Covance Reports Third Quarter Net Revenue Of $607 Million, Pro Forma EPS Of $0.83 And Adjusted Net Orders Of $732 Million

PRINCETON, N.J. PRNewswire/ -- Covance Inc. (NYSE: CVD) today reported results for its third quarter ended September 30, 2013.  Net revenue was $606.7 million, representing 11.4% growth from the third quarter of 2012's GAAP result of $544.8 million, and 12.0% growth from the third quarter of 2012's pro forma result of $541.9 million. On a GAAP basis, the company reported earnings of $0.78 per diluted share in the third quarter of 2013 as compared to GAAP earnings of $0.69 in the third quarter of 2012. Excluding charges associated with restructuring and other cost reduction actions totaling $4.9 million, the company reported earnings per diluted share of $0.83, up 15.8% over the pro forma earnings of $0.72 for the third quarter of 2012. 

"Financial highlights in the third quarter included consolidated pro forma revenue growth of 12%, operating margin of 11.1%, EPS of $0.83, and record quarterly free cash flow of $180 million. Our better-than-expected results in the third quarter were driven by exceptional performance in our central laboratory and continued strong results in clinical development," said Joe Herring, Chairman and Chief Executive Officer. "Strong commercial execution continued in the third quarter, as we delivered adjusted net orders of $732 million and an adjusted net book-to-bill of 1.21 to 1.  

"Late-Stage Development revenue grew 19% year-on-year to $386 million and pro forma operating margins were 22.6%, up 260 basis points from a year ago and 120 basis points from last quarter. Better-than-expected kit volumes and a richer mix in central laboratories drove year-over-year revenue growth of 26%, while clinical development grew revenue 14% year-on-year. Both service lines expanded margins year-over-year and sequentially.

"In Early Development, revenue grew $6 million sequentially to $220 million, an increase of 1% from last year's pro forma result. Performance was led by clinical pharmacology, which delivered strong year-over-year and sequential revenue growth and margin expansion, more than offsetting year-over-year declines in discovery support services and pharmaceutical chemistry services. Pro forma operating margin increased 70 basis points year-on-year, and 180 basis points sequentially. Toxicology, where revenue declined slightly both year-on-year and sequentially, delivered better-than-forecasted orders in the third quarter, setting up expected sequential and year-on-year growth in the fourth quarter.

"Looking ahead to the fourth quarter of 2013, we expect sequential growth in revenue and operating income in both our Early and Late-Stage development segments, despite increased spending on our strategic IT programs. Accordingly, we are increasing our full-year pro forma diluted earnings per share target to approximately $3.20 (excluding gains on sale, costs associated with our ongoing restructuring activities, and assuming foreign exchange rates remain atSeptember 30, 2013 levels), versus our previous expectation of $3.10 to $3.20. We also now expect full-year revenue growth of approximately 10%." 

Consolidated Results

 

($ in millions except EPS)

3Q13

3Q12

Change

YTD13

YTD12

Change

Total Revenues

$647.0

$597.6

 

$1,925.3

$1,756.6

 

Less: Reimbursable Out-of-Pockets 

$40.3

$52.8

 

$146.1

$138.2

 

Net Revenues

$606.7

$544.8

11.4%

$1,779.2

$1,618.4

9.9%

Operating Income

$62.6

$30.6

104.7%

$162.4

$72.8

123.1%

   Operating Margin

10.3%

5.6%

 

9.1%

4.5%

 

Net Income

$44.2

$37.8

16.9%

$133.4

$60.8

119.2%

Earnings per Share

$0.78

$0.69

13.3%

$2.35

$1.07

119.0%

Revenue from facilities closed in 2012**

-

$2.9

 

-

$7.3

 

Net Revenue, continuing ops*

$606.7

$541.9

12.0%

$1,779.2

$1,611.2

10.4%

Restructuring Costs and other items

($4.9)

($18.1)

 

($17.1)

($66.5)

 

Loss from facilities closed in 2012**

-

($2.6)

 

-

($6.4)

 

Operating Income, excluding items*

$67.5

$51.3

31.7%

$ 179.5

$145.7

23.2%

  Operating Margin, excluding items*

11.1%

9.5%

 

10.1%

9.0%

 

Gain on Sale of Investments

-

$1.5

 

$16.4

$1.5

 

Impairment of Equity Investment

-

-

 

-

($7.4)

 

Favorable Income Tax Developments

-

$11.5

 

-

$11.5

 

Net Income, excluding items*

$47.3

$39.6

19.4%

$134.1

$111.6

20.1%

Diluted EPS, excluding items*

$0.83

$0.72

15.8%

$2.36

$1.97

20.0%

 

* 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)

3Q13

3Q12

Change

YTD13

YTD12

Change

Net Revenues

$220.4

$220.7

(0.2%)

$642.2

$652.1

(1.5%)

Operating Income (Loss)

$27.2

$7.1

283.3%

$65.6

($14.7)

 

Operating Margin

12.3%

3.2%

 

10.2%

(2.3%)

 

Revenue from facilities closed in 2012**

-

$2.9

 

-

$7.3

 

Net Revenue, continuing ops

$220.4

$217.8

1.2%

$642.2

$644.8

(0.4%)

Restructuring Costs and other items

($1.6)

($17.2)

 

($7.5)

($65.1)

 

Loss from facilities closed in 2012**

-

($2.6)

 

-

($6.4)

 

Operating Income, excluding items

$28.8

$26.9

7.0%

$73.1

$56.9

28.6%

Operating Margin, excluding items

13.1%

12.4%

 

11.4%

8.8%

 

 

** 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 third quarter of 2013 were $220.4 million, compared to $220.7 million on a GAAP basis and $217.8 million on a pro forma basis in the third quarter of last year. Last year's pro forma revenue excluded $2.9 million in revenue from the three sites closed by the end of 2012. On a pro forma basis, net revenue increased 1.2%, including a 10 basis point foreign exchange tailwind, as strong growth in clinical pharmacology and research products were largely offset by declines in discovery support and pharmaceutical chemistry. Sequential growth of $5.8 million was primarily driven by growth in clinical pharmacology and research products.

GAAP operating income in the third quarter of 2013 was $27.2 million, and included $1.6 million in costs associated with our previously-announced restructuring actions versus operating income of $7.1 million in the third quarter of 2012, which included losses at facilities closed in 2012 of $2.6 million and restructuring costs of $17.2 million.  Pro forma operating income, excluding these costs, was $28.8 million in the third quarter of this year, a 7.0% increase from the $26.9 million reported in the third quarter of 2012.  Pro forma operating margins were 13.1% in the third quarter of 2013, versus 12.4% in the third quarter of 2012 and 11.3% last quarter.

On a sequential basis, operating margin was positively impacted by the shift to above margin treatment of the UK R&D tax credit which added 200 basis points.  In addition, annual salary merit increases went into effect on July 1 and this negatively impacted operating margins on a sequential basis by 100 basis points in the quarter.  The UK R&D tax credit recorded in the third quarter represents a six month impact (as the law was signed in July 2013, but applied retroactive to April 1, 2013).  The fourth quarter of 2013 will reflect the UK R&D credit associated with costs incurred during only that quarter.  As a result, operating margins in the fourth quarter of 2013 will face a sequential headwind of approximately 100 basis points from a normalization of the UK R&D tax credit. 

Late-Stage Development  

 

($ in millions)

3Q13

3Q12

Change

YTD13

YTD12

Change

Net Revenues

$386.4

$324.1

19.2%

$1,137.0

$966.3

17.7%

Operating Income

$86.8

$64.4

34.8%

$249.3

$204.9

21.7%

Operating Margin

22.5%

19.9%

 

21.9%

21.2%

 

Restructuring Costs

($0.5)

($0.4)

 

($3.8)

($0.6)

 

Operating Income, excluding items

$87.4

$64.8

34.8%

$253.1

$205.5

23.2%

Operating Margin, excluding items

22.6%

20.0%

 

22.3%

21.3%

 

 

The Late-Stage Development segment includes central laboratory, Phase IIb-IV clinical development, and market access services.  Net revenues for the third quarter of 2013 grew 19.2% year-on-year to $386.4 million, and increased $8.6 million sequentially from the second quarter level. In the quarter, foreign exchange favorably impacted revenue growth by 160 basis points. Year-over-year growth was driven by increases of 26% in central laboratories and 14% in clinical development, while sequential revenue growth was driven by growth in central laboratories.

Operating income for the third quarter was $86.8 million on a GAAP basis and included $0.5 million in costs associated with our ongoing restructuring actions. On a pro forma basis, operating income was $87.4 million, up 34.8% year-over-year. Pro Forma operating income also increased $6.5 million sequentially. Pro forma operating margins were 22.6% for the third quarter of 2013, versus 20.0% in the third quarter of 2012 and 21.4% last quarter. The year-on-year increase in profitability was led by operating leverage in central laboratories followed by clinical development, which more than offset increased spending on strategic IT projects.

On a sequential basis, operating margins in the third quarter were positively impacted by the shift to above margin treatment of the UK R&D tax credit which added 90 basis points.  In addition, on July 1 annual salary merit increases went into effect and this was a sequential operating margin headwind of 90 basis points.  The UK R&D tax credit recorded in the third quarter represents a six month impact.  The fourth quarter of 2013 will reflect the UK R&D credit associated with costs incurred during only that quarter.  As a result, operating margins in the fourth quarter of 2013 will face a sequential headwind of approximately 45 basis points from a normalization of the UK R&D tax credit. 

Corporate Information

The company reported third quarter adjusted net orders of $732 million. Backlog at September 30, 2013 was $6.83 billion compared to $6.73 billion at June 30, 2013 and $6.37 billion at September 30, 2012. Foreign exchange contributed $70 million to backlog growth on a sequential basis. 

Corporate expenses totaled $51.4 million in the third quarter of 2013 (including $2.8 million in restructuring costs) compared to $49.9 million last quarter (including $2.3 million in restructuring costs) and $40.9 million in the third quarter of 2012 (including $0.5 million in restructuring costs). The largest driver of the year-over-year increase in corporate expenses is 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 September 30, 2013 were $593 million compared to $446 million at June 30, 2013 and $441 million atSeptember 30, 2012.  Short-term debt was reduced by $60 million in the third quarter to $265 million as of September 30. As announced on October 8,Covance entered into a note purchase agreement for the private placement of $250 million in senior notes planned to be issued in November.                                                        

Net Days Sales Outstanding (DSO) declined 13 days in the third quarter to 35 days at September 30, 2013 compared to 48 days at June 30, 2013 and 38 days at September 30, 2012.

Free cash flow (defined as operating cash flow less capital expenditures) for the third quarter of 2013 was $180 million, consisting of operating cash flow of$215 million less capital expenditures of $35 million.  Free cash flow year-to-date was $109 million, consisting of operating cash flow of $213 million less capital expenditures of $104 million.  In 2013, we continue to expect free cash flow to be at least $125 million, net of capital expenditures of approximately $160 million.  The free cash flow target for 2013 assumes net DSO at 40 days at December 31, 2013.

The pro forma effective tax rate in the third quarter of 28.3% was impacted by the shift to above margin treatment of the UK R&D tax credit.  Previously this credit was recorded as a reduction to income tax expense.  As a result of UK tax legislation signed in the third quarter of 2013, but effective April 1, 2013, the company now reports the UK R&D credit as an above margin expense reduction.  The impact in the third quarter was an increase in the company's effective tax rate of approximately 900 basis points, representing a six month impact.  The fourth quarter of 2013 will reflect the UK R&D credit associated with costs incurred during only that quarter.  As a result, the effective tax rate in the fourth quarter of 2013 will face a sequential tailwind of approximately 450 basis points from the third quarter level from a normalization of the UK R&D tax credit, resulting in an expected tax rate slightly below 24%.

The company's investor conference call will be webcast on October 30 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 $2.2 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,  the satisfaction of the conditions of the note purchase agreement and the closing thereof, 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 NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

 
                   

(Dollars in thousands, except per share data)

 
                   

(UNAUDITED)

 
                   
   

Three Months Ended September 30

 

Nine Months Ended September 30

 
   

2013

 

2012

 

2013

 

2012

 
               

Net revenues

 

$           606,722

 

$            544,818

 

$   1,779,219

 

$   1,618,441

 

Reimbursable out-of-pocket expenses

 

40,328

 

52,844

 

146,142

 

138,174

 

     Total revenues

 

647,050

 

597,662

 

1,925,361

 

1,756,615

 
                   

Costs and expenses:

                 

  Cost of revenue

 

424,857

 

389,724

 

1,255,316

 

1,174,382

 

  Reimbursable out-of-pocket expenses

 

40,328

 

52,844

 

146,142

 

138,174

 

  Selling, general and administrative

 

87,052

 

94,401

 

266,448

 

266,031

 

  Depreciation and amortization

 

32,191

 

30,102

 

95,072

 

87,285

 

  Goodwill impairment charge

 

-

 

-

 

-

 

17,959

 

        Total costs and expenses

 

584,428

(a)

567,071

(c)

1,762,978

(b)

1,683,831

(d)

                   

Income from operations

 

62,622

(a)

30,591

(c)

162,383

(b)

72,784

(d)

                   

Other (income) expense, net:

                 

  Interest expense, net

 

759

 

920

 

2,634

 

2,353

 

  Foreign exchange transaction loss, net

 

882

 

281

 

1,911

 

1,301

 

  Gain on sale of investments

 

-

 

(1,459)

 

(16,400)

 

(1,459)

 

  Impairment of equity investment

 

-

 

-

 

-

 

7,373

 

  Loss on sale of business

 

-

 

-

 

-

 

169

 

        Other (income) expense, net

 

1,641

 

(258)

(c)

(11,855)

(b)

9,737

(d)

                   

Income before taxes and equity investee earnings

 

60,981

(a)

30,849

(c)

174,238

(b)

63,047

(d)

                   

Tax expense (benefit)

 

16,780

(a)

(6,971)

(c)

40,877

(b)

2,229

(d)

                   

Equity investee earnings

 

-

 

-

 

-

 

17

 
                   

Net income

 

$              44,201

(a)

$              37,820

(c)

$       133,361

(b)

$         60,835

(d)

                   

Basic earnings per share

 

$                  0.81

(a)

$                   0.70

(c)

$             2.45

(b)

$             1.10

(d)

                   

Weighted average shares outstanding - basic

 

54,703,763

 

53,687,748

 

54,524,296

 

55,206,190

 
                   

Diluted earnings per share

 

$                  0.78

(a)

$                   0.69

(c)

$             2.35

(b)

$             1.07

(d)

                   

Weighted average shares outstanding - diluted

 

56,939,181

 

55,201,552

 

56,754,527

 

56,701,280

 
                   
                   

(a) Three months ended September 30, 2013 includes, as applicable, $4,893 in charges associated with restructuring and other cost reduction actions ($3,063 net of tax).

(b) Nine months ended September 30, 2013 includes, as applicable, $17,076 in charges associated with restructuring and other cost reduction actions ($11,352 net of tax), and $16,400 gain on sale of investments ($10,654 net of tax).

(c) Three months ended September 30, 2012 includes, as applicable, $14,072 in restructuring costs ($9,647 net of tax), $4,000 in costs associated with the settlement of an inventory supply agreement ($2,756 net of tax), $2,609 in losses at sites in wind-down ($1,821 net of tax), $1,459 gain on sale of investment ($945 net of tax) and favorable income tax items totaling $11,501.

(d) Nine months ended September 30, 2012 includes, as applicable, $23,739 in restructuring costs ($16,177 net of tax), $24,781 in inventory impairment charges and costs associated with the settlement of an inventory supply agreement ($17,147 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), $6,424 in losses at sites in wind-down ($4,567 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, costs associated with the settlement of an inventory supply agreement, losses at sites in wind-down, gain on sale of investments and favorable tax items, as applicable:

 
                   
                   

Income from operations

 

$              67,515

 

$              51,272

 

$       179,459

 

$       145,687

 
                   

Taxes on income

 

$              18,610

 

$              10,473

 

$         40,855

 

$         30,269

 
                   

Net income 

 

$              47,264

 

$              39,598

 

$       134,059

 

$       111,612

 
                   

Basic earnings per share

 

$                  0.86

 

$                   0.74

 

$             2.46

 

$             2.02

 
                   

Diluted earnings per share

 

$                  0.83

 

$                   0.72

 

$             2.36

 

$             1.97

 
                   

 

COVANCE INC.

           

CONSOLIDATED BALANCE SHEETS

           

SEPTEMBER 30, 2013 and DECEMBER 31, 2012

           

(Dollars in thousands)

           
           
     

September 30

 

December 31

     

2013

 

2012

     

(UNAUDITED)

   

ASSETS

       

Current Assets:

       
 

Cash & cash equivalents

 

$        482,800

 

$       492,824

 

Short-term investments

 

109,794

 

-

 

Accounts receivable, net

 

353,940

 

339,558

 

Unbilled services

 

147,355

 

136,878

 

Inventory

 

49,516

 

49,270

 

Deferred income taxes

 

49,363

 

44,903

 

Income taxes receivable

 

-

 

3,642

 

Prepaid expenses and other current assets

 

203,200

 

167,629

 

    Total Current Assets

 

1,395,968

 

1,234,704

           

Property and equipment, net

 

891,680

 

891,319

Goodwill

 

109,820

 

109,820

Other assets

 

40,846

 

52,499

 

    Total Assets

 

$     2,438,314

 

$   2,288,342

           

LIABILITIES and STOCKHOLDERS' EQUITY

       

Current Liabilities:

       
 

Accounts payable

 

$          52,020

 

$         34,430

 

Accrued payroll and benefits

 

143,599

 

144,681

 

Accrued expenses and other current liabilities

 

104,032

 

127,686

 

Unearned revenue

 

266,522

 

255,776

 

Short-term debt 

 

265,000

 

320,000

 

Income taxes payable

 

11,663

 

-

 

    Total Current Liabilities

 

842,836

 

882,573

           

Deferred income taxes

 

21,186

 

27,912

Other liabilities

 

75,840

 

70,665

 

    Total Liabilities

 

939,862

 

981,150

           

Stockholders' Equity:

       
 

Common stock

 

807

 

791

 

Paid-in capital

 

836,056

 

744,114

 

Retained earnings

 

1,733,987

 

1,600,626

 

Accumulated other comprehensive income

 

23,966

 

28,520

 

Treasury stock

 

(1,096,364)

 

(1,066,859)

 

    Total Stockholders' Equity

 

1,498,452

 

1,307,192

 

    Total Liabilities and Stockholders'  Equity

 

$     2,438,314

 

$   2,288,342

           

 

 

COVANCE INC.

         

CONSOLIDATED STATEMENTS OF CASH FLOWS

         

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

         

(Dollars in thousands)

         

(UNAUDITED)

         
   

Nine Months Ended September 30

         
   

2013

 

2012

Cash flows from operating activities:

       

  Net income

 

$         133,361

 

$           60,835

  Adjustments to reconcile net income to net cash provided by

       

    operating activities:

       

    Depreciation and amortization

 

95,072

 

87,285

    Non-cash impairment charges

 

-

 

44,610

    Non-cash compensation expense associated with employee benefit

       

       and stock compensation plans

 

29,863

 

29,774

    Deferred income tax benefit

 

(6,787)

 

(23,648)

    Gain on sale of investments

 

(16,400)

 

(1,459)

    Loss on sale of business

 

-

 

169

    Loss on disposal of property and equipment

 

487

 

674

    Equity investee earnings

 

-

 

(17)

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

       

       Accounts receivable

 

(14,382)

 

(10,404)

       Unbilled services

 

(10,477)

 

(27,561)

       Inventory

 

(246)

 

9,115

       Accounts payable

 

17,590

 

2,565

       Accrued liabilities

 

(24,736)

 

(1,396)

       Unearned revenue

 

10,746

 

33,374

       Income taxes

 

20,228

 

568

       Other assets and liabilities, net

 

(21,474)

 

(51,581)

Net cash provided by operating activities

 

212,845

 

152,903

         

Cash flows from investing activities:

       

  Capital expenditures

 

(103,703)

 

(105,199)

  Purchase of short-term investments

 

(109,794)

 

-

  Proceeds from sale of investments

 

17,781

 

4,682

  Other, net

 

528

 

1,006

Net cash used in investing activities

 

(195,188)

 

(99,511)

         

Cash flows from financing activities:

       

  Net (repayments) borrowings under revolving credit facility

 

(55,000)

 

310,000

  Stock issued under option plans

 

57,172

 

5,794

  Purchase of treasury stock

 

(29,505)

 

(322,452)

Net cash used in financing activities

 

(27,333)

 

(6,658)

Effect of exchange rate changes on cash

 

(348)

 

5,535

Net change in cash and cash equivalents

 

(10,024)

 

52,269

         

Cash and cash equivalents, beginning of period

 

492,824

 

389,103

         

Cash and cash equivalents, end of period

 

$         482,800

 

$         441,372

         

 

 

COVANCE INC.

           

GAAP to Pro Forma Reconciliation

           

Q3 2013

           

(Dollars in thousands, except per share data)

           

(UNAUDITED)

           
     

Adjustments

 
 

GAAP

 

 Restructuring 
and Other Cost 
Reduction 
Activities (1)

 

Pro Forma

           

Net revenues

$             606,722

     

$               606,722

Reimbursable out-of-pocket expenses

40,328

     

40,328

     Total revenues

647,050

 

-

 

647,050

           

Costs and expenses:

         

  Cost of revenue

424,857

     

424,857

  Reimbursable out-of-pocket expenses

40,328

     

40,328

  Selling, general and administrative

87,052

 

(4,475)

 

82,577

  Depreciation and amortization

32,191

 

(418)

 

31,773

        Total costs and expenses

584,428

 

(4,893)

 

579,535

           

Income from operations

62,622

 

4,893

 

67,515

           

Other (income) expense, net:

         

  Interest expense, net

759

     

759

  Foreign exchange transaction loss, net

882

     

882

        Other (income) expense, net

1,641

 

-

 

1,641

           

Income before taxes

60,981

 

4,893

 

65,874

           

Taxes on income

16,780

 

1,830

 

18,610

           

Net income 

$                44,201

 

$                  3,063

 

$                  47,264

           

Basic earnings per share

$                    0.81

 

$                    0.06

 

$                      0.86

           

Weighted average shares outstanding - basic

54,703,763

 

54,703,763

 

54,703,763

           

Diluted earnings per share

$                    0.78

 

$                    0.05

 

$                      0.83

           

Weighted average shares outstanding - diluted

56,939,181

 

56,939,181

 

56,939,181

           
           

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

           

 

 

COVANCE INC.

                       

GAAP to Pro Forma Reconciliation

                       

Q3 2012

                       

(Dollars in thousands, except per share data)

                       

(UNAUDITED)

                       
     

Adjustments

 
 

GAAP

 

 Restructuring 
Activities (1)

 

Other
Items (2)

 

Operating 
Results at 
Sites in Wind-
Down (3)

 

Income Tax 
Items (4)

 

Pro Forma

                       

Net revenues

$     544,818

         

$          (2,967)

     

$     541,851

Reimbursable out-of-pocket expenses

52,844

                 

52,844

     Total revenues

597,662

 

-

 

-

 

(2,967)

 

-

 

594,695

                       

Costs and expenses:

                     

  Cost of revenue

389,724

     

(4,000)

 

(4,544)

     

381,180

  Reimbursable out-of-pocket expenses

52,844

                 

52,844

  Selling, general and administrative

94,401

 

(12,989)

     

(162)

     

81,250

  Depreciation and amortization

30,102

 

(1,083)

     

(870)

     

28,149

        Total costs and expenses

567,071

 

(14,072)

 

(4,000)

 

(5,576)

 

-

 

543,423

                       

Income from operations

30,591

 

14,072

 

4,000

 

2,609

 

-

 

51,272

                       

Other (income) expense, net:

                     

  Interest expense, net

920

                 

920

  Foreign exchange transaction loss, net

281

                 

281

  Gain on sale of investment

(1,459)

     

1,459

         

-

        Other (income) expense, net

(258)

 

-

 

1,459

 

-

 

-

 

1,201

                       

Income before taxes

30,849

 

14,072

 

2,541

 

2,609

 

-

 

50,071

                       

Taxes on income

(6,971)

 

4,425

 

730

 

788

 

11,501

 

10,473

                       

Net income 

$        37,820

 

$            9,647

 

$            1,811

 

$            1,821

 

$         (11,501)

 

$        39,598

                       

Basic earnings per share

$            0.70

 

$              0.18

 

$              0.03

 

$              0.03

 

$             (0.21)

 

$            0.74

                       

Weighted average shares outstanding - basic

53,687,748

 

53,687,748

 

53,687,748

 

53,687,748

 

53,687,748

 

53,687,748

                       

Diluted earnings per share

$            0.69

 

$              0.17

 

$              0.03

 

$              0.03

 

$             (0.21)

 

$            0.72

                       

Weighted average shares outstanding - diluted

55,201,552

 

55,201,552

 

55,201,552

 

55,201,552

 

55,201,552

 

55,201,552

                       
                       

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

(2) Consists of costs associated with the settlement of an inventory supply agreement ($4,000) and a gain on the sale of an investment $1,459.

   

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

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

                       

 

 

COVANCE INC.

               

GAAP to Pro Forma Reconciliation

               

YTD Q3 2013

               

(Dollars in thousands, except per share data)

               

(UNAUDITED)

               
     

Adjustments

 
 

GAAP

 

 Restructuring 
and Other Cost 
Reduction 
Activities (1)

 

Other
Items (2)

 

Pro Forma

               

Net revenues

$  1,779,219

         

$  1,779,219

Reimbursable out-of-pocket expenses

146,142

         

146,142

     Total revenues

1,925,361

 

-

 

-

 

1,925,361

               

Costs and expenses:

             

  Cost of revenue

1,255,316

         

1,255,316

  Reimbursable out-of-pocket expenses

146,142

         

146,142

  Selling, general and administrative

266,448

 

(14,576)

     

251,872

  Depreciation and amortization

95,072

 

(2,500)

     

92,572

        Total costs and expenses

1,762,978

 

(17,076)

 

-

 

1,745,902

               

Income from operations

162,383

 

17,076

 

-

 

179,459

               

Other (income) expense, net:

             

  Interest expense, net

2,634

         

2,634

  Foreign exchange transaction loss, net

1,911

         

1,911

  Gain on sale of investments

(16,400)

     

16,400

 

-

        Other (income) expense, net

(11,855)

 

-

 

16,400

 

4,545

               

Income before taxes

174,238

 

17,076

 

(16,400)

 

174,914

               

Taxes on income

40,877

 

5,724

 

(5,746)

 

40,855

               

Net income 

$      133,361

 

$                11,352

 

$         (10,654)

 

$      134,059

               

Basic earnings per share

$            2.45

 

$                    0.21

 

$             (0.20)

 

$            2.46

               

Weighted average shares outstanding - basic

54,524,296

 

54,524,296

 

54,524,296

 

54,524,296

               

Diluted earnings per share

$            2.35

 

$                    0.20

 

$             (0.19)

 

$            2.36

               

Weighted average shares outstanding - diluted

56,754,527

 

56,754,527

 

56,754,527

 

56,754,527

               
               

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

(2) Represents gain on sale of investments.

               

 

 


COVANCE INC.

                       

GAAP to Pro Forma Reconciliation

                       

YTD Q3 2012

                       

(Dollars in thousands, except per share data)

                       

(UNAUDITED)

                       
     

Adjustments

 
 

GAAP

 

 Restructuring 
Activities (1)

 

Other
Items (2)

 

Operating 
Results at 
Sites in Wind-
Down (3)

 

Income Tax 
Items (4)

 

Pro Forma

                       

Net revenues

$      1,618,441

         

$          (7,256)

     

$  1,611,185

Reimbursable out-of-pocket expenses

138,174

                 

138,174

     Total revenues

1,756,615

 

-

 

-

 

(7,256)

 

-

 

1,749,359

                       

Costs and expenses:

                     

  Cost of revenue

1,174,382

     

(24,781)

 

(11,483)

     

1,138,118

  Reimbursable out-of-pocket expenses

138,174

                 

138,174

  Selling, general and administrative

266,031

 

(21,446)

     

(384)

     

244,201

  Depreciation and amortization

87,285

 

(2,293)

     

(1,813)

     

83,179

  Goodwill impairment charge

17,959

     

(17,959)

         

-

        Total costs and expenses

1,683,831

 

(23,739)

 

(42,740)

 

(13,680)

 

-

 

1,603,672

                       

Income from operations

72,784

 

23,739

 

42,740

 

6,424

 

-

 

145,687

                       

Other (income) expense, net:

                     

  Interest expense, net

2,353

                 

2,353

  Foreign exchange transaction loss, net

1,301

                 

1,301

  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 (income) expense, net

9,737

 

-

 

(5,914)

 

-

 

-

 

3,823

                       

Income before taxes and equity investee earnings

63,047

 

23,739

 

48,654

 

6,424

 

-

 

141,864

                       

Taxes on income

2,229

 

7,562

 

7,120

 

1,857

 

11,501

 

30,269

                       

Equity investee earnings

17

                 

17

                       

Net income 

$            60,835

 

$          16,177

 

$          41,534

 

$            4,567

 

$         (11,501)

 

$      111,612

                       

Basic earnings per share

$                1.10

 

$              0.29

 

$              0.75

 

$              0.08

 

$             (0.21)

 

$            2.02

                       

Weighted average shares outstanding - basic

55,206,190

 

55,206,190

 

55,206,190

 

55,206,190

 

55,206,190

 

55,206,190

                       

Diluted earnings per share

$                1.07

 

$              0.29

 

$              0.73

 

$              0.08

 

$             (0.20)

 

$            1.97

                       

Weighted average shares outstanding - diluted

56,701,280

 

56,701,280

 

56,701,280

 

56,701,280

 

56,701,280

 

56,701,280

                       
                       

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

(2) Consists of inventory impairment and costs associated with the settlement of an inventory supply agreement ($24,781), 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 where wind-down activities have commenced.

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

         

 

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