forecasted, operating margin declined from the record third quarter level primarily due to hiring of new staff and a shift in the mix of central laboratory kits.

"On the commercial front, continued strong business awards in clinical development and central laboratory led to record adjusted net orders in the fourth quarter of $643 million, representing an adjusted book-to-bill ratio of 1.33 to 1. For the second consecutive quarter, Early Development recorded a quarterly adjusted book-to-bill greater than 1.0 to 1. On a trailing twelve month basis, our Late-Stage Development adjusted book-to-bill was approximately 1.45 to 1.

"Looking to 2010, Covance expects full-year revenue growth to be approximately 10% over 2009 and earnings per share to be in the range of $2.50 to $2.75. The midpoint of this range assumes toxicology and chemistry earnings will remain roughly flat from the fourth quarter of 2009 levels, sequential improvement in clinical pharmacology results as the year progresses, operating margins in Late-Stage Development remain near the fourth quarter 2009 level, no new strategic transactions, and foreign exchange rates at year-end 2009 levels. The earnings target for 2010 also reflects a step-up in depreciation and maintenance expense from new IT systems and other investments, and a return to a normal level of incentive compensation expense. In the first quarter of 2010, we expect a sequential decline of approximately four cents in earnings per share from the fourth quarter of 2009, largely relating to higher expenses associated with new IT systems coming online and incentive compensation.

    Consolidated Results


    ($ in millions
     except EPS)        4Q09   4Q08    Change   FY2009    FY2008   Change
    --------------      ----   ----    ------   ------   ------   ------
    Total Revenues      $507.3 $463.8          $1,962.6  $1,827.1
    Less: Reimbursable
     Out-of-Pockets      $22.2  $25.2             $95.0     $99.0
    Net Revenues        $485.1 $438.6    10.6% $1,867.6  $1,728.1     8.1%
    Operating Income     $54.9  $63.5   (13.6)%  $228.6    $263.7   (13.3)%
     Operating Margin %   11.3%  14.5%             12.2%     15.3%
    Net Income           $41.5  $45.7    (9.1)%  $175.9    $196.8   (10.6)%
    Diluted EPS          $0.64  $0.72   (10.3)%   $2.73     $3.08   (11.1)%
    -----------          -----  -----   ------     -----     -----  ------
    Gain on Sale, net
     of tax                  -   $0.1              $6.3      $2.6
    Favorable Income
     Tax Resolutions         -      -              $2.1         -
    Net Income ex Gain
     on Sale and
     Favorable Income
     Tax Resolutions     $41.5  $45.6    (8.9)%  $167.5    $194.1   (13.7)%
    Diluted EPS ex Gain
     on Sale and
     Favorable Income
     Tax Resolutions     $0.64  $0.72   (10.1)%   $2.60     $3.03   (14.2)%
    -------------------  -----  -----   ------    -----     -----   ------


    Operating Segment Results

    Early Development


    ($ in millions)  4Q09   4Q08    Change    FY2009   FY2008    Change
                     ----   ----    ------    ------   ------    ------
    Net Revenues    $203.1 $214.2    (5.2)%   $791.8    $844.8    (6.3)%
    Operating
     Income          $23.1  $45.8   (49.6)%    $99.7    $205.4   (51.4)%
    Margin %          11.3%  21.4%              12.6%     24.3%
    --------          ----   ----               ----      ----

The Company's Early Development segment includes preclinical toxicology, analytical chemistry, clinical pharmacology services, discovery support, and research products. Early Development net revenues for the fourth quarter of 2009 were $203.1 million compared to $214.2 million in the fourth quarter of 2008 and $196.4 million last quarter. Reduced demand for Early Development service offerings led to the 5.2% year-on-year decline in revenues. In the quarter, foreign exchange positively impacted year-on-year revenue growth by 80 basis points. On a sequential basis, toxicology revenues saw growth for the second consecutive quarter. As expected, clinical pharmacology revenues were down significantly from third quarter levels. Full year 2009 net revenues declined 6.3% to $791.8 million compared to $844.8 million in 2008. Full year 2010 Early Development revenues, excluding the acquired gene expression laboratory, are expected to be essentially flat from 2009.

Operating income for the fourth quarter of 2009 declined 49.6% year-over-year to $23.1 million, compared to $45.8 million in the fourth quarter of last year. Operating margins for the fourth quarter of 2009 were 11.3% compared to 21.4% in the fourth quarter of 2008 and 11.4% last quarter. Improvement in toxicology margins from the third quarter were offset by a decline in clinical pharmacology profitability. Full year operating margins were 12.6% compared to 24.3% in the prior year. Early Development operating margins in 2010 are expected to be flat year-on-year.

    Late-Stage Development

    ($ in millions)  4Q09   4Q08     Change   FY2009  FY2008   Change
                     ----   ----     ------   ------  ------   ------
    Net Revenues    $281.9 $224.4     25.6% $1,075.8   $883.3    21.8%
    Operating
     Income          $63.8  $44.0     45.0%   $254.5   $170.1    49.6%
    Margin %          22.6%  19.6%              23.7%    19.3%
    --------          ----   ----               ----     ----

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 fourth quarter of 2009 grew 25.6% to $281.9 million compared to $224.4 million in the fourth quarter of 2008 and $278.9 million last quarter. The year-on-year growth was led by the continued exceptional performances of central laboratory and clinical development. Foreign exchange positively impacted year-on-year revenue growth in the quarter by 630 basis points. For the full year 2009, net revenues grew 21.8% to $1,075.8 million compared to $883.3 million in 2008. Late-Stage Development revenues are expected to grow in the mid-teens range in 2010.

Operating income for the fourth quarter of 2009 increased 45.0% to $63.8 million compared to $44.0 million in the fourth quarter of the prior year. Operating margins for the fourth quarter of 2009 increased to 22.6% from 19.6% in the fourth quarter of 2008 on strong performances in clinical development and in central laboratory services. As forecasted, operating margins declined from the third quarter due to increased staffing and a shift in the mix of central laboratory kits. Full year operating margins were 23.7% compared to 19.3% in the prior year. Late-Stage Development operating margins in 2010 are expected to remain at approximately the fourth quarter 2009 level due to increased hiring to support growth and a more traditional testing mix in central laboratory kits.

Corporate Information

The Company's backlog at December 31, 2009 grew 12.3% year-over-year to $4.87 billion compared to $4.33 billion at December 31, 2008 and $4.79 billion at September 30, 2009. Foreign exchange negatively impacted sequential backlog growth by $61.3 million. Adjusted net orders (net orders adjusted for dedicated capacity contracts) were $643 million in the fourth quarter of 2009.

Corporate expenses totaled $32.0 million in the fourth quarter of 2009 compared to $33.5 million last quarter and $26.3 million in the fourth quarter of last year. For the full year, corporate expenses totaled $125.6 million (or 6.7% of net revenues) compared to $111.9 million (or 6.5% of net revenues) in 2008. We continue to make investments that will improve our ability to provide strategic partnering and integrated services as well as investments in infrastructure to enhance our ability to manage future growth. In 2010, corporate expenses are expected to be approximately 7% of revenue.

Cash and cash equivalents at December 31, 2009 were $289 million compared to $266 million at September 30, 2009 and $221 million at December 31, 2008. The Company is debt free.

Free cash flow (defined as operating cash flow less capital expenditures) for the fourth quarter of 2009 was $52 million, consisting of operating cash flow of $85 million less capital expenditures of $33 million. Free cash flow in 2009 was $128 million, consisting of operating cash flow of $259 million less capital expenditures of $131 million. In 2010, we expect free cash flow to be approximately $120 million, consisting of operating cash flow of approximately $300 million less capital expenditures of approximately $180 million. The free cash flow target for 2010 assumes net Days Sales Outstanding (DSO) remains at 40 days.

Net Days Sales Outstanding (DSO) were 40 days at December 31, 2009 compared to 42 days at September 30, 2009 and 37 days at December 31, 2008.

We continue to experience a lower effective tax rate due to a shift in the geographic mix of earnings and from tax planning initiatives. The effective tax rate was 25.3% in the fourth quarter and 27.0% for the full-year (excluding the impact of favorable income tax resolutions in the third quarter and the gain on sales in 2009). Our 2010 EPS target assumes an effective tax rate of approximately 26.5%.

The Company's investor conference call will be webcast on January 28 at 9:00 am ET. Management's commentary and presentation slides will be available through http://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 25 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 http://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 MONTHS AND YEARS ENDED DECEMBER 31, 2009 AND 2008

                       (Dollars in thousands, except per share data)


                           Three Months Ended            Years Ended
                               December 31               December 31
                           ------------------            -----------
                           2009        2008            2009         2008
                           ----        ----            ----         ----
                               (UNAUDITED)

    Net revenues          $485,065    $438,645      $1,867,634   $1,728,098
    Reimbursable out-of-
     pocket expenses        22,263      25,190          94,992       98,969
                            ------      ------          ------       ------
         Total revenues    507,328     463,835       1,962,626    1,827,067
                           -------     -------       ---------    ---------

    Costs and expenses:
      Cost of revenue      337,896     294,679       1,277,142    1,142,697
      Reimbursable out-of-
       pocket expenses      22,263      25,190          94,992       98,969
      Selling, general
       and administrative   67,544      61,071         270,593      250,180
      Depreciation and
       amortization         24,753      19,399          91,289       71,571
                            ------      ------          ------       ------
            Total costs
             and expenses  452,456     400,339       1,734,016    1,563,417
                           -------     -------       ---------    ---------

    Income from operations  54,872      63,496         228,610      263,650

    Other expense
     (income), net:
      Interest
       (income)
       expense, net            (57)       (833)            201      (6,461)
      Foreign exchange
       transaction loss (gain),
       net                     353         674             245        (142)
      Gain on sale
       of businesses             -        (143)         (9,681)     (4,070)
                                 -        ----          ------       ------
            Other expense
             (income), net     296        (302)(a)      (9,235)(b) (10,673)(c)
                               ---        ----          ------     -------

    Income before taxes and
     equity
     investee earnings      54,576      63,798(a)      237,845(b)  274,323(c)

    Taxes on income         13,820      18,195(a)       62,870(b)   79,415(c)

    Equity investee earnings   779          75             907       1,852
                               ---          --             ---       -----
    Net income             $41,535     $45,678(a)     $175,882(b) $196,760(c)
                           =======     =======        ========    ========

    Basic earnings
     per share               $0.65       $0.72(a)        $2.76(b)    $3.12(c)

    Weighted average
     shares
     outstanding -
     basic              63,968,682  63,188,155      63,818,717  63,096,155

    Diluted
     earnings per
     share                   $0.64       $0.72(a)        $2.73(b)    $3.08(c)

    Weighted average
     shares
     outstanding -
     diluted            64,541,063  63,647,684      64,341,084  63,981,505

    (a) Includes the impact of a $143 gain on sale of Cardiac Safety Services
    ($93 net of tax) during the fourth quarter of 2008.
    (b) Includes the impact of a $9,026 gain on sale of Interactive Voice &
    Web Response Services ($5,867 net of tax) and the impact of a $655 gain on
    sale of Cardiac Safety Services ($426 net of tax) and favorable income tax
    items totaling $2,072 during the year ended 2009.
    (c) Includes the impact of a $4,070 gain on sale of Cardiac Safety
    Services ($2,646 net of tax) during the year ended 2008.



    Excluding the impact of the gain on sale of businesses and favorable
    income tax items:

    Income before taxes and
     equity investee
     earnings              $54,576     $63,655        $228,164    $270,253

    Taxes on income        $13,820     $18,145         $61,554     $77,991

    Net income             $41,535     $45,585        $167,517    $194,114

    Basic earnings per share $0.65       $0.72           $2.62       $3.08

    Diluted earnings per
     share                   $0.64       $0.72           $2.60       $3.03



                              COVANCE INC.

                      CONSOLIDATED BALANCE SHEETS

                       DECEMBER 31, 2009 and 2008

                         (Dollars in thousands)


                                          December 31  December 31
                                                 2009         2008
                                                 ----         ----

    ASSETS
    Current Assets:
      Cash & cash equivalents                $289,469     $221,334
      Accounts receivable, net                285,119      228,951
      Unbilled services                        97,279      112,719
      Inventory                                80,926       68,206
      Deferred income taxes                    31,512       15,029
      Prepaid expenses and other
       current assets                          93,367       91,451
                                               ------       ------
          Total Current Assets                877,672      737,690

    Property and equipment, net               921,995      860,957
    Goodwill, net                             127,653      105,486
    Other assets                               47,624       48,955
                                               ------       ------
          Total Assets                     $1,974,944   $1,753,088
                                           ==========   ==========

    LIABILITIES and STOCKHOLDERS' EQUITY
    Current Liabilities:
      Accounts payable                        $36,834      $41,887
      Accrued payroll and benefits            111,365      104,607
      Accrued expenses and other current
       liabilities                             73,383       86,521
      Unearned revenue                        166,890      162,556
      Short-term debt                               -       50,000
      Income taxes payable                     14,272       14,224
                                               ------       ------
          Total Current Liabilities           402,744      459,795

    Deferred income taxes                      98,945       51,385
    Other liabilities                          62,251       47,059
                                               ------       ------
          Total Liabilities                   563,940      558,239
                                              -------      -------

    Stockholders' Equity:
      Common stock                                764          754
      Paid-in capital                         587,995      551,598
      Retained earnings                     1,305,451    1,129,569
      Accumulated other comprehensive
       (loss) income                           (5,281)     (13,975)
      Treasury stock                         (477,925)    (473,097)
                                             --------     --------
          Total Stockholders' Equity        1,411,004    1,194,849
                                            ---------    ---------
          Total Liabilities and
           Stockholders'  Equity           $1,974,944   $1,753,088
                                           ==========   ==========



                                  COVANCE INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                 FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

                             (Dollars in thousands)



                                                             Years Ended
                                                             December 31
                                                            ------------

                                                             2009      2008
                                                             ----      ----
    Cash flows from operating activities:
      Net income                                         $175,882  $196,760
      Adjustments to reconcile net income to net cash
       provided by operating activities:
        Depreciation and amortization                      91,289    71,571
        Non-cash compensation expense associated with
         employee benefit and stock compensation plans     26,949    25,389
        Deferred income tax provision                      33,030     9,343
        Gain on sale of businesses                         (9,681)   (4,070)
        Loss on sale of property and equipment                998     1,064
        Equity investee earnings                             (907)   (1,852)
        Changes in operating assets and liabilities, net
         of businesses acquired and sold:
           Accounts receivable                            (54,937)  (11,294)
           Unbilled services                               15,724   (23,884)
           Inventory                                      (12,720)  (13,418)
           Accounts payable                                (5,163)    9,635
           Accrued liabilities                             (8,072)   26,952
           Unearned revenue                                 4,174    17,686
           Income taxes payable                            (1,176)   (2,702)
           Other assets and liabilities, net                3,699   (15,023)
                                                            -----   -------
    Net cash provided by operating activities             259,089   286,157
                                                          -------   -------

    Cash flows from investing activities:
      Capital expenditures                               (131,079) (318,928)
      Acquisition of businesses, net of cash acquired     (28,096)        -
      Proceeds from sale of businesses                     10,373     4,070
      Minority equity investment                                -    (3,136)
      Other, net                                               29       385
                                                               --       ---
    Net cash used in investing activities                (148,773) (317,609)
                                                         --------  --------

    Cash flows from financing activities:
      Net (repayments) borrowings under revolving
       credit facility                                    (50,000)   50,000
      Payment of debt assumed upon acquisition
       of business                                         (5,431)        -
      Stock issued under employee stock purchase and
       option plans                                        10,682    31,500
      Purchase of treasury stock                           (4,828) (132,906)
                                                           ------  --------
    Net cash used in financing activities                 (49,577)  (51,406)
                                                          -------   -------
    Effect of exchange rate changes on cash                 7,396   (15,293)
                                                            -----   -------
    Net change in cash and cash equivalents                68,135   (98,151)

    Cash and cash equivalents, beginning of period        221,334   319,485
                                                          -------   -------

    Cash and cash equivalents, end of period             $289,469  $221,334
                                                         ========  ========