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Covance Reports Second Quarter Pro Forma Net Revenue Of $538 Million, Pro Forma EPS Of $0.65 And Adjusted Net Orders Of $701 Million
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PRINCETON, N.J., July 25, 2012 /PRNewswire/ -- Covance Inc. (NYSE: CVD) today reported results for its second quarter ended June 30, 2012.  On a GAAP basis, net revenue was $543 million.  Excluding revenue from facilities where closure activities have commenced (as described below), pro forma net revenue was $538 million.  On a GAAP basis, the company reported a loss of $0.23 per share in the second quarter.  Excluding losses from facilities where closure activities have commenced, restructuring costs, and asset impairments, the company reported earnings per diluted share of $0.65.

"In the second quarter pro forma net revenues grew sequentially in both of our business segments, pro forma operating margin expanded 30 basis points sequentially to 9.0%, and pro forma EPS increased to $0.65," said Joe Herring, Chairman and Chief Executive Officer.  "Continued strong commercial performance, led by another record order performance in clinical development, drove a third consecutive quarter of adjusted net orders of at least $700 million, representing a 14% year-on-year increase and an adjusted book-to-bill of 1.30 to 1. In addition, our strategic information technology projects continue to progress on time and on budget.

"In terms of segment performance in the quarter, Late-Stage Development revenues grew 12.8% year-on-year, led again by revenue growth in excess of 25% in clinical development and continued year-on-year and sequential growth in central laboratories, which more than offset a decline in our market access services. Operating margins increased 110 basis points year-on-year to 21.1%, but declined as expected from the exceptional first quarter level on increased staffing in clinical development, lower profitability in market access services and increased spending on strategic IT projects. Late-Stage margins are expected to decline in the back half of 2012 due to increased IT spending, continued hiring in clinical, normal seasonality, and the impact of the stronger US dollar.

"In Early Development, we continued to drive our cost reduction and capacity rationalization actions in order to better align supply with demand and improve margins. In addition to the $20 million of annualized profit improvement announced in May, today we are announcing an incremental $15 million, bringing the total annualized impact of these actions to approximately $35 million from the cost reductions and capacity rationalizations, with approximately one-third expected to be realized in 2012. The 2012 savings are largely expected to offset a slower ramp in Early Development earnings this year. New actions include the further streamlining of operations, closure activities at our Phase I clinics in Honolulu and Basel, and a one-third reduction in our Muenster toxicology capacity (the actions in Muenster and Basel are pending the completion of customary employee consultations). In addition, we are pursuing further cost actions, including a reduction of our corporate spending.  

"In terms of Early Development's second quarter results, pro forma revenue and earnings (which exclude restructuring costs; losses incurred in Chandler, Honolulu, and Basel; and asset impairments) improved sequentially from first quarter levels. Pro forma net revenues increased $3.7 million sequentially to $215.4 million while pro forma operating margin increased 340 basis points sequentially to 8.7%. We expect a sequential increase in revenue and operating margins for the segment in the third quarter as somewhat higher volumes in toxicology and discovery support are expected to more than offset a decline in clinical pharmacology results. 

"Looking forward to the third quarter of 2012, we expect pro forma revenue and EPS to be slightly higher than the second quarter level. For the full year, we are revising our revenue growth forecast to the low- to mid-single-digit range primarily due to foreign exchange headwinds and more modest sequential growth in Early Development.  We now expect pro forma diluted earnings per share to be in the range of $2.50 to $2.70 (excluding impairment charges, restructuring costs and losses from facilities in wind-down, and using June 30 foreign exchange rates)."

Consolidated Results

($ in millions except EPS)

2Q12

2Q11

Change

YTD12

YTD11

Change

Total Revenues

$585.0

$547.7


$1,158.9

$1,075.2


Less: Reimbursable Out-of-Pockets 

$42.2

$29.5


$85.3

$55.0


Net Revenues

$542.8

$518.2

4.7%

$1,073.6

$1,020.2

5.2%

Operating Income (Loss)

($3.9)

$48.8

(108.1%)

$42.2

$90.7

(53.5%)

   Operating Margin

(0.7%)

9.4%


3.9%

8.9%


Net Income (Loss)

($12.7)

$37.6

(133.7%)

$23.0

$70.4

(67.3%)

Earnings (Loss) per Share

($0.23)

$0.61

(138.0%)

$0.40

$1.15

(65.2%)

Revenue from facilities in wind-down**

$4.3

-


$4.3

-


Net Revenue, continuing ops*

$538.5

$518.2

3.9%

$1,069.3

$1,020.2

4.8%

Restructuring Costs

($9.7)

($4.6)


($9.7)

($10.4)


Loss from facilities in wind-down**

($3.8)

-


($3.8)

-


Impairment of Goodwill & Inventory

($38.7)

-


($38.7)

-


Operating Income, excluding items*

$48.3

$53.3

(9.4%)

$94.4

$101.1

(6.6%)

  Operating Margin, excluding items*

9.0%

10.3%


8.8%

9.9%


Impairment of Equity Investment

($7.4)

-


($7.4)

-


Net Income, excluding items*

$36.3

$40.6

(10.5%)

$72.0

$77.1

(6.6%)

Diluted EPS, excluding items*

$0.65

$0.66

(1.7%)

$1.25

$1.26

(0.7%)

* See attached pro forma income statement for reconciliation of 2012 & 2011 GAAP to pro forma amounts.
** Facilities in wind-down include Chandler, Honolulu, and Basel (pending the completion of customary Swiss employee consultation).

Operating Segment Results

Early Development

($ in millions)

2Q12

2Q11

Change

YTD12

YTD11

Change

Net Revenues

$219.7

$231.8

(5.2%)

$431.4

$455.9

(5.4%)

Operating Income (Loss)

($33.1)

$ 30.9

(207.0%)

($21.8)

$ 54.5

(140.0%)

Operating Margin

(15.1%)

13.3%


(5.1%)

12.0%


Revenue from facilities in wind-down**

$4.3

-


$4.3

-


Net Revenue, continuing ops

$215.4

$231.8

(7.1%)

$427.1

$455.9

(6.3%)

Restructuring Costs

($9.2)

($2.0)


($9.2)

($4.9)


Loss from facilities in wind-down**

($3.8)

-


($3.8)

-


Impairment of Goodwill & Inventory

($38.7)

-


($38.7)

-


Operating Income, excluding items

$18.7

$32.9

(43.3%)

$30.0

$59.4

(49.5%)

Operating Margin, excluding items

8.7%

14.2%


7.0%

13.0%


** Facilities in wind-down include Chandler, Honolulu, and Basel (pending the completion of customary Swiss employee consultation).

The Early Development segment includes preclinical toxicology, analytical chemistry, clinical pharmacology, discovery support, and research products.  Net revenues in the second quarter of 2012 declined 5.2% year-on-year on a GAAP basis to $219.7 million and 7.1% on a pro forma basis to $215.4 million, due to a decline in toxicology and research products. In the quarter, foreign exchange was a 100 basis point year-on-year headwind. Sequentially, revenues increased $3.7 million on a rebound in discovery support and clinical pharmacology, which more than offset a decline in research products and toxicology. Revenue from ongoing toxicology operations increased on a sequential basis.  

The GAAP operating loss in the second quarter of 2012 was $33.1 million, and included $9.2 million in costs associated with our restructuring actions, $3.8 million in losses at locations in wind-down and asset impairment charges of $38.7 million relating to the write down of goodwill for the Basel clinic as well as certain preclinical inventory. GAAP operating income for the second quarter of 2011 was $30.9 million, and included $2.0 million in restructuring costs. Pro forma operating income, excluding these items, was $18.7 million in the quarter, compared to $32.9 million in the second quarter of last year, but up from $11.3 million last quarter. Pro forma operating margins, excluding these items, were 8.7% for the second quarter of this year, compared to 14.2% in the second quarter of 2011 and 5.3% last quarter. Sequentially, pro forma operating income increased primarily from a return to profitability in discovery support services (which experienced a loss last quarter), increased profitability in toxicology and the exclusion of losses in Chandler, Honolulu and Basel. Research products, which was profitable in the first quarter, experienced a loss in the second quarter.

Late-Stage Development            

($ in millions)

2Q12

2Q11

Change

YTD12

YTD11

Change

Net Revenues

$323.1

$286.4

12.8%

$642.3

$564.3

13.8%

Operating Income

$68.0

$56.5

20.3%

$140.5

$111.8

25.7%

Operating Margin

21.1%

19.7%


21.9%

19.8%


Restructuring Costs

($0.2)

($0.7)


($0.2)

($1.7)


Operating Income, excluding items

$68.2

$57.3

19.1%

$140.7

$113.4

24.0%

Operating Margin, excluding items

21.1%

20.0%


21.9%

20.1%


The Late-Stage Development segment includes central laboratory, Phase II-IV clinical development, and market access services.  Net revenues for the second quarter of 2012 grew 12.8% year-on-year to $323.1 million. In the quarter, foreign exchange negatively impacted year-on-year revenue growth by 320 basis points.  Growth was driven by the continued strong performance in clinical development, which offset a decline in market access revenue. Central laboratories grew by over 4% for the second consecutive quarter.   

Operating income for the second quarter was $68.0 million on a GAAP basis or $68.2 million on a pro forma basis.  This compares to $56.5 million on a GAAP basis and $57.3 million on a pro forma basis in the second quarter of the prior year and to $72.4 million last quarter. Pro forma operating margins were 21.1% for the second quarter of 2012 compared to pro forma operating margins of 20.0% in the second quarter of last year and 22.7% last quarter. The year-on-year increase in profitability was driven by both clinical development and central laboratories, while the sequential decrease was primarily driven by hiring and staff costs in clinical development, lower profitability in market access services, and increased spending on strategic IT projects.

Corporate Information

The company reported second quarter adjusted net orders of $701 million. Backlog at June 30, 2012 was $6.23 billion compared to $6.28 billion at March 31, 2012 and $6.25 billion at June 30, 2011. Foreign exchange negatively impacted backlog sequentially by $105 million. 

Corporate expenses totaled $38.9 million in the second quarter of 2012 (including $0.3 million in restructuring costs) compared to $37.6 million last quarter and $38.7 million in the second quarter of last year (including $1.8 million in restructuring costs).  We expect corporate expenses as a percent of revenue, excluding restructuring costs, to trend slightly higher during 2012 and 2013 as we incur costs to execute our strategic IT projects.

During the second quarter, the company recorded an impairment charge of $7.4 million to write-off the remaining 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 June 30, 2012 were $398 million compared to $440 million at March 31, 2012 and $406 million at June 30, 2011.  Covance repaid $10 million in debt during the quarter and now has $330 million in debt outstanding, originating from borrowings related to our share repurchase program. Covance repurchased $18 million of shares outstanding within the second quarter.

Free cash flow (defined as operating cash flow less capital expenditures) for the second quarter of 2012 was negative $3 million, consisting of operating cash flow of $36 million less capital expenditures of $39 million.  Free cash flow year-to-date was $13 million, consisting of operating cash flow of $82 million less capital expenditures of $69 million.  

Net Days Sales Outstanding (DSO) were 35 days at June 30, 2012 compared to a record low 29 days at March 31, 2012 and 38 days at June 30, 2011.

The Company's investor conference call will be webcast on July 26 at 9:00 am ET.  Management's commentary and presentation slides will be available through www.covance.com. 

Covance, with headquarters in Princeton, New Jersey, is one of the world's largest and most comprehensive drug development services companies with annual revenues greater than $2 billion, global operations in more than 30 countries, and 11,500 employees worldwide.  Information on Covance's products and services, recent press releases, and SEC filings can be obtained through its website at 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 realization of savings from the announced restructuring action in the Company's Early Development segment, the cost and pace of completion of our information technology projects and the realization of benefits therefrom,  and other factors described in the Company's filings with the Securities and Exchange Commission including its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.  The Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations.

Financial Exhibits Follow

 

COVANCE INC.












CONSOLIDATED INCOME STATEMENTS












FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011












(Dollars in thousands, except per share data)












(UNAUDITED)














Three Months Ended June 30


Six Months Ended June 30




2012


2011


2012


2011










Net revenues


$   542,782


$   518,220


$1,073,623


$1,020,206


Reimbursable out-of-pocket expenses


42,263


29,507


85,330


54,979


     Total revenues


585,045


547,727


1,158,953


1,075,185












Costs and expenses:










  Cost of revenue


408,198


358,332


784,658


711,852


  Reimbursable out-of-pocket expenses


42,263


29,507


85,330


54,979


  Selling, general and administrative


90,601


85,297


171,630


166,000


  Depreciation and amortization


29,953


25,836


57,183


51,699


  Goodwill impairment charge


17,959


-


17,959


-


        Total costs and expenses


588,974

(a)

498,972

(b)

1,116,760

(a)

984,530

(c)











(Loss) income from operations


(3,929)

(a)

48,755

(b)

42,193

(a)

90,655

(c)











Other expense, net:










  Interest expense, net


940


579


1,433


1,297


  Foreign exchange transaction loss, net


792


307


1,020


115


  Impairment of equity investment


7,373


-


7,373


-


  Loss on sale of business


169


-


169


-


        Other expense, net


9,274


886


9,995


1,412












(Loss) income before taxes and equity investee results


(13,203)

(a)

47,869

(b)

32,198

(a)

89,243

(c)











Tax (benefit) expense


(607)

(a)

9,987

(b)

9,200

(a)

18,621

(c)











Equity investee (loss) earnings


(81)


(240)


17


(242)












Net (loss) income 


$   (12,677)

(a)

$      37,642

(b)

$     23,015

(a)

$       70,380

(c)











Basic (loss) earnings per share


$       (0.23)

(a)

$          0.63

(b)

$         0.41

(a)

$          1.18

(c)











Weighted average shares outstanding - basic


54,184,966


59,636,973


55,965,410


59,546,773












Diluted (loss) earnings per share


$       (0.23)

(a)

$          0.61

(b)

$         0.40

(a)

$         1.15

(c)











Weighted average shares outstanding - diluted


54,184,966


61,226,477


57,456,154


61,105,838






















(a) Three and six months ended June 30, 2012 include, as applicable, $9,667 in restructuring costs ($6,530 net of tax), $20,781 in inventory impairment charges ($14,391 net of tax), $17,959 of goodwill impairment charges ($17,959 net of tax), $7,373 of impairment of equity investment ($7,373 net of tax) and $3,815 in losses at sites in wind-down ($2,746 net of tax).

(b) Three months ended June 30, 2011 includes, as applicable, $4,564 in restructuring costs ($2,937 net of tax).





(c) Six months ended June 30, 2011 includes, as applicable,  $10,432 in restructuring costs ($6,714 net of tax).

























Excluding the impact of restructuring charges, impairment charges and losses at sites in wind-down:














Income from operations


$     48,293


$       53,319


$     94,415


$     101,087












Taxes on income


$       9,989


$       11,614


$     19,796


$       22,339












Net income 


$     36,322


$       40,579


$     72,014


$       77,094












Basic earnings per share


$         0.67


$           0.68


$         1.29


$           1.29












Diluted earnings per share


$         0.65


$          0.66


$         1.25


$          1.26


COVANCE INC.









CONSOLIDATED BALANCE SHEETS









JUNE 30, 2012 and DECEMBER 31, 2011









(Dollars in thousands)



















June 30


December 31





2012


2011





(UNAUDITED)




ASSETS






Current Assets:







Cash & cash equivalents


$       397,828


$       389,103



Accounts receivable, net


313,160


312,127



Unbilled services


134,163


114,095



Inventory


48,366


74,698



Deferred income taxes


53,220


52,078



Prepaid expenses and other current assets


175,131


144,809



    Total Current Assets


1,121,868


1,086,910









Property and equipment, net


858,508


849,551


Goodwill


109,820


127,779


Other assets


47,140


43,768



    Total Assets


$   2,137,336


$   2,108,008









LIABILITIES and STOCKHOLDERS' EQUITY






Current Liabilities:







Accounts payable


$         42,794


$         36,393



Accrued payroll and benefits


97,583


142,229



Accrued expenses and other current liabilities


138,062


119,308



Unearned revenue


237,220


202,210



Short-term debt 


330,000


30,000



Income taxes payable


1,529


6,889



    Total Current Liabilities


847,188


537,029









Deferred income taxes


28,408


42,295


Other liabilities


72,359


70,889



    Total Liabilities


947,955


650,213









Stockholders' Equity:







Common stock


788


781



Paid-in capital


712,853


689,584



Retained earnings


1,528,909


1,505,894



Accumulated other comprehensive (loss) income


(7,984)


4,622



Treasury stock


(1,045,185)


(743,086)



    Total Stockholders' Equity


1,189,381


1,457,795



    Total Liabilities and Stockholders'  Equity


$   2,137,336


$   2,108,008









 

COVANCE INC.






CONSOLIDATED STATEMENTS OF CASH FLOWS






FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011






(Dollars in thousands)






(UNAUDITED)








Six Months Ended June 30








2012


2011

Cash flows from operating activities:





  Net income


$        23,015


$        70,380

  Adjustments to reconcile net income to net cash provided by





    operating activities:





    Depreciation and amortization


57,183


51,699

    Non-cash impairment charges


44,610


-

    Non-cash compensation expense associated with employee benefit





       and stock compensation plans


19,422


18,939

    Deferred income tax benefit


(15,507)


(3,828)

    Loss on sale of business


169


-

    Loss on disposal of property and equipment


432


344

    Equity investee (earnings) loss


(17)


242

    Changes in operating assets and liabilities, net of business sold:





       Accounts receivable


(2,143)


(36,544)

       Unbilled services


(20,704)


(16,948)

       Inventory


8,948


(6,075)

       Accounts payable


6,401


10,611

       Accrued liabilities


(26,023)


17,838

       Unearned revenue


36,442


2,027

       Income taxes payable


(5,028)


(17,811)

       Other assets and liabilities, net


(45,124)


(2,142)

Net cash provided by operating activities


82,076


88,732






Cash flows from investing activities:





  Capital expenditures


(69,343)


(50,548)

  Proceeds from sale of business


900


-

  Other, net


90


106

Net cash used in investing activities


(68,353)


(50,442)






Cash flows from financing activities:





  Net borrowings (repayments) under revolving credit facility


300,000


(35,000)

  Repayments under long-term debt


-


(5,000)

  Stock issued under employee stock purchase and option plans


3,522


7,622

  Purchase of treasury stock


(302,099)


(7,517)

Net cash provided by (used in) financing activities


1,423


(39,895)






Effect of exchange rate changes on cash


(6,421)


30,589






Net change in cash and cash equivalents


8,725


28,984






Cash and cash equivalents, beginning of period


389,103


377,223






Cash and cash equivalents, end of period


$    397,828


$    406,207

 

COVANCE INC.













GAAP to Pro Forma Reconciliation













Q2 2012













(Dollars in thousands, except per share data)













(UNAUDITED)
















Adjustments




GAAP


 Restructuring Activities (1)


Other
Charges (2)


Operating Results at Sites in Wind-Down (3)


Inclusion of
Common Stock
Equivalents in
Diluted EPS
Computation(4)


Pro Forma













Net revenues

$   542,782






$      (4,289)




$   538,493

Reimbursable out-of-pocket expenses

42,263










42,263

     Total revenues

585,045


-


-


(4,289)


-


580,756













Costs and expenses:












  Cost of revenue

408,198




(20,781)


(6,939)




380,478

  Reimbursable out-of-pocket expenses

42,263










42,263

  Selling, general and administrative

90,601


(8,458)




(222)




81,921

  Depreciation and amortization

29,953


(1,209)




(943)




27,801

  Goodwill impairment charge

17,959




(17,959)






-

        Total costs and expenses

588,974


(9,667)


(38,740)


(8,104)


-


532,463













(Loss) income from operations

(3,929)


9,667


38,740


3,815


-


48,293













Other expense, net:












  Interest expense, net

940










940

  Foreign exchange transaction loss, net

792










792

  Impairment of equity investment

7,373




(7,373)






-

  Loss on sale of business

169








-


169

        Other expense, net

9,274


-


(7,373)


-


-


1,901













(Loss) income before taxes and equity investee earnings

(13,203)


9,667


46,113


3,815


-


46,392













Tax (benefit) expense

(607)


3,137


6,390


1,069


-


9,989













Equity investee (loss) earnings

(81)










(81)













Net (loss) income 

$    (12,677)


$            6,530


$      39,723


$        2 ,746


$                      -


$      36,322

























Basic (loss) earnings per share

$       (0.23)


$              0.12


$          0.73


$            0.05




$         0.67













Weighted average shares outstanding - basic

54,184,966


54,184,966


54,184,966


54,184,966




54,184,966













Diluted (loss) earnings per share

$       (0.23)


$              0.12


$          0.73


$          0.05


$                (0.02)


$         0.65













Weighted average shares outstanding - diluted

54,184,966


54,184,966


54,184,966


54,184,966


1,500,115

(4)

55,685,081

























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

(2) Consists of inventory impairment ($20,781), goodwill impairment ($17,959) and impairment of equity investment ($7,373).





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









(4) 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















Q2 2011















(Dollars in thousands, except per share data)















(UNAUDITED)


















Adjustments








GAAP


Restructuring Activities (1)


Pro Forma















Net revenues

$   518,220




$   518,220





Reimbursable out-of-pocket expenses

29,507




29,507





     Total revenues

547,727


-


547,727















Costs and expenses:










  Cost of revenue

358,332




358,332





  Reimbursable out-of-pocket expenses

29,507




29,507





  Selling, general and administrative

85,297


(4,159)


81,138





  Depreciation and amortization

25,836


(405)


25,431





        Total costs and expenses

498,972


(4,564)


494,408















Income from operations

48,755


4,564


53,319















Other expense, net:










  Interest expense, net

579




579





  Foreign exchange transaction loss, net

307




307





        Other expense, net

886


-


886















Income before taxes and equity investee earnings

47,869


4,564


52,433















Tax (benefit) expense

9,987


1,627


11,614















Equity investee (loss) earnings

(240)




(240)















Net income 

$     37,642


$            2,937


$     40,579

























Basic earnings per share

$         0.63


$              0.05


$         0.68















Weighted average shares outstanding - basic

59,636,973


59,636,973


59,636,973















Diluted earnings per share

$         0.61


$              0.05


$          0.66















Weighted average shares outstanding - diluted

61,226,477


61,226,477


61,226,477

























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



 

COVANCE INC.















GAAP to Pro Forma Reconciliation















YTD Q2 2012















(Dollars in thousands, except per share data)















(UNAUDITED)


















Adjustments





GAAP


 Restructuring Activities (1)


Other
Charges (2)


Operating Results at Sites in Wind-Down (3)


Pro Forma















Net revenues

$  1,073,623






$      (4,289)


$1,069,334



Reimbursable out-of-pocket expenses

85,330








85,330



     Total revenues

1,158,953


-


-


(4,289)


1,154,664















Costs and expenses:












  Cost of revenue

784,658




(20,781)


(6,939)


756,938



  Reimbursable out-of-pocket expenses

85,330








85,330



  Selling, general and administrative

171,630


(8,458)




(222)


162,950



  Depreciation and amortization

57,183


(1,209)




(943)


55,031



  Goodwill impairment charge

17,959




(17,959)




-



        Total costs and expenses

1,116,760


(9,667)


(38,740)


(8,104)


1,060,249















(Loss) income from operations

42,193


9,667


38,740


3,815


94,415















Other expense, net:












  Interest expense, net

1,433








1,433



  Foreign exchange transaction loss, net

1,020








1,020



  Impairment of equity investment

7,373




(7,373)




-



  Loss on sale of business

169








169



        Other expense, net

9,995


-


(7,373)


-


2,622















Income before taxes and equity investee earnings

32,198


9,667


46,113


3,815


91,793















Tax (benefit) expense

9,200


3,137


6,390


1,069


19,796















Equity investee (loss) earnings

17








17















Net income 

$         23,015


$            6,530


$       39,723


$          2,746


$     72,014















Basic earnings per share

$            0.41


$              0.12


$           0.71


$            0.05


$         1.29















Weighted average shares outstanding - basic

55,965,410


55,965,410


55,965,410


55,965,410


55,965,410















Diluted earnings per share

$            0.40


$              0.11


$          0.69


$            0.05


$         1.25















Weighted average shares outstanding - diluted

57,456,154


57,456,154


57,456,154


57,456,154


57,456,154



























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

(2) Consists of inventory impairment ($20,781), goodwill impairment ($17,959) and impairment of equity investment ($7,373).





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









 

COVANCE INC.















GAAP to Pro Forma Reconciliation















YTD Q2 2011















(Dollars in thousands, except per share data)















(UNAUDITED)


















Adjustments








GAAP


Restructuring Activities (1)


Pro Forma















Net revenues

$1,020,206




$1,020,206





Reimbursable out-of-pocket expenses

54,979




54,979





     Total revenues

1,075,185


-


1,075,185















Costs and expenses:










  Cost of revenue

711,852




711,852





  Reimbursable out-of-pocket expenses

54,979




54,979





  Selling, general and administrative

166,000


(9,622)


156,378





  Depreciation and amortization

51,699


(810)


50,889





        Total costs and expenses

984,530


(10,432)


974,098















Income from operations

90,655


10,432


101,087















Other expense, net:










  Interest expense, net

1,297




1,297





  Foreign exchange transaction loss, net

115




115





        Other expense, net

1,412


-


1,412















Income before taxes and equity investee earnings

89,243


10,432


99,675















Tax (benefit) expense

18,621


3,718


22,339















Equity investee (loss) earnings

(242)




(242)















Net income 

$     70,380


$            6,714


$     77,094















Basic earnings per share

$         1.18


$              0.11


$         1.29















Weighted average shares outstanding - basic

59,546,773


59,546,773


59,546,773















Diluted earnings per share

$         1.15


$              0.11


$         1.26















Weighted average shares outstanding - diluted

61,105,838


61,105,838


61,105,838

























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



 

 

SOURCE Covance Inc.


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