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Covance Reports Fourth Quarter Revenue of $532M, GAAP EPS of $0.35, Pro Forma EPS of $0.73, and Adjusted Net Orders of $759M
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PRINCETON, N.J., Jan. 25, 2012 /PRNewswire/ -- Covance Inc. (NYSE: CVD) today reported GAAP earnings for its fourth quarter ended December 31, 2011 of $0.35 per diluted share.  Included in fourth quarter results is approximately $0.41 per diluted share in charges, approximately $0.10 of which relates to the completion of the previously-announced restructuring actions, approximately $0.11 of which relates to the termination of a research products inventory supply agreement and inventory write down, and approximately $0.20 for the impairment of a related equity investment, partially offset by a gain of approximately $0.03 from favorable income tax developments in the quarter.  Excluding these items, diluted earnings per share for the fourth quarter ended December 31, 2011 was $0.73.  For the full year, diluted earnings per share were $2.16 inclusive of $0.58 per share in charges, partially offset by a gain of approximately $0.04 from favorable income tax developments during the year.  Excluding these items, diluted earnings per share for the year ended December 31, 2011 was $2.70.

"During 2011, Covance increased revenue by 8.8% to $2.1 billion, improved pro forma operating margin by 70 basis points (when excluding charges in both periods), and drove pro forma EPS growth of 26% to $2.70 per diluted share. In addition, adjusted net orders for the year were a record $2.53 billion, a year-on-year increase of 13.5%, resulting in a strong adjusted net book-to-bill of 1.21 to 1 for the year," said Joe Herring, Chairman and Chief Executive Officer.  "For the fourth quarter, consolidated revenues grew 8.3% and pro forma operating margin expanded by 130 basis points year-on-year and 50 basis points sequentially to 10.9%.

"In Early Development, fourth quarter net revenues grew 6.3% year-on-year, but declined $5.7 million sequentially due to lower demand in research products and European toxicology services, as well as a $2.3 million foreign exchange headwind.  Early Development pro forma operating margin (when excluding charges in all periods), increased 190 basis points year-on-year to 13.9%, but did not expand sequentially as we had forecasted due primarily to operating losses incurred in research products this quarter.  This lower demand for our research products caused us to reassess inventory levels and the fair value of an equity investment in a supplier.  In Late-Stage Development, net revenues grew 10.0% year-on-year driven by the continued strong performance in our clinical development services. Pro forma operating margin of 20.0% exceeded our expectations due to increased profitability in our central laboratory, which grew revenues sequentially on a constant currency basis for the second consecutive quarter.

"On the commercial front, adjusted net orders in the fourth quarter were a record $759 million, representing an adjusted book-to-bill of 1.42 to 1.  We were particularly pleased to see continued strong orders in clinical development and a further increase in orders in our central laboratory for the second consecutive quarter.  The ongoing strength of our service portfolio, as evidenced by our strong 2011 orders, gives us confidence to continue our investments to drive future growth.

"Looking ahead, we are making strategic investments in our information technology infrastructure and applications to increase the productivity of our drug development services, drive operating efficiencies, and arrest the long-term rate of growth of our information technology spending.  In addition to the implementation of our central laboratory system, which we previously disclosed as a $10 million incremental spend, we are funding three additional strategic projects to help us achieve these objectives. In total, these four projects will increase our IT capital expenditures to approximately $90 million in 2012 (versus approximately $60 million in 2011), and will lead to a significant increase in operating expense over the next two years.  We are also planning to continue expanding our commercial footprint in order to capture an increasing share of the opportunities available in the CRO industry and position us for longer-term growth.  In aggregate, we are projecting spending in these areas to be above the growth rate in revenue by approximately $25 million, or $0.32 per diluted share in 2012.

"In the first quarter of 2012, we expect a modest increase in net revenues from the fourth quarter level as we forecast a further sequential decline in Early Development net revenue, to be offset by an increase in Late-Stage net revenues.  A drop in Early Development earnings due to the expected lower level of revenue, when combined with the increased information technology spending and foreign exchange headwind, is expected to result in diluted earnings per share in the low $0.60 range.  

"For the full year, we are forecasting mid-single digit year-on-year revenue growth (inclusive of an approximate 200 basis point headwind from the stronger USD) and diluted earnings per share in the range of $2.50 to $2.80.  This diluted earnings per share range reflects increased investment in IT and commercial, the estimated impact of anticipated share repurchases that may be made under our Board-approved share repurchase programs ($0.15 to $0.20 per share), excludes potential new strategic alliances with clients, and assumes foreign exchange rates remain at year-end 2011 levels."  

Consolidated Results


($ in millions except EPS)

4Q11

4Q10

Change

FY 2011

FY 2010

Change

Total Revenues

$582.4

$519.5


$2,236.4

$2,038.5


Less: Reimbursable Out-of-Pockets  

$49.9

$28.0


$140.5

$112.9


Net Revenues

$532.5

$491.5

8.3%

$2,095.9

$1,925.6

8.8%

Operating Income

$39.0

$28.9

35.0%

$180.6

$47.5

280.3%

Net Income

$21.1

$28.4

(25.5%)

$132.2

$68.3

93.7%

Earnings Per Share

$0.35

$0.45

(23.6%)

$2.16

$1.06

104.3%

2011 Charges*

($31.1)

-


($46.8)

-


2010 Charges*

-

($18.4)


-

($137.6)


Favorable Income Tax items*

$1.8

$6.9


$2.5

$17.3


Operating Income, excluding items*

$57.9

$47.2

22.6%

$215.3

$185.1

16.3%

 Operating Margin %, ex items*

10.9%

9.6%


10.3%

9.6%


Net Income, excluding items*

$44.6

$35.1

26.9%

$165.0

$138.6

19.1%

Diluted EPS, excluding items*

$0.73

$0.56

30.4%

$2.70

$2.15

25.7%




* See attached pro forma income statements for reconciliation of GAAP to pro forma amounts.

Operating Segment Results

Early Development


($ in millions)

4Q11

4Q10

Change

FY 2011

FY 2010

Change

Net Revenues

$234.5

$220.6

6.3%

$930.6

$840.3

10.7%

GAAP Operating Income (Loss)

$17.7

$21.1

(16.3%)

$105.3

($32.0)

-

GAAP Operating Margin %

7.5%

9.6%


11.3%

(3.8%)


2011 Charges

($15.0)

-


($21.7)

-


2010 Charges

-

($5.4)


-

($124.6)


2010 Cost Actions

-

-


-

($8.0)


Pro Forma Operating Income

$32.6

$26.6

22.8%

$127.0

$100.7

26.1%

Pro Forma OM%

13.9%

12.0%


13.7%

12.0%





The Early Development segment includes preclinical toxicology, analytical chemistry, clinical pharmacology, discovery support, and research products.  Net revenues in the fourth quarter of 2011 grew 6.3% year-on-year to $234.5 million, driven by the results from our new Alnwick, UK and Porcheville, France sites and clinical pharmacology. On a sequential basis, revenues declined $5.7 million due to lower demand in research products and European toxicology services, as well as a $2.3 million foreign exchange headwind. North American toxicology experienced modest year-on-year growth and was flat sequentially.  

GAAP operating income for the fourth quarter of 2011 was $17.7 million, and included $4.7 million in charges relating to our previously announced restructuring activities as well as $10.3 million in charges associated with lower demand for our research products (costs to terminate a product supply agreement and inventory write-down).  Pro forma operating income, excluding charges in all periods, was $32.6 million in the current quarter, compared to $35.0 million last quarter and $26.6 million in the fourth quarter of last year.  The primary driver of the sequential decline in pro forma operating income was the loss we incurred in our research products operation from lower demand, as previously discussed.  Pro forma operating margins, excluding charges in all periods, were 13.9% for the fourth quarter, compared to 14.6% last quarter and 12.0% in the fourth quarter of 2010.  

Late-Stage Development


($ in millions)

4Q11

4Q10

Change

FY 2011

FY 2010

Change

Net Revenues

$298.0

$270.9

10.0%

$1,165.4

$1,085.3

7.4%

GAAP Operating Income

$ 58.2

$47.6

22.3%

$226.3

$225.5

0.4%

GAAP Operating Margin %

19.5%

17.6%


19.4%

20.8%


2011 Charges

($1.3)

-


($5.0)

-


2010 Charges

-

($7.1)


-

($7.1)


2010 Cost Actions

-

-


-

($0.2)


Pro Forma Operating Income

$59.5

$ 54.7

8.7%

$231.3

$232.8

(0.7%)

Pro Forma OM%

20.0%

20.2%


19.8%

21.5%





The Late-Stage Development segment includes central laboratory, Phase II-IV clinical development, and market access services.  Net revenues for the fourth quarter of 2011 grew 10.0% year-on-year to $298.0 million, primarily driven by the continued strong performance in clinical development and a 190 basis point tailwind in foreign exchange.  On a sequential basis, revenues declined $5.0 million due to a $10.1 million foreign exchange headwind, which more than offset growth across the segment's service offerings, at constant exchange rates.

GAAP operating income for the fourth quarter was $58.2 million and included $1.3 million in costs associated with our restructuring actions. Pro forma operating income, excluding these costs, was $59.5 million, compared to $58.4 million last quarter and $54.7 million in the fourth quarter of the prior year. Pro forma operating margins, excluding these costs, were 20.0% for the fourth quarter of 2011 compared to 19.3% last quarter and 20.2% in the fourth quarter of last year. The sequential increase in profitability was primarily due to stronger central laboratory performance.

Corporate Information

The Company's backlog at December 31, 2011 was $6.14 billion compared to $6.08 billion at September 30, 2011 and $6.19 billion at December 31, 2010. Foreign exchange negatively impacted sequential backlog growth by $75 million.  

Corporate expenses totaled $37.0 million in the fourth quarter of 2011 (including $2.7 million in restructuring costs) compared to $38.4 million last quarter (including $1.4 million in restructuring costs) and $39.9 million in the fourth quarter of last year.

During the fourth quarter, the company recorded a $12.1 million charge to recognize an impairment in the carrying value of an equity investment in a supplier of research products.  This charge is reflected as a component of other income (expense) in the consolidated statements of income.

Cash and cash equivalents at December 31, 2011 were $389 million compared to $400 million at September 30, 2011 and $377 million at December 31, 2010.  Covance repaid $60 million in debt during the quarter and now has $30.0 million in debt outstanding, originating from borrowings related to the fourth quarter 2010 accelerated share repurchase.

Free cash flow (defined as operating cash flow less capital expenditures) for the fourth quarter of 2011 was $54 million, consisting of operating cash flow of $102 million less capital expenditures of $48 million.  Free cash flow for the full year was $109 million, consisting of operating cash flow of $243 million less capital expenditures of $135 million. We expect 2012 capital spending to be approximately $180 million.

Net Days Sales Outstanding (DSO) were 38 days at December 31, 2011 compared to 38 days at September 30, 2011 and 31 days at December 31, 2010.

The Company's investor conference call will be webcast on January 26 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 $2 billion, global operations in more than 30 countries, and more than 11,000 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 or delay of large studies, risks associated with acquisitions and investments, the Company's ability to increase order volume, the pace of translation of orders into revenue in late-stage development services, testing mix and geographic mix of kit receipts in central laboratories,  fluctuations in currency exchange rates, the price and rate at which the company executes its share repurchase program, the cost and pace of completion of our information technology projects and the realization of benefits therefrom, and other factors described in the Company's filings with the Securities and Exchange Commission including its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.  The Company undertakes no duty to update any forward looking statement to conform the statement to actual results or changes in the Company's expectations.

Financial Exhibits Follow

COVANCE INC.








CONSOLIDATED INCOME STATEMENTS








FOR THE THREE MONTHS AND YEARS ENDED DECEMBER 31, 2011 AND 2010








(Dollars in thousands, except per share data)
























Three Months Ended December 31


Years Ended December 31




2011


2010


2011


2010




(UNAUDITED)
















Net revenues


$    532,478


$    491,513


$ 2,095,938


$ 1,925,630


Reimbursable out-of-pocket expenses


49,907


27,942


140,508


112,843


    Total revenues


582,385


519,455


2,236,446


2,038,473












Costs and expenses:










 Cost of revenue


371,852


346,924


1,467,051


1,348,498


 Reimbursable out-of-pocket expenses


49,907


27,942


140,508


112,843


 Selling, general and administrative


95,752


89,810


343,044


307,386


 Depreciation and amortization


25,923


25,919


105,214


103,024


 Asset impairment charges


-


-


-


119,229


       Total costs and expenses


543,434

(a)

490,595

(d)

2,055,817

(c)

1,990,980

(e)











Income from operations


38,951

(a)

28,860

(d)

180,629

(c)

47,493

(e)











Other expense, net:










 Interest expense, net


339


430


1,979


52


 Foreign exchange transaction loss, net


356


1,054


1,248


3,649


 Impairment of equity investment


12,119


-


12,119


-


       Other expense, net


12,814

(b)

1,484


15,346

(b)

3,701












Income before taxes and equity investee earnings


26,137

(a),(b)

27,376

(d)

165,283

(b),(c)

43,792

(e)











Tax expense (benefit)


5,172

(a),(b)

(1,121)

(d)

33,574

(b),(c)

(23,655)

(e)











Equity investee earnings (loss)


175


(119)


480


807












Net income


$      21,140

(a),(b)

$      28,378

(d)

$    132,189

(b),(c)

$      68,254

(e)











Basic earnings per share


$          0.35

(a),(b)

$          0.46

(d)

$          2.22

(b),(c)

$          1.08

(e)











Weighted average shares outstanding - basic


59,730,270


61,390,965


59,629,788


63,043,561












Diluted earnings per share


$          0.35

(a),(b)

$          0.45

(d)

$          2.16

(b),(c)

$          1.06

(e)











Weighted average shares outstanding - diluted


61,080,387


62,703,690


61,091,354


64,472,326
































(a) Includes, as applicable, $8,667 in restructuring costs ($5,961 net of tax), $10,287 in costs associated with the termination of an inventory supply agreement and related inventory write-down ($7,130 net of tax) and favorable income tax items totaling $1,769 during the three months ended December, 2011.

(b) Includes $12,119 impairment of equity investment ($12,119 net of tax) during the three and twelve months ended December 31, 2011.

(c) Includes, as applicable, $24,369 in restructuring costs ($16,067 net of tax), $10,287 in costs associated with the termination of an inventory supply agreement and related inventory write-down ($7,130 net of tax) and favorable income tax items totaling $2,469 during the year ended December 31, 2011.

(d) Includes, as applicable, $18,362 in restructuring costs ($13,688 net of tax) and $6,946 in favorable income tax items during the three months ended December 31, 2010.

(e) Includes, as applicable, asset impairment charges ($119,229) and restructuring costs ($18,362) totaling $137,591 ($87,610 net of tax) and favorable income tax items totaling $17,298 during the year ended December 31, 2010.



Excluding the impact of restructuring charges, inventory write-down and related charges, the asset impairment charges, the impairment of equity investment and favorable income tax items:











Income from operations


$      57,905


$      47,222


$    215,285


$    185,084












Taxes on income


$      12,804


$      10,499


$      47,502


$      43,624












Net income


$      44,581


$      35,120


$    165,036


$    138,566












Basic earnings per share


$          0.75


$          0.57


$          2.77


$          2.20












Diluted earnings per share


$          0.73


$          0.56


$          2.70


$          2.15




COVANCE INC.



CONSOLIDATED BALANCE SHEETS



DECEMBER 31, 2011 and DECEMBER 31, 2010







(Dollars in thousands)
















December 31


December 31




2011


2010







ASSETS





Current Assets:






Cash & cash equivalents


$       389,103


$       377,223


Accounts receivable, net


312,127


261,160


Unbilled services


114,095


90,729


Inventory


74,698


82,924


Deferred income taxes


52,078


35,648


Prepaid expenses and other current assets


144,809


98,127


   Total Current Assets


1,086,910


945,811







Property and equipment, net


849,551


843,983

Goodwill, net


127,779


127,653

Other assets


43,768


48,095


   Total Assets


$    2,108,008


$    1,965,542







LIABILITIES and STOCKHOLDERS' EQUITY





Current Liabilities:






Accounts payable


$         36,393


$         34,079


Accrued payroll and benefits


142,229


107,572


Accrued expenses and other current liabilities


119,308


97,395


Unearned revenue


202,210


186,301


Short-term debt and current portion of long-term debt


30,000


45,000


Income taxes payable


6,889


28,827


   Total Current Liabilities


537,029


499,174







Long-term debt


-


87,500

Deferred income taxes


42,295


30,531

Other liabilities


70,889


68,516


   Total Liabilities


650,213


685,721







Stockholders' Equity:






Common stock


781


774


Paid-in capital


689,584


639,341


Retained earnings


1,505,894


1,373,705


Accumulated other comprehensive income


4,622


277


Treasury stock


(743,086)


(734,276)


   Total Stockholders' Equity


1,457,795


1,279,821


   Total Liabilities and Stockholders'  Equity


$    2,108,008


$    1,965,542



COVANCE INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010


(Dollars in thousands)













Years Ended December 31






2011


2010

Cash flows from operating activities:





 Net income


$ 132,189


$   68,254

 Adjustments to reconcile net income to net cash provided by





   operating activities:





   Depreciation and amortization


105,214


103,024

   Asset impairment charges


-


119,229

   Non-cash compensation expense associated with employee benefit





      and stock compensation plans


40,057


32,289

   Deferred income tax benefit


(6,128)


(71,661)

   Impairment of equity investment


12,119


-

   Loss on disposal of property and equipment


1,618


1,487

   Equity investee earnings


(480)


(807)

   Changes in operating assets and liabilities, net of businesses





      acquired:





      Accounts receivable


(50,754)


23,959

      Unbilled services


(23,366)


6,550

      Inventory


8,226


(1,998)

      Accounts payable


2,297


(2,755)

      Accrued liabilities


56,409


20,097

      Unearned revenue


15,909


19,411

      Income taxes payable


(21,070)


14,797

      Other assets and liabilities, net


(28,762)


2,547

Net cash provided by operating activities


243,478


334,423






Cash flows from investing activities:





 Capital expenditures


(134,633)


(126,278)

 Acquisition of businesses, net of cash acquired


(411)


(20,994)

 Other, net


192


47

Net cash used in investing activities


(134,852)


(147,225)






Cash flows from financing activities:





 Net (repayments) borrowings under revolving credit facility


(5,000)


35,000

 Borrowings under long-term debt


-


100,000

 Repayments under long-term debt


(97,500)


(2,500)

 Stock issued under employee stock purchase and option plans


9,325


18,825

 Purchase of treasury stock


(8,810)


(256,351)

Net cash used in financing activities


(101,985)


(105,026)

Effect of exchange rate changes on cash


5,239


5,582

Net change in cash and cash equivalents


11,880


87,754






Cash and cash equivalents, beginning of period


377,223


289,469






Cash and cash equivalents, end of period


$ 389,103


$ 377,223



COVANCE INC.










GAAP to Pro Forma Reconciliation










Q4 2011










(Dollars in thousands, except per share data)











(UNAUDITED)














Adjustments




GAAP


Restructuring
Activities (1)


Other
Charges (2)


Income Tax
Items (3)


Pro Forma











Net revenues

$    532,478








$    532,478

Reimbursable out-of-pocket expenses

49,907








49,907

    Total revenues

582,385


-


-


-


582,385











Costs and expenses:










 Cost of revenue

371,852








371,852

 Reimbursable out-of-pocket expenses

49,907








49,907

 Selling, general and administrative

95,752


(8,754)


(10,287)




76,711

 Depreciation and amortization

25,923


87






26,010

       Total costs and expenses

543,434


(8,667)


(10,287)


-


524,480











Income from operations

38,951


8,667


10,287


-


57,905











Other expense (income), net:










 Interest expense (income), net

339








339

 Foreign exchange transaction loss, net

356








356

 Impairment of equity investment

12,119




(12,119)




-

       Other expense (income), net

12,814


-


(12,119)


-


695











Income before taxes and equity investee earnings

26,137


8,667


22,406


-


57,210











Tax expense

5,172


2,706


3,157


1,769


12,804











Equity investee earnings

175








175











Net income

$      21,140


$              5,961


$      19,249


$                   (1,769)


$      44,581











Basic earnings per share

$          0.35


$                0.10


$          0.32


$                     (0.03)


$          0.75











Weighted average shares outstanding - basic

59,730,270


59,730,270


59,730,270


59,730,270


59,730,270











Diluted earnings per share

$          0.35


$                0.10


$          0.32


$                     (0.03)


$          0.73











Weighted average shares outstanding - diluted

61,080,387


61,080,387


61,080,387


61,080,387


61,080,387





















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

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

(3) Represents favorable resolutions of income tax matters.



COVANCE INC.








GAAP to Pro Forma Reconciliation








Q4 2010








(Dollars in thousands, except per share data)









(UNAUDITED)












Adjustments



GAAP


Restructuring
Activities (1)


Income Tax
Items (2)


Pro Forma









Net revenues

$    491,513






$    491,513

Reimbursable out-of-pocket expenses

27,942






27,942

    Total revenues

519,455


-


-


519,455









Costs and expenses:








 Cost of revenue

346,924






346,924

 Reimbursable out-of-pocket expenses

27,942






27,942

 Selling, general and administrative

89,810


(18,092)




71,718

 Depreciation and amortization

25,919


(270)




25,649

       Total costs and expenses

490,595


(18,362)


-


472,233









Income from operations

28,860


18,362


-


47,222









Other expense (income), net:








 Interest expense (income), net

430






430

 Foreign exchange transaction loss, net

1,054






1,054

       Other expense (income), net

1,484


-


-


1,484









Income before taxes and equity investee earnings

27,376


18,362


-


45,738









Tax (benefit) expense

(1,121)


4,674


6,946


10,499









Equity investee (loss) earnings

(119)






(119)









Net income

$      28,378


$           13,688


$       (6,946)


$      35,120









Basic earnings per share

$          0.46


$               0.22


$         (0.11)


$          0.57









Weighted average shares outstanding - basic

61,390,965


61,390,965


61,390,965


61,390,965









Diluted earnings per share

$          0.45


$               0.22


$         (0.11)


$          0.56









Weighted average shares outstanding - diluted

62,703,690


62,703,690


62,703,690


62,703,690

















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

(2) Represents favorable resolutions of income tax matters.



COVANCE INC.










GAAP to Pro Forma Reconciliation










For the year ended December 31, 2011










(Dollars in thousands, except per share data)











(UNAUDITED)














Adjustments




GAAP


Restructuring
Activities (1)


Other
Charges (2)


Income Tax
Items (3)


Pro Forma











Net revenues

$ 2,095,938








$ 2,095,938

Reimbursable out-of-pocket expenses

140,508








140,508

    Total revenues

2,236,446


-


-


-


2,236,446











Costs and expenses:










 Cost of revenue

1,467,051








1,467,051

 Reimbursable out-of-pocket expenses

140,508








140,508

 Selling, general and administrative

343,044


(22,592)


(10,287)




310,165

 Depreciation and amortization

105,214


(1,777)






103,437

       Total costs and expenses

2,055,817


(24,369)


(10,287)


-


2,021,161











Income from operations

180,629


24,369


10,287


-


215,285











Other expense (income), net:










 Interest expense (income), net

1,979








1,979

 Foreign exchange transaction loss, net

1,248








1,248

 Impairment of equity investment

12,119




(12,119)




-

       Other expense (income), net

15,346


-


(12,119)


-


3,227











Income before taxes and equity investee earnings

165,283


24,369


22,406


-


212,058











Tax expense

33,574


8,302


3,157


2,469


47,502











Equity investee earnings

480








480











Net income

$    132,189


$            16,067


$      19,249


$                   (2,469)


$    165,036











Basic earnings per share

$          2.22


$                0.27


$          0.32


$                     (0.04)


$          2.77











Weighted average shares outstanding - basic

59,629,788


59,629,788


59,629,788


59,629,788


59,629,788











Diluted earnings per share

$          2.16


$                0.26


$          0.32


$                     (0.04)


$          2.70











Weighted average shares outstanding - diluted

61,091,354


61,091,354


61,091,354


61,091,354


61,091,354





















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

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

(3) Represents favorable resolutions of income tax matters.



COVANCE INC.








GAAP to Pro Forma Reconciliation








For the year ended December 31, 2010








(Dollars in thousands, except per share data)









(UNAUDITED)












Adjustments




GAAP


Asset
Impairment and
Restructuring
Activities (1)


Income Tax
Items (2)


Pro Forma









Net revenues

$ 1,925,630






$ 1,925,630

Reimbursable out-of-pocket expenses

112,843






112,843

    Total revenues

2,038,473


-


-


2,038,473









Costs and expenses:








 Cost of revenue

1,348,498






1,348,498

 Reimbursable out-of-pocket expenses

112,843






112,843

 Selling, general and administrative

307,386


(18,092)




289,294

 Depreciation and amortization

103,024


(270)




102,754

 Asset impairment charges

119,229


(119,229)




-

       Total costs and expenses

1,990,980


(137,591)


-


1,853,389









Income from operations

47,493


137,591


-


185,084









Other expense (income), net:








 Interest expense (income), net

52






52

 Foreign exchange transaction loss, net

3,649






3,649

       Other expense (income), net

3,701


-


-


3,701









Income before taxes and equity investee earnings

43,792


137,591


-


181,383









Tax (benefit) expense

(23,655)


49,981


17,298


43,624









Equity investee earnings

807






807









Net income

$      68,254


$                   87,610


$     (17,298)


$    138,566









Basic earnings per share

$          1.08


$                       1.39


$         (0.27)


$          2.20









Weighted average shares outstanding - basic

63,043,561


63,043,561


63,043,561


63,043,561









Diluted earnings per share

$          1.06


$                       1.36


$         (0.27)


$          2.15









Weighted average shares outstanding - diluted

64,472,326


64,472,326


64,472,326


64,472,326

















(1) Represents asset impairment charges totaling $119,229 and restructuring costs totaling $18,362 incurred in connection with capacity rationalization, streamlining operations and other cost reduction actions.

(2) Represents favorable resolutions of income tax matters.



SOURCE Covance Inc.


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