"In the second quarter, a stronger-than-expected performance in
"
"
"Looking ahead, we expect increases of a few cents in earnings per share in both the third and fourth quarter. We now expect 2014 revenue growth of 6% to 8% and pro forma diluted earnings per share of
Consolidated Results
($ in millions except EPS) |
2Q14 |
2Q13 |
Change |
YTD14 |
YTD13 |
Change |
Total Revenues |
$687.1 |
$644.0 |
$1,353.4 |
$1,278.3 |
||
Less: Reimbursable Out-of-Pockets |
$47.6 |
$51.7 |
$93.9 |
$105.8 |
||
Net Revenues |
$639.5 |
$592.3 |
8.0% |
$1,259.5 |
$1,172.5 |
7.4% |
Operating Income |
$19.3 |
$51.5 |
(62.6%) |
$86.2 |
$99.8 |
(13.6%) |
Operating Margin |
3.0% |
8.7% |
6.8% |
8.5% |
||
Net Income |
$16.9 |
$41.0 |
(58.7%) |
$67.8 |
$89.2 |
(24.0%) |
Diluted Earnings per Share |
$0.29 |
$0.72 |
(59.2%) |
$1.17 |
$1.58 |
(25.5%) |
Restructuring Costs |
($4.2) |
($6.0) |
($8.3) |
($12.2) |
||
Asset Impairments |
($52.6) |
- |
($52.6) |
- |
||
Operating Income, excluding items* |
$76.0 |
$57.5 |
32.2% |
$147.1 |
$ 111.9 |
31.4% |
Operating Margin, excluding items* |
11.9% |
9.7% |
11.7% |
9.5% |
||
Gain on Sale of Business/Investment |
- |
$0.7 |
$1.6 |
$16.4 |
||
Net Income, excluding items* |
$54.7 |
$44.5 |
22.9% |
$107.0 |
$86.8 |
23.3% |
Diluted EPS, excluding items* |
$0.95 |
$0.78 |
21.5% |
$1.85 |
$1.53 |
20.8% |
* See attached pro forma income statements for reconciliation of 2014 and 2013 GAAP to pro forma amounts.
Operating Segment Results
Early Development
($ in millions) |
2Q14 |
2Q13 |
Change |
YTD14 |
YTD13 |
Change |
Net Revenues |
$231.2 |
$214.6 |
7.7% |
$449.4 |
$421.9 |
6.5% |
Operating Income (Loss) |
($22.4) |
$21.9 |
n/c |
($2.9) |
$38.4 |
n/c |
Operating Margin |
(9.7%) |
10.2% |
(0.7%) |
9.1% |
||
Restructuring Costs |
($0.7) |
($2.3) |
($2.3) |
($5.9) |
||
Asset Impairments |
($52.6) |
($52.6) |
||||
Operating Income, excluding items |
$30.8 |
$24.2 |
27.1% |
$51.9 |
$44.3 |
17.1% |
Operating Margin, excluding items |
13.3% |
11.3% |
11.5% |
10.5% |
GAAP operating loss in the second quarter of 2014 was
Late-Stage Development
($ in millions) |
2Q14 |
2Q13 |
Change |
YTD14 |
YTD13 |
Change |
Net Revenues |
$408.3 |
$377.7 |
8.1% |
$810.1 |
$750.6 |
7.9% |
Operating Income |
$87.1 |
$79.5 |
9.5% |
$180.1 |
$162.4 |
10.9% |
Operating Margin |
21.3% |
21.0% |
22.2% |
21.6% |
||
Restructuring Costs |
($3.1) |
($1.4) |
($3.4) |
($3.3) |
||
Operating Income, excluding items |
$90.2 |
$80.9 |
11.5% |
$183.5 |
$165.7 |
10.7% |
Operating Margin, excluding items |
22.1% |
21.4% |
22.7% |
22.1% |
Operating income for the second quarter was
Corporate Information
The company reported second quarter adjusted net orders of
Corporate expenses totaled
Cash, cash equivalents, and short-term investments at
In the second quarter, the company repurchased
Net Days Sales Outstanding (DSO) were 45 days at
The pro forma effective tax rate in the second quarter was 23.7% and is expected to be approximately 24% for the remainder of 2014.
The Company's investor conference call will be webcast on
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
Financial Exhibits Follow
COVANCE INC. |
|||||||||
CONSOLIDATED INCOME STATEMENTS |
|||||||||
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013 |
|||||||||
(Dollars in thousands, except per share data) |
|||||||||
(UNAUDITED) |
|||||||||
Three Months Ended June 30 |
Six Months Ended June 30 |
||||||||
2014 |
2013 |
2014 |
2013 |
||||||
Net revenues |
$ 639,456 |
$ 592,298 |
$ 1,259,508 |
$ 1,172,497 |
|||||
Reimbursable out-of-pocket expenses |
47,652 |
51,678 |
93,888 |
105,814 |
|||||
Total revenues |
687,108 |
643,976 |
1,353,396 |
1,278,311 |
|||||
Costs and expenses: |
|||||||||
Cost of revenue |
446,659 |
419,115 |
879,212 |
830,459 |
|||||
Reimbursable out-of-pocket expenses |
47,652 |
51,678 |
93,888 |
105,814 |
|||||
Selling, general and administrative |
87,324 |
90,177 |
174,606 |
179,396 |
|||||
Depreciation and amortization |
33,645 |
31,496 |
66,974 |
62,881 |
|||||
Impairment charges |
52,564 |
- |
52,564 |
- |
|||||
Total costs and expenses |
667,844 |
(a) |
592,466 |
(c) |
1,267,244 |
(b) |
1,178,550 |
(d) |
|
Income from operations |
19,264 |
(a) |
51,510 |
(c) |
86,152 |
(b) |
99,761 |
(d) |
|
Other expense (income), net: |
|||||||||
Interest expense, net |
2,809 |
1,004 |
5,257 |
1,875 |
|||||
Foreign exchange transaction loss, net |
1,542 |
694 |
1,944 |
1,029 |
|||||
Gain on sale of business |
- |
- |
(1,648) |
- |
|||||
Gain on sale of investments |
- |
(707) |
- |
(16,400) |
|||||
Other expense (income), net |
4,351 |
991 |
(c) |
5,553 |
(b) |
(13,496) |
(d) |
||
Income before taxes |
14,913 |
(a) |
50,519 |
(c) |
80,599 |
(b) |
113,257 |
(d) |
|
Tax (benefit) expense |
(2,024) |
(a) |
9,525 |
(c) |
12,846 |
(b) |
24,097 |
(d) |
|
Net income |
$ 16,937 |
(a) |
$ 40,994 |
(c) |
$ 67,753 |
(b) |
$ 89,160 |
(d) |
|
Basic earnings per share |
$ 0.30 |
(a) |
$ 0.75 |
(c) |
$ 1.22 |
(b) |
$ 1.64 |
(d) |
|
Weighted average shares outstanding - basic |
55,556,218 |
54,662,093 |
55,618,752 |
54,434,563 |
|||||
Diluted earnings per share |
$ 0.29 |
(a) |
$ 0.72 |
(c) |
$ 1.17 |
(b) |
$ 1.58 |
(d) |
|
Weighted average shares outstanding - diluted |
57,549,868 |
56,880,115 |
57,769,847 |
56,598,936 |
|||||
(a) Three months ended June 30, 2014 includes, as applicable, $52,564 in asset impairment charges ($34,866 net of tax) and $4,198 in charges associated with restructuring and other cost reduction actions ($2,864 net of tax). |
|||||||||
(b) Six months ended June 30, 2014 includes, as applicable, $52,564 in asset impairment charges ($34,866 net of tax), $8,336 in charges associated with restructuring and other cost reduction actions ($5,451 net of tax) and $1,648 gain on sale of certain assets of Genomics Laboratory ($1,033 net of tax). |
|||||||||
(c) Three months ended June 30, 2013 includes, as applicable, $6,013 in charges associated with restructuring and other cost reduction actions ($3,942 net of tax), and $707 gain on sale of investment ($460 net of tax). |
|||||||||
(d) Six months ended June 30, 2013 includes, as applicable, $12,183 in charges associated with restructuring and other cost reduction actions ($8,289 net of tax), and $16,400 gain on sale of investments ($10,654 net of tax). |
|||||||||
Excluding the impact of impairment charges, charges associated with restructuring and other cost reduction actions, gain on sale of business and gain on sale of investments, as applicable:
|
|||||||||
Income from operations |
$ 76,026 |
$ 57,523 |
$ 147,052 |
$ 111,944 |
|||||
Taxes on income |
$ 17,008 |
$ 11,349 |
$ 32,814 |
$ 22,245 |
|||||
Net income |
$ 54,667 |
$ 44,476 |
$ 107,037 |
$ 86,795 |
|||||
Basic earnings per share |
$ 0.98 |
$ 0.81 |
$ 1.92 |
$ 1.59 |
|||||
Diluted earnings per share |
$ 0.95 |
$ 0.78 |
$ 1.85 |
$ 1.53 |
COVANCE INC. |
|||||
CONSOLIDATED BALANCE SHEETS |
|||||
JUNE 30, 2014 and DECEMBER 31, 2013 |
|||||
(Dollars in thousands) |
|||||
June 30 |
December 31 |
||||
2014 |
2013 |
||||
(UNAUDITED) |
|||||
ASSETS |
|||||
Current Assets: |
|||||
Cash & cash equivalents |
$ 536,009 |
$ 617,686 |
|||
Short-term investments |
111,844 |
111,359 |
|||
Accounts receivable, net |
355,272 |
331,815 |
|||
Unbilled services |
162,396 |
141,707 |
|||
Inventory |
52,429 |
48,257 |
|||
Deferred income taxes |
54,211 |
51,543 |
|||
Prepaid expenses and other current assets |
233,574 |
201,621 |
|||
Total Current Assets |
1,505,735 |
1,503,988 |
|||
Property and equipment, net |
875,977 |
913,612 |
|||
Goodwill |
118,581 |
109,820 |
|||
Other assets |
38,351 |
29,168 |
|||
Total Assets |
$ 2,538,644 |
$ 2,556,588 |
|||
LIABILITIES and STOCKHOLDERS' EQUITY |
|||||
Current Liabilities: |
|||||
Accounts payable |
$ 83,048 |
$ 59,713 |
|||
Accrued payroll and benefits |
123,122 |
170,806 |
|||
Accrued expenses and other current liabilities |
111,889 |
153,808 |
|||
Unearned revenue |
202,560 |
240,398 |
|||
Short-term debt |
40,000 |
- |
|||
Income taxes payable |
20,572 |
7,952 |
|||
Total Current Liabilities |
581,191 |
632,677 |
|||
Long-term debt |
250,000 |
250,000 |
|||
Deferred income taxes |
13,402 |
32,035 |
|||
Other liabilities |
78,378 |
76,630 |
|||
Total Liabilities |
922,971 |
991,342 |
|||
Stockholders' Equity: |
|||||
Common stock |
824 |
809 |
|||
Paid-in capital |
943,652 |
859,535 |
|||
Retained earnings |
1,847,586 |
1,779,833 |
|||
Accumulated other comprehensive income |
37,708 |
25,746 |
|||
Treasury stock |
(1,214,097) |
(1,100,677) |
|||
Total Stockholders' Equity |
1,615,673 |
1,565,246 |
|||
Total Liabilities and Stockholders' Equity |
$ 2,538,644 |
$ 2,556,588 |
|||
COVANCE INC. |
||||
CONSOLIDATED STATEMENTS OF CASH FLOWS |
||||
FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013 |
||||
(Dollars in thousands) |
||||
(UNAUDITED) |
||||
Six Months Ended June 30 |
||||
2014 |
2013 |
|||
Cash flows from operating activities: |
||||
Net income |
$ 67,753 |
$ 89,160 |
||
Adjustments to reconcile net income to net cash used in |
||||
operating activities: |
||||
Depreciation and amortization |
66,974 |
62,881 |
||
Non-cash impairment charges |
52,564 |
- |
||
Non-cash compensation expense associated with employee benefit |
||||
and stock compensation plans |
19,726 |
19,311 |
||
Deferred income tax benefit |
(21,571) |
(5,712) |
||
Gain on sale of business |
(1,648) |
- |
||
Gain on sale of investments |
- |
(16,400) |
||
Loss on disposal of property and equipment |
333 |
375 |
||
Changes in operating assets and liabilities, net of businesses sold |
||||
and acquired: |
||||
Accounts receivable |
(22,552) |
(57,095) |
||
Unbilled services |
(20,575) |
(17,467) |
||
Inventory |
(5,029) |
1,323 |
||
Accounts payable |
23,288 |
18,312 |
||
Accrued liabilities |
(91,862) |
(45,470) |
||
Unearned revenue |
(37,867) |
(14,095) |
||
Income taxes |
17,504 |
6,736 |
||
Other assets and liabilities, net |
(49,562) |
(44,441) |
||
Net cash used in operating activities |
(2,524) |
(2,582) |
||
Cash flows from investing activities: |
||||
Capital expenditures |
(73,023) |
(68,433) |
||
Acquisition of business, net of cash acquired |
(8,403) |
- |
||
Proceeds from sale of business |
8,429 |
- |
||
Proceeds from sale of investments |
- |
17,781 |
||
Other, net |
- |
394 |
||
Net cash used in investing activities |
(72,997) |
(50,258) |
||
Cash flows from financing activities: |
||||
Net borrowings under revolving credit facility |
40,000 |
5,000 |
||
Stock issued under option plans |
59,118 |
40,226 |
||
Purchase of treasury stock |
(113,420) |
(27,118) |
||
Net cash (used in) provided by financing activities |
(14,302) |
18,108 |
||
Effect of exchange rate changes on cash |
8,146 |
(12,492) |
||
Net change in cash and cash equivalents |
(81,677) |
(47,224) |
||
Cash and cash equivalents, beginning of period |
617,686 |
492,824 |
||
Cash and cash equivalents, end of period |
$ 536,009 |
$ 445,600 |
||
COVANCE INC. |
|||||||
GAAP to Pro Forma Reconciliation |
|||||||
Q2 2014 |
|||||||
(Dollars in thousands, except per share data) |
|||||||
(UNAUDITED) |
|||||||
Adjustments |
|||||||
GAAP |
Restructuring and Other Cost Reduction Activities (1) |
Other |
Pro Forma |
||||
Net revenues |
$ 639,456 |
$ 639,456 |
|||||
Reimbursable out-of-pocket expenses |
47,652 |
47,652 |
|||||
Total revenues |
687,108 |
- |
- |
687,108 |
|||
Costs and expenses: |
|||||||
Cost of revenue |
446,659 |
446,659 |
|||||
Reimbursable out-of-pocket expenses |
47,652 |
47,652 |
|||||
Selling, general and administrative |
87,324 |
(3,784) |
83,540 |
||||
Depreciation and amortization |
33,645 |
(414) |
33,231 |
||||
Impairment charges |
52,564 |
(52,564) |
- |
||||
Total costs and expenses |
667,844 |
(4,198) |
(52,564) |
611,082 |
|||
Income from operations |
19,264 |
4,198 |
52,564 |
76,026 |
|||
Other expense, net: |
|||||||
Interest expense, net |
2,809 |
2,809 |
|||||
Foreign exchange transaction loss, net |
1,542 |
1,542 |
|||||
Other expense, net |
4,351 |
- |
- |
4,351 |
|||
Income before taxes |
14,913 |
4,198 |
52,564 |
71,675 |
|||
Tax (benefit) expense |
(2,024) |
1,334 |
17,698 |
17,008 |
|||
Net income |
$ 16,937 |
$ 2,864 |
$ 34,866 |
$ 54,667 |
|||
Basic earnings per share |
$ 0.30 |
$ 0.05 |
$ 0.63 |
$ 0.98 |
|||
Weighted average shares outstanding - basic |
55,556,218 |
55,556,218 |
55,556,218 |
55,556,218 |
|||
Diluted earnings per share |
$ 0.29 |
$ 0.05 |
$ 0.61 |
$ 0.95 |
|||
Weighted average shares outstanding - diluted |
57,549,868 |
57,549,868 |
57,549,868 |
57,549,868 |
|||
(1) Represents costs incurred to better align capacity to preclinical market demand and reduce overall cost structure. |
|||||||
(2) Represents asset impairment charges. |
|||||||
COVANCE INC. |
|||||||
GAAP to Pro Forma Reconciliation |
|||||||
Q2 2013 |
|||||||
(Dollars in thousands, except per share data) |
|||||||
(UNAUDITED) |
|||||||
Adjustments |
|||||||
GAAP |
Restructuring and Other Cost Reduction Activities (1) |
Other |
Pro Forma |
||||
Net revenues |
$ 592,298 |
$ 592,298 |
|||||
Reimbursable out-of-pocket expenses |
51,678 |
51,678 |
|||||
Total revenues |
643,976 |
- |
- |
643,976 |
|||
Costs and expenses: |
|||||||
Cost of revenue |
419,115 |
419,115 |
|||||
Reimbursable out-of-pocket expenses |
51,678 |
51,678 |
|||||
Selling, general and administrative |
90,177 |
(5,428) |
84,749 |
||||
Depreciation and amortization |
31,496 |
(585) |
30,911 |
||||
Total costs and expenses |
592,466 |
(6,013) |
- |
586,453 |
|||
Income from operations |
51,510 |
6,013 |
- |
57,523 |
|||
Other expense, net: |
|||||||
Interest expense, net |
1,004 |
1,004 |
|||||
Foreign exchange transaction loss, net |
694 |
694 |
|||||
Gain on sale of investment |
(707) |
707 |
- |
||||
Other expense, net |
991 |
- |
707 |
1,698 |
|||
Income before taxes |
50,519 |
6,013 |
(707) |
55,825 |
|||
Taxes on income |
9,525 |
2,071 |
(247) |
11,349 |
|||
Net income |
$ 40,994 |
$ 3,942 |
$ (460) |
$ 44,476 |
|||
Basic earnings per share |
$ 0.75 |
$ 0.07 |
$ (0.01) |
$ 0.81 |
|||
Weighted average shares outstanding - basic |
54,662,093 |
54,662,093 |
54,662,093 |
54,662,093 |
|||
Diluted earnings per share |
$ 0.72 |
$ 0.07 |
$ (0.01) |
$ 0.78 |
|||
Weighted average shares outstanding - diluted |
56,880,115 |
56,880,115 |
56,880,115 |
56,880,115 |
|||
(1) Represents costs incurred to better align capacity to preclinical market demand and reduce overall cost structure. |
|||||||
(2) Represents gain on sale of investment. |
|||||||
COVANCE INC. |
|||||||
GAAP to Pro Forma Reconciliation |
|||||||
YTD Q2 2014 |
|||||||
(Dollars in thousands, except per share data) |
|||||||
(UNAUDITED) |
|||||||
Adjustments |
|||||||
GAAP |
Restructuring and Other Cost Reduction Activities (1) |
Other |
Pro Forma |
||||
Net revenues |
$ 1,259,508 |
$ 1,259,508 |
|||||
Reimbursable out-of-pocket expenses |
93,888 |
93,888 |
|||||
Total revenues |
1,353,396 |
- |
- |
1,353,396 |
|||
Costs and expenses: |
|||||||
Cost of revenue |
879,212 |
879,212 |
|||||
Reimbursable out-of-pocket expenses |
93,888 |
93,888 |
|||||
Selling, general and administrative |
174,606 |
(7,504) |
167,102 |
||||
Depreciation and amortization |
66,974 |
(832) |
66,142 |
||||
Impairment charges |
52,564 |
(52,564) |
- |
||||
Total costs and expenses |
1,267,244 |
(8,336) |
(52,564) |
1,206,344 |
|||
Income from operations |
86,152 |
8,336 |
52,564 |
147,052 |
|||
Other expense, net: |
|||||||
Interest expense, net |
5,257 |
5,257 |
|||||
Foreign exchange transaction loss, net |
1,944 |
1,944 |
|||||
Gain on sale of business |
(1,648) |
1,648 |
- |
||||
Other expense, net |
5,553 |
- |
1,648 |
7,201 |
|||
Income before taxes |
80,599 |
8,336 |
50,916 |
139,851 |
|||
Taxes on income |
12,846 |
2,885 |
17,083 |
32,814 |
|||
Net income |
$ 67,753 |
$ 5,451 |
$ 33,833 |
$ 107,037 |
|||
Basic earnings per share |
$ 1.22 |
$ 0.10 |
$ 0.61 |
$ 1.92 |
|||
Weighted average shares outstanding - basic |
55,618,752 |
55,618,752 |
55,618,752 |
55,618,752 |
|||
Diluted earnings per share |
$ 1.17 |
$ 0.09 |
$ 0.59 |
$ 1.85 |
|||
Weighted average shares outstanding - diluted |
57,769,847 |
57,769,847 |
57,769,847 |
57,769,847 |
|||
(1) Represents costs incurred to better align capacity to preclinical market demand and reduce overall cost structure. |
|||||||
(2) Represents asset impairment charges $52,564 and gain on sale of business $1,648. |
|||||||
COVANCE INC. |
|||||||
GAAP to Pro Forma Reconciliation |
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YTD Q2 2013 |
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(Dollars in thousands, except per share data) |
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(UNAUDITED) |
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Adjustments |
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GAAP |
Restructuring and Other Cost Reduction Activities (1) |
Other |
Pro Forma |
||||
Net revenues |
$ 1,172,497 |
$ 1,172,497 |
|||||
Reimbursable out-of-pocket expenses |
105,814 |
105,814 |
|||||
Total revenues |
1,278,311 |
- |
- |
1,278,311 |
|||
Costs and expenses: |
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Cost of revenue |
830,459 |
830,459 |
|||||
Reimbursable out-of-pocket expenses |
105,814 |
105,814 |
|||||
Selling, general and administrative |
179,396 |
(10,101) |
169,295 |
||||
Depreciation and amortization |
62,881 |
(2,082) |
60,799 |
||||
Total costs and expenses |
1,178,550 |
(12,183) |
- |
1,166,367 |
|||
Income from operations |
99,761 |
12,183 |
- |
111,944 |
|||
Other (income) expense, net: |
|||||||
Interest expense, net |
1,875 |
1,875 |
|||||
Foreign exchange transaction loss, net |
1,029 |
1,029 |
|||||
Gain on sale of investments |
(16,400) |
16,400 |
- |
||||
Other (income) expense, net |
(13,496) |
- |
16,400 |
2,904 |
|||
Income before taxes |
113,257 |
12,183 |
(16,400) |
109,040 |
|||
Taxes on income |
24,097 |
3,894 |
(5,746) |
22,245 |
|||
Net income |
$ 89,160 |
$ 8,289 |
$ (10,654) |
$ 86,795 |
|||
Basic earnings per share |
$ 1.64 |
$ 0.15 |
$ (0.20) |
$ 1.59 |
|||
Weighted average shares outstanding - basic |
54,434,563 |
54,434,563 |
54,434,563 |
54,434,563 |
|||
Diluted earnings per share |
$ 1.58 |
$ 0.15 |
$ (0.19) |
$ 1.53 |
|||
Weighted average shares outstanding - diluted |
56,598,936 |
56,598,936 |
56,598,936 |
56,598,936 |
|||
(1) Represents costs incurred to better align capacity to preclinical market demand and reduce overall cost structure. |
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(2) Represents gain on sale of investments. |