Covance Reports 1Q08 Earnings Growth of 22.3% to $0.73 Per Share

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- 15.1% Revenue Growth; Record Operating Margin of 15.2%; 20.1% Backlog Growth -

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PRINCETON, N.J., April 28 /PRNewswire-FirstCall/ -- Covance Inc. (NYSE: CVD) today reported earnings for its first quarter ended March 31, 2008 of $0.76 per diluted share, inclusive of an additional $0.03 per share gain from the sale of its centralized ECG business in 2007. Excluding the gain on sale, earnings were $0.73 per diluted share, representing 22.3% year-over-year EPS growth.

"In the first quarter, we delivered strong revenue growth of 15.1% and a record operating margin performance," said Joe Herring, Chairman and Chief Executive Officer. "Early Development segment revenues grew 12.7% and operating margins increased both year-on-year and sequentially to 25.0%. Toxicology room renovations in North America are progressing as scheduled and additional capacity will come online in the second quarter. In Late-Stage Development, revenue growth was strong at 17.5% and operating margins expanded more than 200 basis points year-on-year and sequentially to 18.5%. In particular, we were pleased with the very strong revenue growth in central labs of more than 30%.

"First quarter net orders of $469 million were solid, although not indicative of the robust business environment we are currently experiencing. As an example, early in the second quarter, we were awarded a three-year, dedicated capacity toxicology agreement with a minimum contract commitment of $66 million. We were also selected as the primary provider of clinical development services by a top-ten pharmaceutical company and we expect significant 2008 orders from this agreement. Beyond these examples, our pipeline of opportunities is larger and more strategic than at any time in company history. Some of these opportunities are unprecedented in scope, combining multiple service lines in both our Early and Late-Stage Development segments. Our broad-based portfolio of services uniquely positions us to work with these clients to accelerate drug development timelines and make their cost structures more flexible. These favorable market conditions also give us increased confidence in our ability to deliver low- to mid-teens revenue growth and a 20% annual growth in EPS to $3.18 per diluted share in 2008, excluding the gain on sale from both periods."

    Consolidated Results
    ($ in millions except EPS)                 1Q08       1Q07     Change
    Total Revenues                            $434.0     $376.9
    Less: Reimbursable Out-of-Pockets          $21.6      $18.6
    Net Revenues                              $412.4     $358.3     15.1%
    Operating Income                           $62.7      $52.0     20.6%
       Operating Margin %                      15.2%      14.5%
    Net Income                                 $49.1      $38.9     26.2%
    Diluted EPS                                $0.76      $0.60     27.4%
    Gain on Sale, net of tax                    $1.9          -
    Net Income Excluding Gain on Sale          $47.2      $38.9     21.3%
    Diluted EPS Excluding Gain on Sale         $0.73      $0.60     22.3%

    Operating Segment Results

    Early Development

    ($ in millions)                            1Q08       1Q07      Change
    Net Revenues                              $202.0     $179.2     12.7%
    Operating Income                           $50.6      $43.7     15.8%
    Margin %                                   25.0%      24.4%

The Company's Early Development segment includes preclinical toxicology, analytical chemistry, clinical pharmacology services, and research products. Early Development net revenues for the first quarter of 2008 grew 12.7% year- over-year to $202.0 million, compared to $179.2 million in the first quarter of 2007 and $207.9 million last quarter. Year-over-year revenue growth was led by toxicology and chemistry services. The sequential $5.8 million decline in revenue is attributable to a soft quarter in clinical pharmacology (as some studies slipped out of the first quarter), the negative impact of foreign exchange (from a decline of the British pound against the US dollar), and capacity constraints in North America toxicology (as rooms were taken off-line for renovation). We expect strong sequential revenue growth in the second quarter as new toxicology capacity is brought online in Madison, Wisconsin and as volume increases in clinical pharmacology.

Operating income for the first quarter of 2008 increased 15.8% to $50.6 million, compared to $43.7 million for the first quarter of last year. Operating margins for the first quarter of 2008 increased to 25.0% from 24.4% in the first quarter of 2007 and 24.8% last quarter. We expect expansion in Early Development operating margin in 2008 on a full-year basis.

    Late-Stage Development

    ($ in millions)                        1Q08        1Q07      Change
    Net Revenues                         $210.4       $179.1      17.5%
    Operating Income                      $38.9        $29.2      33.1%
    Margin %                              18.5%        16.3%

The Late-Stage Development segment includes central laboratory, Phase II-III clinical development, and commercialization services (periapproval services and market access services). Late-Stage Development net revenues for the first quarter of 2008 grew a strong 17.5% to $210.4 million compared to $179.1 million in the first quarter of 2007. Excluding the impact of the sale of our ECG business, which was divested in November 2007 but remains in the comparison year, Late-Stage Development revenue growth was 21.3%. Growth was led by outstanding performances in central laboratory (which delivered revenue growth in excess of 30% in the quarter due to an increase in kit volumes and a strengthening of the Swiss franc) and clinical development.

Operating income for the first quarter of 2008 was $38.9 million compared to $29.2 million in the first quarter of the prior year. Operating margins for the first quarter of 2008 increased substantially to 18.5% from 16.3% in the first quarter of 2007 and 16.0% last quarter. Central laboratory experienced significant operating margin expansion on both a year-over-year and sequential basis, while margins in clinical development rebounded strongly sequentially. We expect operating margin expansion in Late-Stage Development in 2008 on a full-year basis.

Corporate Information

The Company's backlog at March 31, 2008 grew 20.1% year-over-year to $2.86 billion compared to $2.38 billion at March 31, 2007. Sequential backlog growth of 6.6% was driven by first quarter net orders of $469 million coupled with a $121 million impact from the weakening of the US dollar (primarily against the Swiss franc and Euro).

Corporate expenses totaled $26.7 million in the first quarter of 2008 compared to $23.0 million last quarter and $20.8 million in the first quarter of last year. We expect corporate expenses to average approximately 6.5% of revenue as we continue to make investments in infrastructure to enhance our ability to manage future growth.

Cash and cash equivalents at March 31, 2008 were $233 million compared to $319 million at December 31, 2007 and $182 million at March 31, 2007. At March 31, 2008, short-term debt totaled $43 million. The reduction in cash balance and use of debt compared to year-end is primarily attributable to the Company's repurchase of 1.5 million shares of its common stock for $127 million.

Free cash flow for the first quarter was negative $27 million, consisting of operating cash flow of $36 million (which includes the payment of annual bonuses) less capital expenditures of $63 million. We continue to expect full-year 2008 capital spending to be approximately $250 million, including significant expenditures for the new Arizona preclinical facility and investments in information technology infrastructure, and free cash flow to be approximately $40 million.

Net Days Sales Outstanding (DSO) were 39 days at March 31, 2008 compared to 36 days at December 31, 2007 and 46 days at March 31, 2007.

The Company's investor conference call will be webcast on April 29 at 9:00 am EDT. Management's commentary and presentation slides will be available through

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 $1.5 billion, global operations in more than 20 countries, and more than 8,900 employees worldwide. Information on Covance's products and services, recent press releases, and SEC filings can be obtained through its website at

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, 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.


              FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

                (Dollars in thousands, except per share data)


                                                   Three Months Ended March 31
                                                      2008            2007

    Net revenues                                     $412,432        $358,319
    Reimbursable out-of-pockets                        21,605          18,620
        Total revenues                                434,037         376,939

    Costs and expenses:
      Cost of revenue                                 273,330         234,379
      Reimbursed out-of-pocket expenses                21,605          18,620
      Selling, general and administrative              59,017          55,791
      Depreciation and amortization                    17,348          16,111
        Total costs and expenses                      371,300         324,901

    Income from operations                             62,737          52,038

    Other (income) expense, net:
      Interest income, net                             (2,596)         (2,480)
      Foreign exchange transaction (gain) loss,
       net                                             (1,065)            149
      Gain on sale of business                         (2,978)            -
        Other income, net                              (6,639)(a)      (2,331)

    Income before taxes and equity investee
     earnings                                          69,376 (a)      54,369

    Taxes on income                                    20,723 (a)      16,041

    Equity investee earnings                              449             566

    Net income                                        $49,102 (a)     $38,894

    Basic earnings per share                            $0.78 (a)       $0.61

    Weighted average shares outstanding - basic    63,312,592      63,845,710

    Diluted earnings per share                          $0.76 (a)       $0.60

    Weighted average shares outstanding - diluted  64,322,979      64,895,239

    (a) Includes the impact of a $2,978 gain on sale of Cardiac Safety
        Services ($1,936 net of tax) during the first quarter of 2008.

    Excluding the impact of the gain on sale of business in Q1'08:

    Income before taxes and equity investee earnings  $66,398           n/a

    Taxes on income                                   $19,681           n/a

    Net income                                        $47,166           n/a

    Basic earnings per share                            $0.75           n/a

    Diluted earnings per share                          $0.73           n/a

                                 COVANCE INC.

                         CONSOLIDATED BALANCE SHEETS

                     MARCH 31, 2008 and DECEMBER 31, 2007

                            (Dollars in thousands)

                                                      March 31    December 31
                                                        2008         2007
    Current Assets:
      Cash & cash equivalents                         $232,624      $319,485
      Accounts receivable, net                         220,189       217,657
      Unbilled services                                 96,115        88,835
      Inventory                                         58,839        54,788
      Deferred income taxes                              7,960         7,825
      Prepaid expenses and other current assets         90,538        81,467
        Total Current Assets                           706,265       770,057

    Property and equipment, net                        699,498       646,040
    Goodwill, net                                      105,486       105,486
    Other assets                                        38,866        38,602
        Total Assets                                $1,550,115    $1,560,185

    Current Liabilities:
      Accounts payable                                 $33,467       $32,252
      Accrued payroll and benefits                      74,004        95,313
      Accrued expenses and other current liabilities    68,605        66,838
      Unearned revenue                                 139,331       144,870
      Short-term debt                                   43,000          -
      Income taxes payable                              29,327        18,887
        Total Current Liabilities                      387,734       358,160

    Deferred income taxes                               31,918        32,562
    Other liabilities                                   60,888        59,275
        Total Liabilities                              480,540       449,997

    Stockholders' Equity:
      Common stock                                         749           746
      Paid-in capital                                  507,612       492,373
      Retained earnings                                982,208       933,106
      Other Comprehensive Income:
        Cumulative translation adjustment               69,978        45,328
        FAS 158 adjustment                             (21,174)      (21,174)
      Treasury stock                                  (469,798)     (340,191)
        Total Stockholders' Equity                   1,069,575     1,110,188
        Total Liabilities and
         Stockholders' Equity                       $1,550,115    $1,560,185

                                 COVANCE INC.


              FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

                            (Dollars in thousands)


                                                  Three Months Ended March 31

                                                      2008            2007
    Cash flows from operating activities:
      Net income                                      $49,102         $38,894
      Adjustments to reconcile net income to net
       cash provided by operating activities:
        Depreciation and amortization                  17,348          16,111
        Non-cash compensation expense associated
         with employee benefit and stock
         compensation plans                             6,044           8,256
        Deferred income tax (benefit) provision          (779)         (1,037)
        Gain on sale of business                       (2,978)           -
        Loss on sale of property and equipment             13             240
        Equity investee earnings                         (449)           (566)
        Changes in operating assets and liabilities:
          Accounts receivable                          (2,532)           (152)
          Unbilled services                            (7,280)        (13,108)
          Inventory                                    (4,051)          1,342
          Accounts payable                              1,215          (6,042)
          Accrued liabilities                         (19,542)        (15,875)
          Unearned revenue                             (5,539)         16,091
          Income taxes payable                         11,177           8,618
          Other assets and liabilities, net            (5,957)        (17,866)
    Net cash provided by operating activities          35,792          34,906

    Cash flows from investing activities:
      Capital expenditures                            (62,576)        (31,800)
      Proceeds from sale of business                    2,978            -
      Other, net                                           77            -
    Net cash used in investing activities             (59,521)        (31,800)

    Cash flows from financing activities:
      Net borrowings under revolving credit facility   43,000            -
      Stock issued under employee stock purchase
       and option plans                                 8,461           6,438
      Purchase of treasury stock                     (129,607)        (48,142)
    Net cash used in financing activities             (78,146)        (41,704)

    Effect of exchange rate changes on cash            15,014             336

    Net change in cash and cash equivalents           (86,861)        (38,262)

    Cash and cash equivalents, beginning of period    319,485         219,810

    Cash and cash equivalents, end of period         $232,624        $181,548