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Covance Reports Fourth Quarter Pro Forma Net Revenue Of $561 Million, Pro Forma EPS Of $0.73 And Adjusted Net Orders Of $769 Million
Submitted by admin on 1/24/2013 @ 1:03 PM
Companies mentioned in this article:
Covance Inc.
PRINCETON, N.J., Jan. 24, 2013 /PRNewswire/ -- Covance Inc. (NYSE: CVD) today reported results for its fourth quarter and year ended December 31, 2012. On a GAAP basis, net revenue was $562 million in the fourth quarter and $2,181 million for the full year. Excluding revenue from facilities that were closed in 2012, pro forma net revenue was $561 million in the fourth quarter and $2,172 million for the full year. On a GAAP basis, the company reported earnings of $0.61 per diluted share in the fourth quarter. Excluding losses from facilities that were closed in 2012, restructuring costs and other items during the quarter, the company reported earnings per diluted share of $0.73. For the full year, diluted earnings per share on a GAAP basis were $1.68. Excluding losses from facilities closed in 2012, restructuring costs and other charges and favorable income tax developments during the year, the company reported earnings per diluted share of $2.70.
"In 2012, Covance took several important actions which are expected to drive future EPS growth, including reducing our preclinical capacity and overhead cost structure, advancing our strategic IT initiatives, and repurchasing over 10% of our outstanding shares. In addition, our intensified selling efforts led to record adjusted net orders for the year of $2.87 billion, a year-on-year increase of 13.5%, resulting in an adjusted net book-to-bill of 1.32 to 1 for the year," said Joe Herring, Chairman and Chief Executive Officer. "For the fourth quarter, pro forma revenue of $561 million and pro forma earnings per share of $0.73 were better than expected primarily due to significantly higher kit volumes in central laboratories and continued strength in clinical development. Adjusted net orders in the fourth quarter were a record $769 million, representing an adjusted book-to-bill of 1.37 to 1.
"Late-Stage Development fourth quarter revenues grew 15.7% year-on-year to $345 million. This increase was led by 22% growth in clinical development and 16% growth in central laboratories, which more than offset a decline in our market access services. Late-Stage Development pro forma operating margins increased 130 basis points both year-on-year and sequentially to 21.3%. In Early Development, pro forma revenue of $216 million and pro forma operating margin of 12.0% declined modestly from the third quarter level on lower demand for discovery support services.
"Looking ahead to 2013, for the full year, we are forecasting mid- to high-single digit year-on-year revenue growth and pro forma diluted earnings per share, which exclude costs from ongoing restructuring activities, in the range of $2.85 to $3.15 (assuming foreign exchange rates remain at year-end 2012 levels). In the first quarter of 2013, we expect revenue to be up slightly from the fourth quarter level and pro forma earnings per share to be in the range of $0.71 to $0.73 as we forecast an increase in Late-Stage Development net revenues and earnings to be off-set by seasonally-lower first quarter Early Development results."
Consolidated Results
($ in
millions
except EPS) 4Q12 4Q11 Change FY12 FY11 Change
------------ ---- ---- ------ ---- ---- ------
Total
Revenues $609.1 $582.4 $2,365.7 $2,236.4
Less:
Reimbursable
Out-of-
Pockets $46.9 $49.9 $185.1 $140.5
Net Revenues $562.2 $532.5 5.6% $2,180.6 $2,095.9 4.0%
Operating
Income $43.1 $39.0 10.6% $115.9 $180.6 (35.8%)
Operating
Margin 7.7% 7.3% 5.3% 8.6%
Net Income $33.9 $21.1 60.3% $94.7 $132.2 (28.3%)
Diluted
Earnings per
Share $0.61 $0.35 77.5% $1.68 $2.16 (22.2%)
------------- ----- ----- ---- ----- ----- ------
Revenue from
facilities
closed in
2012** $1.5 - $8.8 -
Net Revenue,
continuing
ops* $560.7 $532.5 5.3% $2,171.9 $2,236.4 3.6%
Restructuring
costs and
other items ($6.6) ($19.0) ($73.1) ($34.7)
Loss from
facilities
closed in
2012** ($2.9) - ($9.3) -
Operating
Income,
excluding
items* $52.5 $57.9 (9.3%) $198.2 $215.3 (7.9%)
Operating
Margin,
excluding
items* 9.4% 10.9% 9.1% 10.3%
Impairment of
Equity
Investment - ($12.1) ($7.4) ($12.1)
Gain on Sale
of
Investment - - $1.5 -
Favorable
Income Tax
Developments - $1.8 $11.5 $2.5
Net Income,
excluding
items* $40.3 $44.6 (9.5%) $151.9 $165.0 (7.9%)
Diluted EPS,
excluding
items* $0.73 $0.73 0.1% $2.70 $2.70 (0.1%)
------------ ----- ----- --- ----- ----- -----
* See attached pro forma income statement for reconciliation of 2012 & 2011 GAAP to pro forma amounts.
** Facilities closed in 2012 include Chandler, Honolulu and Basel.
Operating Segment Results
Early Development
($ in millions) 4Q12 4Q11 Change FY12 FY11 Change
-------------- ---- ---- ------ ---- ---- ------
Net Revenues $217.4 $234.5 (7.3%) $869.5 $930.6 (6.6%)
Operating Income $18.7 $17.7 5.8% $4.0 $105.3 (96.2%)
Operating Margin 8.6% 7.5% 0.5% 11.3%
---------------- --- --- --- ----
Revenue from
facilities closed
in 2012** $1.5 - $8.8 -
Net Revenue,
continuing ops $215.9 $234.5 (7.9%) $860.8 $930.6 (7.5%)
Restructuring
costs and other
items ($4.3) ($15.0) ($69.5) ($21.7)
Loss from
facilities closed
in 2012** ($2.9) - ($9.3) -
Operating Income,
excluding items $25.9 $32.6 (20.7%) $82.7 $127.0 (34.9%)
Operating Margin,
excluding items 12.0% 13.9% 9.6% 13.7%
----------------- ---- ---- --- ----
** 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 2012 declined 7.3% year-on-year on a GAAP basis to $217.4 million and 7.9% on a pro forma basis to $215.9 million, due to the following: declines in toxicology, discovery support, and clinical pharmacology; the impact of the sale of environmental services (which had contributed approximately $2.0 million in quarterly revenue); and the closure of sites in 2012. In the quarter, foreign exchange had a 20 basis point year-on-year favorable impact. Sequentially, pro forma revenues decreased $1.9 million on a decline in discovery support. Toxicology revenues were flat sequentially.
GAAP operating income in the fourth quarter of 2012 was $18.7 million, and included $4.3 million in costs associated with our on-going restructuring actions and $2.9 million in losses at closed facilities. GAAP operating income for the fourth quarter of 2011 was $17.7 million, and included $15.0 million in restructuring costs. Pro forma operating income, excluding these items, was $25.9 million in the fourth quarter of this year, versus $26.9 million last quarter and $32.6 million in the fourth quarter of 2011. Pro forma operating margins were 12.0% for the fourth quarter of this year, versus 12.4% last quarter and compared to 13.9% in the fourth quarter of 2011. Sequentially, pro forma operating income decreased primarily due to a decline in profitability in discovery support.
Late-Stage Development
($ in millions) 4Q12 4Q11 Change FY12 FY11 Change
-------------- ---- ---- ------ ---- ---- ------
Net Revenues $344.8 $298.0 15.7% $1,311.1 $1,165.4 12.5%
Operating Income $72.7 $58.2 24.8% $277.6 $226.3 22.7%
Operating Margin 21.1% 19.5% 21.2% 19.4%
---------------- ---- ---- ---- ----
Restructuring Costs ($0.7) ($1.3) ($1.3) ($5.0)
Operating Income,
excluding items $73.4 $59.5 23.3% $278.8 $231.3 20.6%
Operating Margin,
excluding items 21.3% 20.0% 21.3% 19.8%
----------------- ---- ---- ---- ----
The Late-Stage Development segment includes central laboratory, Phase IIb-IV clinical development, and market access services. Net revenues for the fourth quarter of 2012 grew 15.7% year-on-year to $344.8 million, a sequential increase of $20.7 million from the third quarter level. In the quarter, foreign exchange negatively impacted year-on-year revenue growth by 130 basis points. Year-over-year growth was driven by both the continued strong performance in clinical development, where net revenue was up 22%, and a strong increase in central labs, where net revenue was up 16%, which more than offset a year-over-year decline in market access services net revenue. Sequentially, the increase in net revenue was led by central laboratory followed by clinical development and then by market access services. Central laboratory had an increase in kit volumes for the fifth consecutive quarter.
Operating income for the fourth quarter was $72.7 million on a GAAP basis and $73.4 million on a pro forma basis. This represents growth of 24.8% and 23.3%, respectively, compared to the fourth quarter of the prior year and a significant increase from the $64.4 million on a GAAP basis and $64.8 million on a pro forma basis last quarter. Pro forma operating margins expanded to 21.3% for the fourth quarter of 2012, up from pro forma operating margins of 20.0% both last quarter and in the fourth quarter of 2011. The year-on-year and sequential increases in profitability were driven by operating leverage in both clinical development and central laboratories, which more than offset increased spending on strategic IT projects.
Corporate Information
The company reported fourth quarter adjusted net orders of $769 million. Backlog at December 31, 2012 was $6.64 billion compared to $6.37 billion at September 30, 2012 and $6.14 billion at December 31, 2011. Foreign exchange favorably impacted backlog sequentially by $44 million. In addition, contributing $110 million to fourth quarter backlog growth (but excluded from adjusted net orders) was the extension of a contractual minimum volume commitment and the addition of a small new minimum volume commitment.
Corporate expenses totaled $48.3 million in the fourth quarter of 2012 (including $1.5 million in restructuring costs) compared to $40.9 million last quarter (including $0.5 million in restructuring costs) and $37.0 million in the fourth quarter of 2011 (including $2.7 million in restructuring costs). The largest driver of the sequential increase in corporate expenses was spending on our corporate data center consolidation, one of our strategic IT initiatives, coupled with increased incentive compensation accruals related to stronger business performance toward year end.
Cash and cash equivalents at December 31, 2012 were $493 million compared to $441 million at September 30, 2012 and $389 million at December 31, 2011. Debt outstanding is now $320 million, originating from borrowings related to our share repurchase program.
Free cash flow (defined as operating cash flow less capital expenditures) for the fourth quarter of 2012 was $61 million, consisting of operating cash flow of $107 million less capital expenditures of $46 million. Free cash flow for full-year 2012 was $108 million, consisting of operating cash flow of $260 million less capital expenditures of $152 million.
Net Days Sales Outstanding (DSO) were 36 days at December 31, 2012 compared to 38 days at both September 30, 2012 and December 31, 2011.
The Company's investor conference call will be webcast on January 25 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 of approximately $2.2 billion, global operations in more than 30 countries, and more than 11,750 employees worldwide. 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, 2012 AND 2011
(Dollars in thousands, except per share data)
Three Months Ended December 31 Years Ended December 31
------------------------------ -----------------------
2012 2011 2012 2011
---- ---- ---- ----
(UNAUDITED)
Net revenues $562,180 $532,478 $2,180,621 $2,095,938
Reimbursable out-of-pocket expenses 46,964 49,907 185,138 140,508
Total revenues 609,144 582,385 2,365,759 2,236,446
------- ------- --------- ---------
Costs and expenses:
Cost of revenue 395,841 371,852 1,570,223 1,467,051
Reimbursable out-of-pocket expenses 46,964 49,907 185,138 140,508
Selling, general and administrative 92,823 95,752 358,854 343,044
Depreciation and amortization 30,423 25,923 117,708 105,214
Goodwill impairment charge - - 17,959 -
Total costs and expenses 566,051 (a) 543,434 (c) 2,249,882 (b) 2,055,817 (d)
------- ------- --------- ---------
Income from operations 43,093 (a) 38,951 (c) 115,877 (b) 180,629 (d)
Other expense, net:
Interest expense, net 1,153 339 3,506 1,979
Foreign exchange transaction loss, net 173 356 1,474 1,248
Impairment of equity investment - 12,119 7,373 12,119
Gain on sale of investment - - (1,459) -
Loss on sale of business - - 169 -
Other expense, net 1,326 12,814 (c) 11,063 15,346 (d)
----- ------ ------ ------
Income before taxes and equity investee earnings 41,767 (a) 26,137 (c) 104,814 (b) 165,283 (d)
Taxes on income 7,870 (a) 5,172 (c) 10,099 (b) 33,574 (d)
Equity investee earnings - 175 17 480
Net income $33,897 (a) $21,140 (c) $94,732 (b) $132,189 (d)
======= ======= ======= ========
Basic earnings per share $0.63 (a) $0.35 (c) $1.73 (b) $2.22 (d)
Weighted average shares outstanding - basic 53,698,334 59,730,270 54,844,641 59,629,788
Diluted earnings per share $0.61 (a) $0.35 (c) $1.68 (b) $2.16 (d)
Weighted average shares outstanding - diluted 55,197,968 61,080,387 56,290,010 61,091,354
(a) Three months ended December 31, 2012 include, 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).
(b) 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 expected 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.
(c) Three months ended December 31, 2011 include, as applicable, $8,667 in restructuring costs ($5,961 net of tax), $10,287 in costs associated with the termination
of an inventory supply agreement and related inventory write-down ($7,130 net of tax), $12,119 impairment of equity investment ($12,119 net of tax) and
favorable income tax items totaling $1,769.
(d) Year ended December 31, 2011 includes, as applicable, $24,369 in restructuring costs ($16,067 net of tax), $10,287 in costs associated with the termination of
an inventory supply agreement and related inventory write-down ($7,130 net of tax), $12,119 impairment of equity investment ($12,119 net of tax) and
favorable income tax items totaling $2,469.
Excluding the impact of restructuring charges, impairment charges, costs associated with the expected settlement of an inventory supply
---------------------------------------------------------------------------------------------------------------------------------------
agreement, losses at sites that were closed during the period, gain on sale of investment and favorable tax items, as applicable:
---------------------------------------------------------------------------------------------------------------------------------
Income from operations $52,521 $57,905 $198,208 $215,285
Taxes on income $10,866 $12,804 $41,135 $47,502
Net income $40,329 $44,581 $151,941 $165,036
Basic earnings per share $0.75 $0.75 $2.77 $2.77
Diluted earnings per share $0.73 $0.73 $2.70 $2.70
COVANCE INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2012 and DECEMBER 31, 2011
(Dollars in thousands)
December 31 December 31
2012 2011
---- ----
ASSETS
Current Assets:
Cash & cash equivalents $492,824 $389,103
Accounts receivable, net 339,558 312,127
Unbilled services 136,878 114,095
Inventory 49,270 74,698
Deferred income taxes 44,903 52,078
Income taxes receivable 3,642 -
Prepaid expenses and other current assets 167,629 144,809
Total Current Assets 1,234,704 1,086,910
Property and equipment, net 891,319 849,551
Goodwill 109,820 127,779
Other assets 52,499 43,768
Total Assets $2,288,342 $2,108,008
LIABILITIES and STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $34,430 $36,393
Accrued payroll and benefits 144,681 142,229
Accrued expenses and other current
liabilities 127,686 119,308
Unearned revenue 255,776 202,210
Short-term debt 320,000 30,000
Income taxes payable - 6,889
Total Current Liabilities 882,573 537,029
Deferred income taxes 27,912 42,295
Other liabilities 70,665 70,889
Total Liabilities 981,150 650,213
Stockholders' Equity:
Common stock 791 781
Paid-in capital 744,114 689,584
Retained earnings 1,600,626 1,505,894
Accumulated other comprehensive income 28,520 4,622
Treasury stock (1,066,859) (743,086)
Total Stockholders' Equity 1,307,192 1,457,795
Total Liabilities and Stockholders'
Equity $2,288,342 $2,108,008
COVANCE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
(Dollars in thousands)
Years Ended December 31
-----------------------
2012 2011
---- ----
Cash flows from operating activities:
Net income $94,732 $132,189
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 117,708 105,214
Non-cash impairment charges 41,736 12,119
Non-cash compensation expense associated with employee benefit
and stock compensation plans 40,759 40,057
Deferred income tax benefit (8,404) (6,128)
Gain on sale of investment (1,459) -
Loss on sale of business 169 -
Loss on disposal of property and equipment 1,181 1,618
Equity investee earnings (17) (480)
Changes in operating assets and liabilities, net of businesses sold
and acquired:
Accounts receivable (28,541) (50,754)
Unbilled services (23,419) (23,366)
Inventory 10,918 8,226
Accounts payable (1,963) 2,297
Accrued liabilities 8,205 56,409
Unearned revenue 54,998 15,909
Income taxes (10,522) (21,070)
Other assets and liabilities, net (35,920) (28,762)
Net cash provided by operating activities 260,161 243,478
------- -------
Cash flows from investing activities:
Capital expenditures (151,679) (134,633)
Proceeds from sale of investment 4,682 -
Other, net 1,017 (219)
Net cash used in investing activities (145,980) (134,852)
-------- --------
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit facility 290,000 (5,000)
Repayments under long-term debt - (97,500)
Stock issued under employee stock purchase and option plans 13,772 9,325
Purchase of treasury stock (323,773) (8,810)
Net cash used in financing activities (20,001) (101,985)
------- --------
Effect of exchange rate changes on cash 9,541 5,239
----- -----
Net change in cash and cash equivalents 103,721 11,880
Cash and cash equivalents, beginning of period 389,103 377,223
------- -------
Cash and cash equivalents, end of period $492,824 $389,103
======== ========
COVANCE INC.
GAAP to Pro Forma Reconciliation
Q4 2012
(Dollars in thousands, except per share data)
(UNAUDITED)
Adjustments
-----------
GAAP Restructuring Activities (1) Other Operating Results at Sites Wound-
Down (3) Pro Forma
Items (2)
---
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
Goodwill impairment charge - - -
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
Impairment of equity investment - -
Gain on sale of investment - -
Loss on sale of business - -
Other expense, net 1,326 - - - 1,326
----- --- --- --- -----
Income before taxes and equity investee earnings 41,767 10,191 (3,613) 2,850 51,195
Taxes on income 7,870 3,223 (1,111) 884 10,866
Equity investee earnings - -
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
Q4 2011
(Dollars in thousands, except per share data)
(UNAUDITED)
Adjustments
-----------
GAAP Restructuring Activities (1) Other Income Tax Items (3) Pro Forma
Charges (2)
---
Net revenues $532,478 $532,478
Reimbursable out-of-pocket expenses 49,907 49,907
Total revenues 582,385 - - - 582,385
------- --- --- --- -------
Costs and expenses:
Cost of revenue 371,852 371,852
Reimbursable out-of-pocket expenses 49,907 49,907
Selling, general and administrative 95,752 (8,754) (10,287) 76,711
Depreciation and amortization 25,923 87 26,010
Total costs and expenses 543,434 (8,667) (10,287) - 524,480
------- ------ ------- --- -------
Income from operations 38,951 8,667 10,287 - 57,905
Other expense, net:
Interest expense, net 339 339
Foreign exchange transaction loss, net 356 356
Impairment of equity investment 12,119 (12,119) -
Other expense, net 12,814 - (12,119) - 695
------ --- ------- --- ---
Income before taxes and equity investee earnings 26,137 8,667 22,406 - 57,210
Tax expense 5,172 2,706 3,157 1,769 12,804
Equity investee earnings 175 175
Net income $21,140 $5,961 $19,249 $(1,769) $44,581
======= ====== ======= ======= =======
Basic earnings per share $0.35 $0.10 $0.32 $(0.03) $0.75
Weighted average shares outstanding - basic 59,730,270 59,730,270 59,730,270 59,730,270 59,730,270
Diluted earnings per share $0.35 $0.10 $0.32 $(0.03) $0.73
Weighted average shares outstanding - diluted 61,080,387 61,080,387 61,080,387 61,080,387 61,080,387
(1) Represents costs incurred in connection with capacity rationalization, streamlining operations and other cost reduction actions.
(2) Represents costs incurred in connection with termination of an inventory supply agreement and related inventory write-down and
an impairment of a related equity investment.
(3) Represents favorable resolutions of income tax matters.
COVANCE INC.
GAAP to Pro Forma Reconciliation
For the year ended December 31, 2012
(Dollars in thousands, except per share data)
(UNAUDITED)
Adjustments
-----------
GAAP Restructuring Activities (1) Other Operating Results at Sites Wound-
Down (3) Income Tax Items (4) Pro Forma
Items (2)
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 expected 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.
COVANCE INC.
GAAP to Pro Forma Reconciliation
For the year ended December 31, 2011
(Dollars in thousands, except per share data)
(UNAUDITED)
Adjustments
-----------
GAAP Restructuring Activities (1) Other Income Tax Items (3) Pro Forma
Charges (2)
---
Net revenues $2,095,938 $2,095,938
Reimbursable out-of-pocket expenses 140,508 140,508
Total revenues 2,236,446 - - - 2,236,446
--------- --- --- --- ---------
Costs and expenses:
Cost of revenue 1,467,051 1,467,051
Reimbursable out-of-pocket expenses 140,508 140,508
Selling, general and administrative 343,044 (22,592) (10,287) 310,165
Depreciation and amortization 105,214 (1,777) 103,437
Total costs and expenses 2,055,817 (24,369) (10,287) - 2,021,161
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Income from operations 180,629 24,369 10,287 - 215,285
Other expense, net:
Interest expense, net 1,979 1,979
Foreign exchange transaction loss, net 1,248 1,248
Impairment of equity investment 12,119 (12,119) -
Other expense, net 15,346 - (12,119) - 3,227
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Income before taxes and equity investee earnings 165,283 24,369 22,406 - 212,058
Tax expense 33,574 8,302 3,157 2,469 47,502
Equity investee earnings 480 480
Net income $132,189 $16,067 $19,249 $(2,469) $165,036
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Basic earnings per share $2.22 $0.27 $0.32 $(0.04) $2.77
Weighted average shares outstanding - basic 59,629,788 59,629,788 59,629,788 59,629,788 59,629,788
Diluted earnings per share $2.16 $0.26 $0.32 $(0.04) $2.70
Weighted average shares outstanding - diluted 61,091,354 61,091,354 61,091,354 61,091,354 61,091,354
(1) Represents costs incurred in connection with capacity rationalization, streamlining operations and other cost reduction actions.
(2) Represents costs incurred in connection with termination of an inventory supply agreement and related inventory write-down and
an impairment of a related equity investment.
(3) Represents favorable resolutions of income tax matters.
SOURCE Covance Inc.