Covance Reports Fourth Quarter Net Revenue Of $623 Million, Pro Forma EPS Of $0.87 And Adjusted Net Orders Of $769 Million

PRINCETON, N.J. -- Covance Inc. (NYSE: CVD) today reported results for its fourth quarter and year ended December 31, 2013. Net revenue in the fourth quarter was $623.1 million, representing 10.8% growth from the fourth quarter of 2012's GAAP result of $562.2 million, and 11.1% growth from the fourth quarter of 2012's pro forma result of $560.7 million. On a GAAP basis, the company reported earnings of $0.80 per diluted share in the fourth quarter of 2013 as compared to GAAP earnings of $0.61 in the fourth quarter of 2012. Excluding charges associated with restructuring, other cost reduction actions and other items in both periods, the company reported pro forma earnings per diluted share of $0.87, up 18.6% over the pro forma earnings of $0.73 for the fourth quarter of 2012.

On a full-year basis, net revenue in 2013 was $2.4 billion, representing 10.2% growth from 2012's GAAP result of $2.18 billion, and 10.6% growth from 2012's pro forma result of $2.17 billion. On a GAAP basis, the company reported earnings per diluted share of $3.15 in 2013 as compared to GAAP earnings of $1.68 in 2012. Excluding charges associated with restructuring, other cost reduction actions and other items in both periods, the company reported pro forma earnings per diluted share of $3.23 in 2013, up 19.6% over the pro forma earnings of $2.70 for 2012.

"In 2013, Covance continued to benefit from market share gains in central laboratories, strong operational delivery in clinical development, improving market conditions in toxicology, and successful execution of our on-going strategic IT projects. This performance enabled us to significantly exceed our 2013 financial targets, with a return to double-digit revenue growth, pro forma EPS of $3.23, and free cash flow in excess of $240 million. In addition, we delivered strong orders throughout the year, resulting in record adjusted net orders of $3 billion, and an adjusted net book-to-bill of 1.25 to 1 for the year," said Joe Herring, Chairman and Chief Executive Officer. "For the fourth quarter, revenue grew to $623 million, up 11.1% from 2012 pro forma revenue, and pro forma earnings per share grew 18.6% to $0.87. Adjusted net orders in the fourth quarter were $769 million, representing an adjusted net book-to-bill of 1.23 to 1.

"Late-Stage Development fourth quarter revenues grew 14.5% year-on-year to $395 million. This increase was led by 17% growth in central laboratories and 13% growth in clinical development. Late-Stage Development pro forma operating margins increased 140 basis points year-on-year and 10 basis points sequentially to 22.7%. In Early Development, revenue grew 5.7% year-on-year on a pro forma basis, led by growth in clinical pharmacology and toxicology. Sequentially, revenues grew $7.9 million from the third quarter, driven primarily by strong sequential growth in toxicology. Early Development fourth quarter pro forma operating margins of 12.1% were flat sequentially after normalizing for the UK R&D credits, as strength in toxicology was offset by normal seasonality in clinical pharmacology.

"Looking ahead to 2014, for the full year, we expect year-on-year revenue growth in the 6% to 10% range and pro forma diluted earnings per share, excluding costs from our ongoing restructuring activities, in the range of $3.65 to $4.00 (assuming foreign exchange rates remain at year-end 2013 levels). In the first quarter of 2014, we expect revenue to be up from the fourth quarter level and pro forma earnings per share to increase sequentially by a couple of cents, as we forecast an increase in Late-Stage Development net revenues and earnings to be partially off-set by seasonally-lower first quarter Early Development results." 

Consolidated Results

 

($ in millions except EPS)

4Q13

4Q12

Change

FY13

FY12

Change

Total Revenues

$669.8

$609.1

 

$2,595.1

$2,365.7

 

Less: Reimbursable Out-of-Pockets 

$46.7

$46.9

 

$192.8

$185.1

 

Net Revenues

$623.1

$562.2

10.8%

$2,402.3

$2,180.6

10.2%

Operating Income

$55.0

$43.1

27.5%

$217.3

$115.9

87.6%

   Operating Margin

8.8%

7.7%

 

9.0%

5.3%

 

Net Income

$45.8

$33.9

35.3%

$179.2

$94.7

89.2%

Diluted Earnings per Share

$0.80

$0.61

30.5%

$3.15

$1.68

87.2%

Revenue from Facilities Closed in 2012**

-

$1.5

 

-

$8.8

 

Net Revenue, continuing ops*

$623.1

$560.7

11.1%

$2,402.3

$2,171.9

10.6%

Restructuring Costs and Other Items

($9.8)

($6.6)

 

($26.8)

($73.1)

 

Loss from Facilities Closed in 2012**

-

($2.9)

 

-

($9.3)

 

Operating Income, excluding items*

$64.7

$52.5

23.2%

$244.2

$198.2

23.2%

  Operating Margin, excluding items*

10.4%

9.4%

 

10.2%

9.1%

 

Gain on Sale of Investments

-

-

 

$16.4

$1.5

 

Impairment of Equity Investment

-

-

 

-

($7.4)

 

Favorable Income Tax Developments

$3.0

-

 

$3.0

$11.5

 

Net Income, excluding items*

$49.6

$40.3

23.0%

$183.7

$151.9

20.9%

Diluted EPS, excluding items*

$0.87

$0.73

18.6%

$3.23

$2.70

19.6%

* See attached pro forma income statements for reconciliation of 2013 and 2012 GAAP to pro forma amounts.

** Facilities closed in 2012 include Chandler, Honolulu and Basel.

 

Operating Segment Results

Early Development

 

($ in millions)

4Q13

4Q12

Change

FY13

FY12

Change

Net Revenues

$228.3

$217.4

5.0%

$870.5

$869.5

0.1%

Operating Income

$21.9

$18.7

17.3%

$87.5

$4.0

2,087.6%

Operating Margin

9.6%

8.6%

 

10.1%

0.5%

 

Revenue from Facilities Closed in 2012**

-

$1.5

 

-

$8.8

 

Net Revenue, continuing ops

$228.3

$215.9

5.7%

$870.5

$860.8

1.1%

Restructuring Costs and Other Items

($5.7)

($4.3)

 

($13.2)

($69.5)

 

Loss from Facilities Closed in 2012**

-

($2.9)

 

-

($9.3)

 

Operating Income, excluding items

$27.6

$25.9

6.7%

$100.7

$82.7

21.7%

Operating Margin, excluding items

12.1%

12.0%

 

11.6%

9.6%

 

** Facilities closed in 2012 include Chandler, Honolulu and Basel.

 

The Early Development segment includes preclinical toxicology, analytical chemistry, clinical pharmacology, discovery support, and research products. Net revenues in the fourth quarter of 2013 were $228.3 million, compared to $217.4 million on a GAAP basis and $215.9 million on a pro forma basis in the fourth quarter of last year. Last year's pro forma revenue excluded $1.5 million in revenue from the three sites closed by the end of 2012. On a pro forma basis, net revenue increased 5.7%, including a 60 basis point foreign exchange tailwind, as continued strong growth in clinical pharmacology and improved results in toxicology were partially offset by declines in discovery support and certain pharmaceutical chemistry services. Sequential growth of $7.9 million was primarily driven by toxicology.

GAAP operating income in the fourth quarter of 2013 was $21.9 million, and included $0.8 million in costs associated with our previously-announced restructuring actions and $4.9 million in asset impairment charges relating to our Manassas and Baselproperties, which are being marketed for sale. This compares to GAAP operating income of $18.7 million in the fourth quarter of 2012, which included restructuring costs of $4.3 million and losses at facilities closed in 2012 of $2.9 million. Pro forma operating income, excluding these costs, was $27.6 million in the fourth quarter of this year, a 6.7% increase from the $25.9 million reported in the fourth quarter of 2012 as growth in clinical pharmacology and toxicology and the shift to above margin treatment for the UK R&D credit more than offset declines in discovery support and certain chemistry services. Pro forma operating margins were 12.1% in the fourth quarter of 2013, versus 12.0% in the fourth quarter of 2012 and 13.1% last quarter. Third quarter 2013 margins included a six month impact of the shift to above margin treatment of the UK R&D credit (as the law was signed in July 2013, but applied retroactive to April 1, 2013) versus only a three month impact in the current quarter. 

On January 31, 2014, Covance sold its high-complexity genomics laboratory, located in Seattle, Washington, to Laboratory Corporation of America Holdings, and entered into a five year services agreement, pursuant to which Covance will collaborate with LabCorp to continue to offer these services to its clients. Covance expects to report a small gain on this sale in its first quarter ending March 31, 2014, which will be excluded from its pro forma earnings per share. Covance will continue to provide other genomics services to its clients through its central laboratories. 

Late-Stage Development

               

($ in millions)

4Q13

4Q12

Change

FY13

FY12

Change

Net Revenues

$394.8

$344.8

14.5%

$1,531.8

$1,311.1

16.8%

Operating Income

$89.2

$72.7

22.8%

$338.5

$277.6

22.0%

Operating Margin

22.6%

21.1%

 

22.1%

21.2%

 

Restructuring Costs

($0.3)

($0.7)

 

($4.1)

($1.3)

 

Operating Income, excluding items

$89.5

$73.4

22.0%

$342.6

$278.8

22.9%

Operating Margin, excluding items

22.7%

21.3%

 

22.4%

21.3%

 

 

The Late-Stage Development segment includes central laboratory, Phase IIb-IV clinical development, and market access services. Net revenues for the fourth quarter of 2013 grew 14.5% year-on-year to $394.8 million, and increased $8.5 millionsequentially from the third quarter level. In the quarter, foreign exchange favorably impacted revenue growth by 170 basis points. Year-over-year growth was driven by increases of 17% in central laboratories and 13% in clinical development, while the sequential revenue increase was led by growth in clinical development followed by growth in central laboratories. 

Operating income for the fourth quarter was $89.2 million on a GAAP basis and included $0.3 million in costs associated with our ongoing restructuring actions. On a pro forma basis, operating income was $89.5 million, up 22.0% year-over-year. Pro Forma operating income also increased $2.1 million sequentially. Pro forma operating margins were 22.7% in the fourth quarter of 2013, versus 21.3% in the fourth quarter of 2012 and 22.6% last quarter. The year-on-year increase in profitability was driven by operating leverage in both clinical development and central laboratories, partially offset by increased spending on strategic IT projects. On a sequential basis, operating margins increased 10 basis points overcoming a headwind from the normalization of the UK R&D credit and increased IT spending due primarily to margin expansion in clinical development. 

Corporate Information

The company reported fourth quarter adjusted net orders of $769 million. Backlog at December 31, 2013 grew to $6.92 billioncompared to $6.83 billion at September 30, 2013 and $6.64 billion at December 31, 2012. Foreign exchange contributed $36 million to backlog growth on a sequential basis. 

Corporate expenses totaled $56.2 million in the fourth quarter of 2013 (including $3.8 million in restructuring costs) compared to$51.4 million last quarter (including $2.8 million in restructuring costs) and $48.3 million in the fourth quarter of 2012 (including$1.5 million in restructuring costs). The largest driver of the year-over-year and sequential increases in corporate expenses are spending on our strategic IT initiatives followed by higher incentive compensation expenses related to stronger-than-budgeted business performance. 

Cash, cash equivalents and short-term investments at December 31, 2013 were $729 million compared to $593 million atSeptember 30, 2013 and $493 million at December 31, 2012. During the fourth quarter, the company raised $250 million from the issuance of senior notes. Proceeds from these notes and cash from operations were used to fully repay the $265 millionoutstanding balance on the revolving credit facility. The revolving credit facility will be maintained to provide flexibility to execute our growth strategy over the long-term.                                                      

Net Days Sales Outstanding (DSO) declined one day in the fourth quarter to 34 days at December 31, 2013 compared to 35 days at September 30, 2013 and 36 days at December 31, 2012. 

Free cash flow (defined as operating cash flow less capital expenditures) for the fourth quarter of 2013 was $134 million, consisting of operating cash flow of $193 million less capital expenditures of $58 million. Free cash flow for the year was $243 million, consisting of operating cash flow of $406 million less capital expenditures of $162 million. Free cash flow in both the fourth quarter and full year of 2013 include a client payment of approximately $28 million for Value Added Tax, which had been pending resolution between the client and the tax authorities during the year. Following resolution in the fourth quarter, the client paid this amount to Covance, which will in turn be remitted to the tax authorities in the first quarter of 2014. 

The pro forma effective tax rate in the fourth quarter was 21.6%, down 670 basis points sequentially from the pro forma effective tax rate of 28.3% last quarter. The effective tax rate in the third quarter included a six month impact, or approximately 900 basis points, from the shift in accounting of the UK R&D credit. The fourth quarter effective tax rate included a benefit of approximately 220 basis points (contributing approximately $0.02 in earnings per share) attributable to the finalization of our 2013 pre-tax earnings mix, where a greater proportion of our earnings came from operations in tax jurisdictions with lower income tax rates. The 2013 full year pro forma effective tax rate was 22.9% and is expected to be approximately 24.5% in 2014.

The Company's investor conference call will be webcast on February 5 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 $2.4 billion and more than 12,000 employees located in over 60 countries. Information on Covance's products and services, recent press releases, and SEC filings can be obtained through its website at www.covance.com.

Statements contained in this press release, which are not historical facts, such as statements about prospective earnings, savings, revenue, operations, revenue and earnings growth and other financial results are forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements including the statements contained herein regarding anticipated trends in the Company's business are based largely on management's expectations and are subject to and qualified by risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include, without limitation, competitive factors, outsourcing trends in the pharmaceutical industry, levels of industry research and development spending, the Company's ability to continue to attract and retain qualified personnel, the fixed price nature of contracts or the loss 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 Company's announced restructuring actions, 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, 2013 AND 2012

 
                   

(Dollars in thousands, except per share data)

 
                   
                   
   

Three Months Ended December 31

 

Years Ended December 31

 
   

2013

 

2012

 

2013

 

2012

 
   

(UNAUDITED)

         
                   

Net revenues

 

$           623,094

 

$            562,180

 

$   2,402,313

 

$   2,180,621

 

Reimbursable out-of-pocket expenses

 

46,675

 

46,964

 

192,817

 

185,138

 

     Total revenues

 

669,769

 

609,144

 

2,595,130

 

2,365,759

 
                   

Costs and expenses:

                 

  Cost of revenue

 

436,857

 

395,841

 

1,692,173

 

1,570,223

 

  Reimbursable out-of-pocket expenses

 

46,675

 

46,964

 

192,817

 

185,138

 

  Selling, general and administrative

 

93,564

 

92,823

 

360,012

 

358,854

 

  Depreciation and amortization

 

32,845

 

30,423

 

127,917

 

117,708

 

  Impairment charges

 

4,877

 

-

 

4,877

 

17,959

 

        Total costs and expenses

 

614,818

(a)

566,051

(c)

2,377,796

(b)

2,249,882

(d)

                   

Income from operations

 

54,951

(a)

43,093

(c)

217,334

(b)

115,877

(d)

                   

Other expense (income), net:

                 

  Interest expense, net

 

1,450

 

1,153

 

4,084

 

3,506

 

  Foreign exchange transaction loss, net

 

14

 

173

 

1,925

 

1,474

 

  Gain on sale of investments

 

-

 

-

 

(16,400)

 

(1,459)

 

  Impairment of equity investment

 

-

 

-

 

-

 

7,373

 

  Loss on sale of business

 

-

 

-

 

-

 

169

 

        Other expense (income), net

 

1,464

 

1,326

 

(10,391)

(b)

11,063

(d)

                   

Income before taxes and equity investee earnings

 

53,487

(a)

41,767

(c)

227,725

(b)

104,814

(d)

                   

Taxes on income

 

7,641

(a)

7,870

(c)

48,518

(b)

10,099

(d)

                   

Equity investee earnings

 

-

 

-

 

-

 

17

 
                   

Net income

 

$              45,846

(a)

$              33,897

(c)

$       179,207

(b)

$         94,732

(d)

                   

Basic earnings per share

 

$                  0.83

(a)

$                   0.63

(c)

$             3.28

(b)

$             1.73

(d)

                   

Weighted average shares outstanding - basic

 

55,021,244

 

53,698,334

 

54,648,533

 

54,844,641

 
                   

Diluted earnings per share

 

$                  0.80

(a)

$                   0.61

(c)

$             3.15

(b)

$             1.68

(d)

                   

Weighted average shares outstanding - diluted

 

57,205,147

 

55,197,968

 

56,899,013

 

56,290,010

 
                   
                   

(a) Three months ended December 31, 2013 includes, as applicable, $4,874 in charges associated with restructuring and other cost reduction actions ($3,224 net of tax), $4,877 of asset impairment charges ($3,568 net of tax) and favorable income tax items totaling $3,035.

(b) Year ended December 31, 2013 includes, as applicable, $21,950 in charges associated with restructuring and other cost reduction actions ($14,576 net of tax), $16,400 gain on sale of investments ($10,654 net of tax), $4,877 of asset impairment charges ($3,568 net of tax) and favorable income tax items totaling $3,035.

(c) Three months ended December 31, 2012 includes, as applicable, $10,191 in restructuring costs ($6,968 net of tax), $3,613 favorable inventory adjustment ($2,502 net of tax) and $2,850 in losses at sites that were closed during the period ($1,966 net of tax).

(d) Year ended December 31, 2012 includes, as applicable, $33,930 in restructuring costs ($23,145 net of tax), $21,168 in inventory impairment charges and costs associated with the settlement of an inventory supply agreement ($14,645 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), $9,274 in losses at sites that were closed during the year ($6,533 net of tax), $1,459 gain on sale of investment ($945 net of tax) and favorable income tax items totaling $11,501.

 
 
 
 
                   
                   

Excluding the impact of charges associated with restructuring and other cost reduction actions, impairment charges, gain on sale of investments, 

costs associated with the settlement of an inventory supply agreement, losses at sites that were closed during the period and favorable

 

tax items, as applicable:

 
                   

Income from operations

 

$              64,702

 

$              52,521

 

$       244,161

 

$       198,208

 
                   

Taxes on income

 

$              13,635

 

$              10,866

 

$         54,490

 

$         41,135

 
                   

Net income 

 

$              49,603

 

$              40,329

 

$       183,662

 

$       151,941

 
                   

Basic earnings per share

 

$                  0.90

 

$                   0.75

 

$             3.36

 

$             2.77

 
                   

Diluted earnings per share

 

$                  0.87

 

$                   0.73

 

$             3.23

 

$             2.70

 
                   

 

COVANCE INC.

           

CONSOLIDATED BALANCE SHEETS

           

DECEMBER 31, 2013 and DECEMBER 31, 2012

           

(Dollars in thousands)

           
           
     

December 31

 

December 31

     

2013

 

2012

           

ASSETS

       

Current Assets:

       
 

Cash & cash equivalents

 

$        617,686

 

$       492,824

 

Short-term investments

 

111,359

 

-

 

Accounts receivable, net

 

331,815

 

339,558

 

Unbilled services

 

141,707

 

136,878

 

Inventory

 

48,257

 

49,270

 

Deferred income taxes

 

51,543

 

44,903

 

Income taxes receivable

 

-

 

3,642

 

Prepaid expenses and other current assets

 

201,621

 

167,629

 

    Total Current Assets

 

1,503,988

 

1,234,704

           

Property and equipment, net

 

913,612

 

891,319

Goodwill

 

109,820

 

109,820

Other assets

 

29,168

 

52,499

 

    Total Assets

 

$     2,556,588

 

$   2,288,342

           

LIABILITIES and STOCKHOLDERS' EQUITY

       

Current Liabilities:

       
 

Accounts payable

 

$          59,713

 

$         34,430

 

Accrued payroll and benefits

 

170,806

 

144,681

 

Accrued expenses and other current liabilities

 

153,808

 

127,686

 

Unearned revenue

 

240,398

 

255,776

 

Short-term debt 

 

-

 

320,000

 

Income taxes payable

 

7,952

 

-

 

    Total Current Liabilities

 

632,677

 

882,573

           

Long-term debt

 

250,000

 

-

Deferred income taxes

 

32,035

 

27,912

Other liabilities

 

76,630

 

70,665

 

    Total Liabilities

 

991,342

 

981,150

           

Stockholders' Equity:

       
 

Common stock

 

809

 

791

 

Paid-in capital

 

859,535

 

744,114

 

Retained earnings

 

1,779,833

 

1,600,626

 

Accumulated other comprehensive income

 

25,746

 

28,520

 

Treasury stock

 

(1,100,677)

 

(1,066,859)

 

    Total Stockholders' Equity

 

1,565,246

 

1,307,192

 

    Total Liabilities and Stockholders'  Equity

 

$     2,556,588

 

$   2,288,342

           

 

COVANCE INC.

         

CONSOLIDATED STATEMENTS OF CASH FLOWS

         

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

         

(Dollars in thousands)

         
         
   

Years Ended December 31

         
   

2013

 

2012

Cash flows from operating activities:

       

  Net income

 

$         179,207

 

$           94,732

  Adjustments to reconcile net income to net cash provided by

       

    operating activities:

       

    Depreciation and amortization

 

127,917

 

117,708

    Non-cash impairment charges

 

4,877

 

41,736

    Non-cash compensation expense associated with employee benefit

       

       and stock compensation plans

 

41,538

 

40,759

    Deferred income tax expense (benefit)

 

5,023

 

(8,404)

    Gain on sale of investments

 

(16,400)

 

(1,459)

    Loss on sale of business

 

-

 

169

    Loss on disposal of property and equipment

 

1,236

 

1,181

    Equity investee earnings

 

-

 

(17)

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

       

       Accounts receivable

 

7,743

 

(28,541)

       Unbilled services

 

(4,829)

 

(23,419)

       Inventory

 

(1,300)

 

10,918

       Accounts payable

 

25,283

 

(1,963)

       Accrued liabilities

 

50,885

 

8,205

       Unearned revenue

 

(15,378)

 

54,998

       Income taxes

 

14,315

 

(10,522)

       Other assets and liabilities, net

 

(14,467)

 

(35,920)

Net cash provided by operating activities

 

405,650

 

260,161

         

Cash flows from investing activities:

       

  Capital expenditures

 

(162,170)

 

(151,679)

  Purchase of short-term investments

 

(109,794)

 

-

  Proceeds from sale of investments

 

17,781

 

4,682

  Other, net

 

648

 

1,017

Net cash used in investing activities

 

(253,535)

 

(145,980)

         

Cash flows from financing activities:

       

  Net (repayments) borrowings under revolving credit facility

 

(320,000)

 

290,000

  Borrowings under long-term debt

 

250,000

 

-

  Stock issued under option plans

 

71,180

 

13,772

  Purchase of treasury stock

 

(33,818)

 

(323,773)

Net cash used in financing activities

 

(32,638)

 

(20,001)

Effect of exchange rate changes on cash

 

5,385

 

9,541

Net change in cash and cash equivalents

 

124,862

 

103,721

         

Cash and cash equivalents, beginning of period

 

492,824

 

389,103

         

Cash and cash equivalents, end of period

 

$         617,686

 

$         492,824

         

 

COVANCE INC.

                   

GAAP to Pro Forma Reconciliation

                   

Q4 2013

                   

(Dollars in thousands, except per share data)

                   

(UNAUDITED)

                   
     

Adjustments

   
 

GAAP

 

 Restructuring 
and Other Cost 
Reduction 
Activities (1)

 

Other 
Items (2)

 

Income Tax 
Items (3)

 

Pro Forma

                   

Net revenues

$       623,094

             

$       623,094

Reimbursable out-of-pocket expenses

46,675

             

46,675

     Total revenues

669,769

 

-

 

-

 

-

 

669,769

                   

Costs and expenses:

                 

  Cost of revenue

436,857

             

436,857

  Reimbursable out-of-pocket expenses

46,675

             

46,675

  Selling, general and administrative

93,564

 

(4,456)

         

89,108

  Depreciation and amortization

32,845

 

(418)

         

32,427

  Impairment charges

4,877

     

(4,877)

     

-

        Total costs and expenses

614,818

 

(4,874)

 

(4,877)

 

-

 

605,067

                   

Income from operations

54,951

 

4,874

 

4,877

 

-

 

64,702

                   

Other expense, net:

                 

  Interest expense, net

1,450

             

1,450

  Foreign exchange transaction loss, net

14

             

14

        Other expense, net

1,464

 

-

 

-

 

-

 

1,464

                   

Income before taxes

53,487

 

4,874

 

4,877

 

-

 

63,238

                   

Taxes on income

7,641

 

1,650

 

1,309

 

3,035

 

13,635

                   

Net income 

$         45,846

 

$              3,224

 

$              3,568

 

$            (3,035)

 

$         49,603

                   

Basic earnings per share

$             0.83

 

$                0.06

 

$                0.06

 

$              (0.06)

 

$             0.90

                   

Weighted average shares outstanding - basic

55,021,244

 

55,021,244

 

55,021,244

 

55,021,244

 

55,021,244

                   

Diluted earnings per share

$             0.80

 

$                0.06

 

$                0.06

 

$              (0.05)

 

$             0.87

                   

Weighted average shares outstanding - diluted

57,205,147

 

57,205,147

 

57,205,147

 

57,205,147

 

57,205,147

                   
                   

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

(2) Represents asset impairment charges.

(3) Primarily represents favorable resolutions of income tax matters.

                   

 

 

 

COVANCE INC.

                   

GAAP to Pro Forma Reconciliation

                   

Q4 2012

                   

(Dollars in thousands, except per share data)

                   

(UNAUDITED)

                   
     

Adjustments

 
 

GAAP

 

 Restructuring
Activities (1)

 

Other 
Items (2)

 

Operating 
Results at 
Sites Wound-
Down (3)

 

Pro Forma

                   

Net revenues

$       562,180

         

$          (1,498)

 

$       560,682

Reimbursable out-of-pocket expenses

46,964

             

46,964

     Total revenues

609,144

 

-

 

-

 

(1,498)

 

607,646

                   

Costs and expenses:

                 

  Cost of revenue

395,841

     

3,613

 

(3,697)

 

395,757

  Reimbursable out-of-pocket expenses

46,964

             

46,964

  Selling, general and administrative

92,823

 

(9,013)

     

(117)

 

83,693

  Depreciation and amortization

30,423

 

(1,178)

     

(534)

 

28,711

        Total costs and expenses

566,051

 

(10,191)

 

3,613

 

(4,348)

 

555,125

                   

Income from operations

43,093

 

10,191

 

(3,613)

 

2,850

 

52,521

                   

Other expense, net:

                 

  Interest expense, net

1,153

             

1,153

  Foreign exchange transaction loss, net

173

             

173

        Other expense, net

1,326

 

-

 

-

 

-

 

1,326

                   

Income before taxes

41,767

 

10,191

 

(3,613)

 

2,850

 

51,195

                   

Taxes on income

7,870

 

3,223

 

(1,111)

 

884

 

10,866

                   

Net income 

$         33,897

 

$            6,968

 

$          (2,502)

 

$            1,966

 

$         40,329

                   

Basic earnings per share

$             0.63

 

$              0.13

 

$             (0.05)

 

$              0.04

 

$             0.75

                   

Weighted average shares outstanding - basic

53,698,334

 

53,698,334

 

53,698,334

 

53,698,334

 

53,698,334

                   

Diluted earnings per share

$             0.61

 

$              0.13

 

$             (0.05)

 

$              0.04

 

$             0.73

                   

Weighted average shares outstanding - diluted

55,197,968

 

55,197,968

 

55,197,968

 

55,197,968

 

55,197,968

                   
                   

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

(2) Reduction of inventory impairment based upon determination of actual impaired inventory.

(3) Represents results of operations at sites that were closed during the period.

                   

 

 

 

COVANCE INC.

                   

GAAP to Pro Forma Reconciliation

                   

For the year ended December 31, 2013

                   

(Dollars in thousands, except per share data)

                   

(UNAUDITED)

                   
     

Adjustments

 
 

GAAP

 

 Restructuring 
and Other Cost 
Reduction 
Activities (1)

 

Other 
Items (2)

 

Income Tax 
Items (3)

 

Pro Forma

                   

Net revenues

$   2,402,313

             

$   2,402,313

Reimbursable out-of-pocket expenses

192,817

             

192,817

     Total revenues

2,595,130

 

-

 

-

 

-

 

2,595,130

                   

Costs and expenses:

                 

  Cost of revenue

1,692,173

             

1,692,173

  Reimbursable out-of-pocket expenses

192,817

             

192,817

  Selling, general and administrative

360,012

 

(19,032)

         

340,980

  Depreciation and amortization

127,917

 

(2,918)

         

124,999

  Impairment charges

4,877

     

(4,877)

     

-

        Total costs and expenses

2,377,796

 

(21,950)

 

(4,877)

 

-

 

2,350,969

                   

Income from operations

217,334

 

21,950

 

4,877

 

-

 

244,161

                   

Other (income) expense, net:

                 

  Interest expense, net

4,084

             

4,084

  Foreign exchange transaction loss, net

1,925

             

1,925

  Gain on sale of investments

(16,400)

     

16,400

     

-

        Other (income) expense, net

(10,391)

 

-

 

16,400

 

-

 

6,009

                   

Income before taxes

227,725

 

21,950

 

(11,523)

 

-

 

238,152

                   

Taxes on income

48,518

 

7,374

 

(4,437)

 

3,035

 

54,490

                   

Net income 

$       179,207

 

$           14,576

 

$          (7,086)

 

$          (3,035)

 

$       183,662

                   

Basic earnings per share

$             3.28

 

$                0.27

 

$             (0.13)

 

$             (0.06)

 

$             3.36

                   

Weighted average shares outstanding - basic

54,648,533

 

54,648,533

 

54,648,533

 

54,648,533

 

54,648,533

                   

Diluted earnings per share

$             3.15

 

$                0.26

 

$             (0.12)

 

$             (0.05)

 

$             3.23

                   

Weighted average shares outstanding - diluted

56,899,013

 

56,899,013

 

56,899,013

 

56,899,013

 

56,899,013

                   
                   

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

(2) Consists of gain on sale of investments $16,400 and asset impairment charges ($4,877).

(3) Primarily represents favorable resolutions of income tax matters.

                   

 

 

 

Click to view table full screen

COVANCE INC.

 
                         

GAAP to Pro Forma Reconciliation

 
                         

For the year ended December 31, 2012

 
                         

(Dollars in thousands, except per share data)

 
                         

(UNAUDITED)

 
                         
     

Adjustments

   
 

GAAP

 

 Restructuring 
Activities (1)

 

Other 
Items (2)

 

Operating 
Results at 
Sites Wound-
Down (3)

 

Income Tax 
Items (4)

 

Pro Forma

 
                         

Net revenues

$   2,180,621

         

$          (8,754)

     

$   2,171,867

 

Reimbursable out-of-pocket expenses

185,138

                 

185,138

 

     Total revenues

2,365,759

 

-

 

-

 

(8,754)

 

-

 

2,357,005

 
                         

Costs and expenses:

                       

  Cost of revenue

1,570,223

     

(21,168)

 

(15,180)

     

1,533,875

 

  Reimbursable out-of-pocket expenses

185,138

                 

185,138

 

  Selling, general and administrative

358,854

 

(30,460)

     

(501)

     

327,893

 

  Depreciation and amortization

117,708

 

(3,470)

     

(2,347)

     

111,891

 

  Goodwill impairment charge

17,959

     

(17,959)

         

-

 

        Total costs and expenses

2,249,882

 

(33,930)

 

(39,127)

 

(18,028)

 

-

 

2,158,797

 
                         

Income from operations

115,877

 

33,930

 

39,127

 

9,274

 

-

 

198,208

 
                         

Other expense, net:

                       

  Interest expense, net

3,506

                 

3,506

 

  Foreign exchange transaction loss, net

1,474

                 

1,474

 

  Impairment of equity investment

7,373

     

(7,373)

         

-

 

  Gain on sale of investment

(1,459)

     

1,459

         

-

 

  Loss on sale of business

169

                 

169

 

        Other expense, net

11,063

 

-

 

(5,914)

 

-

 

-

 

5,149

 
                         

Income before taxes and equity investee earnings

104,814

 

33,930

 

45,041

 

9,274

 

-

 

193,059

 
                         

Taxes on income

10,099

 

10,785

 

6,009

 

2,741

 

11,501

 

41,135

 
                         

Equity investee earnings

17

                 

17

 
                         

Net income 

$         94,732

 

$          23,145

 

$          39,032

 

$            6,533

 

$        (11,501)

 

$       151,941

 
                         

Basic earnings per share

$             1.73

 

$              0.42

 

$              0.71

 

$              0.12

 

$             (0.21)

 

$             2.77

 
                         

Weighted average shares outstanding - basic

54,844,641

 

54,844,641

 

54,844,641

 

54,844,641

 

54,844,641

 

54,844,641

 
                         

Diluted earnings per share

$             1.68

 

$              0.41

 

$              0.69

 

$              0.12

 

$             (0.20)

 

$             2.70

 
                         

Weighted average shares outstanding - diluted

56,290,010

 

56,290,010

 

56,290,010

 

56,290,010

 

56,290,010

 

56,290,010

 
                         
                         

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

(2) Consists of inventory impairment and costs associated with the settlement of an inventory supply agreement ($21,168), goodwill impairment ($17,959), impairment of equity investment ($7,373) and a gain on the sale of an investment $1,459.

 
 

(3) Represents results of operations at sites that were closed during the period.

 

(4) Primarily represents favorable resolutions of income tax matters.

 

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