Attached files
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| 8-K - 8-K - COVANCE INC | a12-16945_18k.htm |
Exhibit 99.1
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PRESS RELEASE | |
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Contact: |
Paul Surdez |
COVANCE REPORTS SECOND QUARTER PRO FORMA NET REVENUE OF $538 MILLION, PRO FORMA EPS OF $0.65 AND ADJUSTED NET ORDERS OF $701 MILLION
Princeton, New Jersey, July 25, 2012 — Covance Inc. (NYSE: CVD) today reported results for its second quarter ended June 30, 2012. On a GAAP basis, net revenue was $543 million. Excluding revenue from facilities where closure activities have commenced (as described below), pro forma net revenue was $538 million. On a GAAP basis, the company reported a loss of $0.23 per share in the second quarter. Excluding losses from facilities where closure activities have commenced, restructuring costs, and asset impairments, the company reported earnings per diluted share of $0.65.
“In the second quarter pro forma net revenues grew sequentially in both of our business segments, pro forma operating margin expanded 30 basis points sequentially to 9.0%, and pro forma EPS increased to $0.65,” said Joe Herring, Chairman and Chief Executive Officer. “Continued strong commercial performance, led by another record order performance in clinical development, drove a third consecutive quarter of adjusted net orders of at least $700 million, representing a 14% year-on-year increase and an adjusted book-to-bill of 1.30 to 1. In addition, our strategic information technology projects continue to progress on time and on budget.
“In terms of segment performance in the quarter, Late-Stage Development revenues grew 12.8% year-on-year, led again by revenue growth in excess of 25% in clinical development and continued year-on-year and sequential growth in central laboratories, which more than offset a decline in our market access services. Operating margins increased 110 basis points year-on-year to 21.1%, but declined as expected from the exceptional first quarter level on increased staffing in clinical development, lower profitability in market access services and increased spending on strategic IT projects. Late-Stage margins are expected to decline in the back half of 2012 due to increased IT spending, continued hiring in clinical, normal seasonality, and the impact of the stronger US dollar.
“In Early Development, we continued to drive our cost reduction and capacity rationalization actions in order to better align supply with demand and improve margins. In addition to the $20 million of annualized profit improvement announced in May, today we are announcing an incremental $15 million, bringing the total annualized impact of these actions to approximately $35 million from the cost reductions and capacity rationalizations, with approximately one-third expected to be realized in 2012. The 2012 savings are largely expected to offset a slower ramp in Early Development earnings this year. New actions include the further streamlining of operations, closure activities at our Phase I clinics in Honolulu and Basel, and a one-third reduction in our Muenster toxicology capacity (the actions in Muenster and Basel are pending the completion of customary employee consultations). In addition, we are pursuing further cost actions, including a reduction of our corporate spending.
“In terms of Early Development’s second quarter results, pro forma revenue and earnings (which exclude restructuring costs; losses incurred in Chandler, Honolulu, and Basel; and asset impairments) improved sequentially from first quarter levels. Pro forma net revenues increased $3.7 million sequentially to $215.4 million while pro forma operating margin increased 340 basis points sequentially to 8.7%. We expect a sequential increase in revenue and operating margins for the segment in the third quarter as somewhat higher volumes in toxicology and discovery support are expected to more than offset a decline in clinical pharmacology results.
“Looking forward to the third quarter of 2012, we expect pro forma revenue and EPS to be slightly higher than the second quarter level. For the full year, we are revising our revenue growth forecast to the low- to mid-single-digit range primarily due to foreign exchange headwinds and more modest sequential growth in Early Development. We now expect pro forma diluted earnings per share to be in the range of $2.50 to $2.70 (excluding impairment charges, restructuring costs and losses from facilities in wind-down, and using June 30 foreign exchange rates).”
Consolidated Results
|
($ in millions except EPS) |
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2Q12 |
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2Q11 |
|
Change |
|
YTD12 |
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YTD11 |
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Change |
| ||||
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Total Revenues |
|
$ |
585.0 |
|
$ |
547.7 |
|
|
|
$ |
1,158.9 |
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$ |
1,075.2 |
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|
|
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Less: Reimbursable Out-of-Pockets |
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$ |
42.2 |
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$ |
29.5 |
|
|
|
$ |
85.3 |
|
$ |
55.0 |
|
|
|
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Net Revenues |
|
$ |
542.8 |
|
$ |
518.2 |
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4.7% |
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$ |
1,073.6 |
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$ |
1,020.2 |
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5.2% |
|
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Operating Income (Loss) |
|
$ |
(3.9 |
) |
$ |
48.8 |
|
(108.1)% |
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$ |
42.2 |
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$ |
90.7 |
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(53.5)% |
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Operating Margin |
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(0.7 |
)% |
9.4 |
% |
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|
3.9 |
% |
8.9 |
% |
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Net Income (Loss) |
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$ |
(12.7 |
) |
$ |
37.6 |
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(133.7)% |
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$ |
23.0 |
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$ |
70.4 |
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(67.3)% |
|
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Earnings (Loss) per Share |
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$ |
(0.23 |
) |
$ |
0.61 |
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(138.0)% |
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$ |
0.40 |
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$ |
1.15 |
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(65.2)% |
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Revenue from facilities in wind-down** |
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$ |
4.3 |
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— |
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|
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$ |
4.3 |
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— |
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Net Revenue, continuing ops* |
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$ |
538.5 |
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$ |
518.2 |
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3.9% |
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$ |
1,069.3 |
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$ |
1,020.2 |
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4.8% |
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Restructuring Costs |
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$ |
(9.7 |
) |
$ |
(4.6 |
) |
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$ |
(9.7 |
) |
$ |
(10.4 |
) |
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Loss from facilities in wind-down** |
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$ |
(3.8 |
) |
— |
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$ |
(3.8 |
) |
— |
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Impairment of Goodwill & Inventory |
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$ |
(38.7 |
) |
— |
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$ |
(38.7 |
) |
— |
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Operating Income, excluding items* |
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$ |
48.3 |
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$ |
53.3 |
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(9.4)% |
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$ |
94.4 |
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$ |
101.1 |
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(6.6)% |
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Operating Margin, excluding items* |
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9.0 |
% |
10.3 |
% |
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8.8 |
% |
9.9 |
% |
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Impairment of Equity Investment |
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$ |
(7.4 |
) |
— |
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$ |
(7.4 |
) |
— |
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Net Income, excluding items* |
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$ |
36.3 |
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$ |
40.6 |
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(10.5)% |
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$ |
72.0 |
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$ |
77.1 |
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(6.6)% |
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Diluted EPS, excluding items* |
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$ |
0.65 |
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$ |
0.66 |
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(1.7)% |
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$ |
1.25 |
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$ |
1.26 |
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(0.7)% |
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* See attached pro forma income statement for reconciliation of 2012 & 2011 GAAP to pro forma amounts.
** Facilities in wind-down include Chandler, Honolulu, and Basel (pending the completion of customary Swiss employee consultation).
Operating Segment Results
Early Development
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($ in millions) |
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2Q12 |
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2Q11 |
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Change |
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YTD12 |
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YTD11 |
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Change |
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Net Revenues |
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$ |
219.7 |
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$ |
231.8 |
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(5.2)% |
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$ |
431.4 |
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$ |
455.9 |
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(5.4)% |
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Operating Income (Loss) |
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$ |
(33.1 |
) |
$ |
30.9 |
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(207.0)% |
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$ |
(21.8 |
) |
$ |
54.5 |
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(140.0)% |
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Operating Margin |
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(15.1 |
)% |
13.3 |
% |
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(5.1 |
)% |
12.0 |
% |
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Revenue from facilities in wind-down** |
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$ |
4.3 |
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— |
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$ |
4.3 |
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— |
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Net Revenue, continuing ops |
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$ |
215.4 |
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$ |
231.8 |
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(7.1)% |
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$ |
427.1 |
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$ |
455.9 |
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(6.3)% |
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Restructuring Costs |
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$ |
(9.2 |
) |
$ |
(2.0 |
) |
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$ |
(9.2 |
) |
$ |
(4.9 |
) |
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Loss from facilities in wind-down** |
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$ |
(3.8 |
) |
— |
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$ |
(3.8 |
) |
— |
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Impairment of Goodwill & Inventory |
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$ |
(38.7 |
) |
— |
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|
|
$ |
(38.7 |
) |
— |
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Operating Income, excluding items |
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$ |
18.7 |
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$ |
32.9 |
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(43.3)% |
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$ |
30.0 |
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$ |
59.4 |
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(49.5)% |
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Operating Margin, excluding items |
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8.7 |
% |
14.2 |
% |
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7.0 |
% |
13.0 |
% |
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** Facilities in wind-down include Chandler, Honolulu, and Basel (pending the completion of customary Swiss employee consultation).
The Early Development segment includes preclinical toxicology, analytical chemistry, clinical pharmacology, discovery support, and research products. Net revenues in the second quarter of 2012 declined 5.2% year-on-
year on a GAAP basis to $219.7 million and 7.1% on a pro forma basis to $215.4 million, due to a decline in toxicology and research products. In the quarter, foreign exchange was a 100 basis point year-on-year headwind. Sequentially, revenues increased $3.7 million on a rebound in discovery support and clinical pharmacology, which more than offset a decline in research products and toxicology. Revenue from ongoing toxicology operations increased on a sequential basis.
The GAAP operating loss in the second quarter of 2012 was $33.1 million, and included $9.2 million in costs associated with our restructuring actions, $3.8 million in losses at locations in wind-down and asset impairment charges of $38.7 million relating to the write down of goodwill for the Basel clinic as well as certain preclinical inventory. GAAP operating income for the second quarter of 2011 was $30.9 million, and included $2.0 million in restructuring costs. Pro forma operating income, excluding these items, was $18.7 million in the quarter, compared to $32.9 million in the second quarter of last year, but up from $11.3 million last quarter. Pro forma operating margins, excluding these items, were 8.7% for the second quarter of this year, compared to 14.2% in the second quarter of 2011 and 5.3% last quarter. Sequentially, pro forma operating income increased primarily from a return to profitability in discovery support services (which experienced a loss last quarter), increased profitability in toxicology and the exclusion of losses in Chandler, Honolulu and Basel. Research products, which was profitable in the first quarter, experienced a loss in the second quarter.
Late-Stage Development
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($ in millions) |
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2Q12 |
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2Q11 |
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Change |
|
YTD12 |
|
YTD11 |
|
Change |
| ||||
|
Net Revenues |
|
$ |
323.1 |
|
$ |
286.4 |
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12.8% |
|
$ |
642.3 |
|
$ |
564.3 |
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13.8% |
|
|
Operating Income |
|
$ |
68.0 |
|
$ |
56.5 |
|
20.3% |
|
$ |
140.5 |
|
$ |
111.8 |
|
25.7% |
|
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Operating Margin |
|
21.1 |
% |
19.7 |
% |
|
|
21.9 |
% |
19.8 |
% |
|
| ||||
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Restructuring Costs |
|
$ |
(0.2 |
) |
$ |
(0.7 |
) |
|
|
$ |
(0.2 |
) |
$ |
(1.7 |
) |
|
|
|
Operating Income, excluding items |
|
$ |
68.2 |
|
$ |
57.3 |
|
19.1% |
|
$ |
140.7 |
|
$ |
113.4 |
|
24.0% |
|
|
Operating Margin, excluding items |
|
21.1 |
% |
20.0 |
% |
|
|
21.9 |
% |
20.1 |
% |
|
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The Late-Stage Development segment includes central laboratory, Phase II-IV clinical development, and market access services. Net revenues for the second quarter of 2012 grew 12.8% year-on-year to $323.1 million. In the quarter, foreign exchange negatively impacted year-on-year revenue growth by 320 basis points. Growth was driven by the continued strong performance in clinical development, which offset a decline in market access revenue. Central laboratories grew by over 4% for the second consecutive quarter.
Operating income for the second quarter was $68.0 million on a GAAP basis or $68.2 million on a pro forma basis. This compares to $56.5 million on a GAAP basis and $57.3 million on a pro forma basis in the second quarter of the prior year and to $72.4 million last quarter. Pro forma operating margins were 21.1% for the second quarter of 2012 compared to pro forma operating margins of 20.0% in the second quarter of last year and 22.7% last quarter. The year-on-year increase in profitability was driven by both clinical development and central laboratories, while the sequential decrease was primarily driven by hiring and staff costs in clinical development, lower profitability in market access services, and increased spending on strategic IT projects.
Corporate Information
The company reported second quarter adjusted net orders of $701 million. Backlog at June 30, 2012 was $6.23 billion compared to $6.28 billion at March 31, 2012 and $6.25 billion at June 30, 2011. Foreign exchange negatively impacted backlog sequentially by $105 million.
Corporate expenses totaled $38.9 million in the second quarter of 2012 (including $0.3 million in restructuring costs) compared to $37.6 million last quarter and $38.7 million in the second quarter of last year (including $1.8 million in restructuring costs). We expect corporate expenses as a percent of revenue, excluding restructuring costs, to trend slightly higher during 2012 and 2013 as we incur costs to execute our strategic IT projects.
During the second quarter, the company recorded an impairment charge of $7.4 million to write-off the remaining carrying value of an equity investment in a supplier of research products. This charge is reflected as a component of other income (expense) in the consolidated statements of income.
Cash and cash equivalents at June 30, 2012 were $398 million compared to $440 million at March 31, 2012 and $406 million at June 30, 2011. Covance repaid $10 million in debt during the quarter and now has $330 million in debt outstanding, originating from borrowings related to our share repurchase program. Covance repurchased $18 million of shares outstanding within the second quarter.
Free cash flow (defined as operating cash flow less capital expenditures) for the second quarter of 2012 was negative $3 million, consisting of operating cash flow of $36 million less capital expenditures of $39 million. Free cash flow year-to-date was $13 million, consisting of operating cash flow of $82 million less capital expenditures of $69 million.
Net Days Sales Outstanding (DSO) were 35 days at June 30, 2012 compared to a record low 29 days at March 31, 2012 and 38 days at June 30, 2011.
The Company’s investor conference call will be webcast on July 26 at 9:00 am ET. Management’s commentary and presentation slides will be available through www.covance.com.
Covance, with headquarters in Princeton, New Jersey, is one of the world’s largest and most comprehensive drug development services companies with annual revenues greater than $2 billion, global operations in more than 30 countries, and 11,500 employees worldwide. Information on Covance’s products and services, recent press releases, and SEC filings can be obtained through its website at www.covance.com.
Statements contained in this press release, which are not historical facts, such as statements about prospective earnings, savings, revenue, operations, revenue and earnings growth and other financial results are forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements including the statements contained herein regarding anticipated trends in the Company’s business are based largely on management’s expectations and are subject to and qualified by risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include, without limitation, competitive factors, outsourcing trends in the pharmaceutical industry, levels of industry research and development spending, the Company’s ability to continue to attract and retain qualified personnel, the fixed price nature of contracts or the loss or delay of large studies, risks associated with acquisitions and investments, the Company’s ability to increase order volume, the pace of translation of orders into revenue in late-stage development services, testing mix and geographic mix of kit receipts in central laboratories, fluctuations in currency exchange rates, the realization of savings from the announced restructuring action in the Company’s Early Development segment, the cost and pace of completion of our information technology projects and the realization of benefits therefrom, and other factors described in the Company’s filings with the Securities and Exchange Commission including its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations.
Financial Exhibits Follow
COVANCE INC.
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(Dollars in thousands, except per share data)
(UNAUDITED)
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Three Months Ended June 30 |
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Six Months Ended June 30 |
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2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
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Net revenues |
|
$ |
542,782 |
|
$ |
518,220 |
|
$ |
1,073,623 |
|
$ |
1,020,206 |
|
|
Reimbursable out-of-pocket expenses |
|
42,263 |
|
29,507 |
|
85,330 |
|
54,979 |
| ||||
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Total revenues |
|
585,045 |
|
547,727 |
|
1,158,953 |
|
1,075,185 |
| ||||
|
|
|
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|
|
|
|
|
|
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Costs and expenses: |
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|
|
|
|
|
|
|
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Cost of revenue |
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408,198 |
|
358,332 |
|
784,658 |
|
711,852 |
| ||||
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Reimbursable out-of-pocket expenses |
|
42,263 |
|
29,507 |
|
85,330 |
|
54,979 |
| ||||
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Selling, general and administrative |
|
90,601 |
|
85,297 |
|
171,630 |
|
166,000 |
| ||||
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Depreciation and amortization |
|
29,953 |
|
25,836 |
|
57,183 |
|
51,699 |
| ||||
|
Goodwill impairment charge |
|
17,959 |
|
— |
|
17,959 |
|
— |
| ||||
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Total costs and expenses |
|
588,974 |
(a) |
498,972 |
(b) |
1,116,760 |
(a) |
984,530 |
(c) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
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(Loss) income from operations |
|
(3,929 |
)(a) |
48,755 |
(b) |
42,193 |
(a) |
90,655 |
(c) | ||||
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|
|
|
|
|
|
|
|
|
| ||||
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Other expense, net: |
|
|
|
|
|
|
|
|
| ||||
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Interest expense, net |
|
940 |
|
579 |
|
1,433 |
|
1,297 |
| ||||
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Foreign exchange transaction loss, net |
|
792 |
|
307 |
|
1,020 |
|
115 |
| ||||
|
Impairment of equity investment |
|
7,373 |
|
— |
|
7,373 |
|
— |
| ||||
|
Loss on sale of business |
|
169 |
|
— |
|
169 |
|
— |
| ||||
|
Other expense, net |
|
9,274 |
|
886 |
|
9,995 |
|
1,412 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
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(Loss) income before taxes and equity investee results |
|
(13,203 |
)(a) |
47,869 |
(b) |
32,198 |
(a) |
89,243 |
(c) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Tax (benefit) expense |
|
(607 |
)(a) |
9,987 |
(b) |
9,200 |
(a) |
18,621 |
(c) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
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Equity investee (loss) earnings |
|
(81 |
) |
(240 |
) |
17 |
|
(242 |
) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
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Net (loss) income |
|
$ |
(12,677 |
)(a) |
$ |
37,642 |
(b) |
$ |
23,015 |
(a) |
$ |
70,380 |
(c) |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Basic (loss) earnings per share |
|
$ |
(0.23 |
)(a) |
$ |
0.63 |
(b) |
$ |
0.41 |
(a) |
$ |
1.18 |
(c) |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Weighted average shares outstanding - basic |
|
54,184,966 |
|
59,636,973 |
|
55,965,410 |
|
59,546,773 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Diluted (loss) earnings per share |
|
$ |
(0.23 |
)(a) |
$ |
0.61 |
(b) |
$ |
0.40 |
(a) |
$ |
1.15 |
(c) |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Weighted average shares outstanding - diluted |
|
54,184,966 |
|
61,226,477 |
|
57,456,154 |
|
61,105,838 |
| ||||
(a) Three and six months ended June 30, 2012 include, as applicable, $9,667 in restructuring costs ($6,530 net of tax), $20,781 in inventory impairment charges ($14,391 net of tax), $17,959 of goodwill impairment charges ($17,959 net of tax), $7,373 of impairment of equity investment ($7,373 net of tax) and $3,815 in losses at sites in wind-down ($2,746 net of tax).
(b) Three months ended June 30, 2011 includes, as applicable, $4,564 in restructuring costs ($2,937 net of tax).
(c) Six months ended June 30, 2011 includes, as applicable, $10,432 in restructuring costs ($6,714 net of tax).
|
Excluding the impact of restructuring charges, impairment charges and losses at sites in wind-down: |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
$ |
48,293 |
|
$ |
53,319 |
|
$ |
94,415 |
|
$ |
101,087 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Taxes on income |
|
$ |
9,989 |
|
$ |
11,614 |
|
$ |
19,796 |
|
$ |
22,339 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net income |
|
$ |
36,322 |
|
$ |
40,579 |
|
$ |
72,014 |
|
$ |
77,094 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Basic earnings per share |
|
$ |
0.67 |
|
$ |
0.68 |
|
$ |
1.29 |
|
$ |
1.29 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Diluted earnings per share |
|
$ |
0.65 |
|
$ |
0.66 |
|
$ |
1.25 |
|
$ |
1.26 |
|
COVANCE INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2012 and DECEMBER 31, 2011
(Dollars in thousands)
|
|
|
June 30 |
|
December 31 |
| ||
|
|
|
2012 |
|
2011 |
| ||
|
|
|
(UNAUDITED) |
|
|
| ||
|
ASSETS |
|
|
|
|
| ||
|
Current Assets: |
|
|
|
|
| ||
|
Cash & cash equivalents |
|
$ |
397,828 |
|
$ |
389,103 |
|
|
Accounts receivable, net |
|
313,160 |
|
312,127 |
| ||
|
Unbilled services |
|
134,163 |
|
114,095 |
| ||
|
Inventory |
|
48,366 |
|
74,698 |
| ||
|
Deferred income taxes |
|
53,220 |
|
52,078 |
| ||
|
Prepaid expenses and other current assets |
|
175,131 |
|
144,809 |
| ||
|
Total Current Assets |
|
1,121,868 |
|
1,086,910 |
| ||
|
|
|
|
|
|
| ||
|
Property and equipment, net |
|
858,508 |
|
849,551 |
| ||
|
Goodwill |
|
109,820 |
|
127,779 |
| ||
|
Other assets |
|
47,140 |
|
43,768 |
| ||
|
|
|
|
|
|
| ||
|
Total Assets |
|
$ |
2,137,336 |
|
$ |
2,108,008 |
|
|
|
|
|
|
|
| ||
|
LIABILITIES and STOCKHOLDERS’ EQUITY |
|
|
|
|
| ||
|
Current Liabilities: |
|
|
|
|
| ||
|
Accounts payable |
|
$ |
42,794 |
|
$ |
36,393 |
|
|
Accrued payroll and benefits |
|
97,583 |
|
142,229 |
| ||
|
Accrued expenses and other current liabilities |
|
138,062 |
|
119,308 |
| ||
|
Unearned revenue |
|
237,220 |
|
202,210 |
| ||
|
Short-term debt |
|
330,000 |
|
30,000 |
| ||
|
Income taxes payable |
|
1,529 |
|
6,889 |
| ||
|
Total Current Liabilities |
|
847,188 |
|
537,029 |
| ||
|
|
|
|
|
|
| ||
|
Deferred income taxes |
|
28,408 |
|
42,295 |
| ||
|
Other liabilities |
|
72,359 |
|
70,889 |
| ||
|
Total Liabilities |
|
947,955 |
|
650,213 |
| ||
|
|
|
|
|
|
| ||
|
Stockholders’ Equity: |
|
|
|
|
| ||
|
Common stock |
|
788 |
|
781 |
| ||
|
Paid-in capital |
|
712,853 |
|
689,584 |
| ||
|
Retained earnings |
|
1,528,909 |
|
1,505,894 |
| ||
|
Accumulated other comprehensive (loss) income |
|
(7,984 |
) |
4,622 |
| ||
|
Treasury stock |
|
(1,045,185 |
) |
(743,086 |
) | ||
|
Total Stockholders’ Equity |
|
1,189,381 |
|
1,457,795 |
| ||
|
|
|
|
|
|
| ||
|
Total Liabilities and Stockholders’ Equity |
|
$ |
2,137,336 |
|
$ |
2,108,008 |
|
COVANCE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(Dollars in thousands)
(UNAUDITED)
|
|
|
Six Months Ended June 30 |
| ||||
|
|
|
2012 |
|
2011 |
| ||
|
Cash flows from operating activities: |
|
|
|
|
| ||
|
Net income |
|
$ |
23,015 |
|
$ |
70,380 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
|
Depreciation and amortization |
|
57,183 |
|
51,699 |
| ||
|
Non-cash impairment charges |
|
44,610 |
|
— |
| ||
|
Non-cash compensation expense associated with employee benefit and stock compensation plans |
|
19,422 |
|
18,939 |
| ||
|
Deferred income tax benefit |
|
(15,507 |
) |
(3,828 |
) | ||
|
Loss on sale of business |
|
169 |
|
— |
| ||
|
Loss on disposal of property and equipment |
|
432 |
|
344 |
| ||
|
Equity investee (earnings) loss |
|
(17 |
) |
242 |
| ||
|
Changes in operating assets and liabilities, net of business sold: |
|
|
|
|
| ||
|
Accounts receivable |
|
(2,143 |
) |
(36,544 |
) | ||
|
Unbilled services |
|
(20,704 |
) |
(16,948 |
) | ||
|
Inventory |
|
8,948 |
|
(6,075 |
) | ||
|
Accounts payable |
|
6,401 |
|
10,611 |
| ||
|
Accrued liabilities |
|
(26,023 |
) |
17,838 |
| ||
|
Unearned revenue |
|
36,442 |
|
2,027 |
| ||
|
Income taxes payable |
|
(5,028 |
) |
(17,811 |
) | ||
|
Other assets and liabilities, net |
|
(45,124 |
) |
(2,142 |
) | ||
|
Net cash provided by operating activities |
|
82,076 |
|
88,732 |
| ||
|
|
|
|
|
|
| ||
|
Cash flows from investing activities: |
|
|
|
|
| ||
|
Capital expenditures |
|
(69,343 |
) |
(50,548 |
) | ||
|
Proceeds from sale of business |
|
900 |
|
— |
| ||
|
Other, net |
|
90 |
|
106 |
| ||
|
Net cash used in investing activities |
|
(68,353 |
) |
(50,442 |
) | ||
|
|
|
|
|
|
| ||
|
Cash flows from financing activities: |
|
|
|
|
| ||
|
Net borrowings (repayments) under revolving credit facility |
|
300,000 |
|
(35,000 |
) | ||
|
Repayments under long-term debt |
|
— |
|
(5,000 |
) | ||
|
Stock issued under employee stock purchase and option plans |
|
3,522 |
|
7,622 |
| ||
|
Purchase of treasury stock |
|
(302,099 |
) |
(7,517 |
) | ||
|
Net cash provided by (used in) financing activities |
|
1,423 |
|
(39,895 |
) | ||
|
|
|
|
|
|
| ||
|
Effect of exchange rate changes on cash |
|
(6,421 |
) |
30,589 |
| ||
|
|
|
|
|
|
| ||
|
Net change in cash and cash equivalents |
|
8,725 |
|
28,984 |
| ||
|
|
|
|
|
|
| ||
|
Cash and cash equivalents, beginning of period |
|
389,103 |
|
377,223 |
| ||
|
|
|
|
|
|
| ||
|
Cash and cash equivalents, end of period |
|
$ |
397,828 |
|
$ |
406,207 |
|
COVANCE INC.
GAAP to Pro Forma Reconciliation
Q2 2012
(Dollars in thousands, except per share data)
(UNAUDITED)
|
|
|
|
|
Adjustments |
|
|
| ||||||||||||
|
|
|
GAAP |
|
Restructuring |
|
Other |
|
Operating |
|
Inclusion of |
|
Pro Forma |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Net revenues |
|
$ |
542,782 |
|
|
|
|
|
$ |
(4,289 |
) |
|
|
$ |
538,493 |
| |||
|
Reimbursable out-of-pocket expenses |
|
42,263 |
|
|
|
|
|
|
|
|
|
42,263 |
| ||||||
|
Total revenues |
|
585,045 |
|
— |
|
— |
|
(4,289 |
) |
— |
|
580,756 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Cost of revenue |
|
408,198 |
|
|
|
(20,781 |
) |
(6,939 |
) |
|
|
380,478 |
| ||||||
|
Reimbursable out-of-pocket expenses |
|
42,263 |
|
|
|
|
|
|
|
|
|
42,263 |
| ||||||
|
Selling, general and administrative |
|
90,601 |
|
(8,458 |
) |
|
|
(222 |
) |
|
|
81,921 |
| ||||||
|
Depreciation and amortization |
|
29,953 |
|
(1,209 |
) |
|
|
(943 |
) |
|
|
27,801 |
| ||||||
|
Goodwill impairment charge |
|
17,959 |
|
|
|
(17,959 |
) |
|
|
|
|
— |
| ||||||
|
Total costs and expenses |
|
588,974 |
|
(9,667 |
) |
(38,740 |
) |
(8,104 |
) |
— |
|
532,463 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
(Loss) income from operations |
|
(3,929 |
) |
9,667 |
|
38,740 |
|
3,815 |
|
— |
|
48,293 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Interest expense, net |
|
940 |
|
|
|
|
|
|
|
|
|
940 |
| ||||||
|
Foreign exchange transaction loss, net |
|
792 |
|
|
|
|
|
|
|
|
|
792 |
| ||||||
|
Impairment of equity investment |
|
7,373 |
|
|
|
(7,373 |
) |
|
|
|
|
— |
| ||||||
|
Loss on sale of business |
|
169 |
|
|
|
|
|
|
|
— |
|
169 |
| ||||||
|
Other expense, net |
|
9,274 |
|
— |
|
(7,373 |
) |
— |
|
— |
|
1,901 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
(Loss) income before taxes and equity investee earnings |
|
(13,203 |
) |
9,667 |
|
46,113 |
|
3,815 |
|
— |
|
46,392 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Tax (benefit) expense |
|
(607 |
) |
3,137 |
|
6,390 |
|
1,069 |
|
— |
|
9,989 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Equity investee (loss) earnings |
|
(81 |
) |
|
|
|
|
|
|
|
|
(81 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Net (loss) income |
|
$ |
(12,677 |
) |
$ |
6,530 |
|
$ |
39,723 |
|
$ |
2,746 |
|
$ |
— |
|
$ |
36,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Basic (loss) earnings per share |
|
$ |
(0.23 |
) |
$ |
0.12 |
|
$ |
0.73 |
|
$ |
0.05 |
|
|
|
$ |
0.67 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Weighted average shares outstanding - basic |
|
54,184,966 |
|
54,184,966 |
|
54,184,966 |
|
54,184,966 |
|
|
|
54,184,966 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Diluted (loss) earnings per share |
|
$ |
(0.23 |
) |
$ |
0.12 |
|
$ |
0.73 |
|
$ |
0.05 |
|
$ |
(0.02 |
) |
$ |
0.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Weighted average shares outstanding - diluted |
|
54,184,966 |
|
54,184,966 |
|
54,184,966 |
|
54,184,966 |
|
1,500,115 |
(4) |
55,685,081 |
| ||||||
(1) Represents costs incurred to better align capacity to preclinical market demand and reduce cost structure.
(2) Consists of inventory impairment ($20,781), goodwill impairment ($17,959) and impairment of equity investment ($7,373).
(3) Represents results of operations at sites where wind-down activities have commenced.
(4) Reflects inclusion of impact of common stock equivalents in computation of diluted earnings per share as GAAP loss transitions to Pro Forma income.
COVANCE INC.
GAAP to Pro Forma Reconciliation
Q2 2011
(Dollars in thousands, except per share data)
(UNAUDITED)
|
|
|
|
|
Adjustments |
|
|
| |||
|
|
|
GAAP |
|
Restructuring |
|
Pro Forma |
| |||
|
|
|
|
|
|
|
|
| |||
|
Net revenues |
|
$ |
518,220 |
|
|
|
$ |
518,220 |
| |
|
Reimbursable out-of-pocket expenses |
|
29,507 |
|
|
|
29,507 |
| |||
|
Total revenues |
|
547,727 |
|
— |
|
547,727 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Costs and expenses: |
|
|
|
|
|
|
| |||
|
Cost of revenue |
|
358,332 |
|
|
|
358,332 |
| |||
|
Reimbursable out-of-pocket expenses |
|
29,507 |
|
|
|
29,507 |
| |||
|
Selling, general and administrative |
|
85,297 |
|
(4,159 |
) |
81,138 |
| |||
|
Depreciation and amortization |
|
25,836 |
|
(405 |
) |
25,431 |
| |||
|
Total costs and expenses |
|
498,972 |
|
(4,564 |
) |
494,408 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Income from operations |
|
48,755 |
|
4,564 |
|
53,319 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Other expense, net: |
|
|
|
|
|
|
| |||
|
Interest expense, net |
|
579 |
|
|
|
579 |
| |||
|
Foreign exchange transaction loss, net |
|
307 |
|
|
|
307 |
| |||
|
Other expense, net |
|
886 |
|
— |
|
886 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Income before taxes and equity investee earnings |
|
47,869 |
|
4,564 |
|
52,433 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Tax (benefit) expense |
|
9,987 |
|
1,627 |
|
11,614 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Equity investee (loss) earnings |
|
(240 |
) |
|
|
(240 |
) | |||
|
|
|
|
|
|
|
|
| |||
|
Net income |
|
$ |
37,642 |
|
$ |
2,937 |
|
$ |
40,579 |
|
|
|
|
|
|
|
|
|
| |||
|
Basic earnings per share |
|
$ |
0.63 |
|
$ |
0.05 |
|
$ |
0.68 |
|
|
|
|
|
|
|
|
|
| |||
|
Weighted average shares outstanding - basic |
|
59,636,973 |
|
59,636,973 |
|
59,636,973 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Diluted earnings per share |
|
$ |
0.61 |
|
$ |
0.05 |
|
$ |
0.66 |
|
|
|
|
|
|
|
|
|
| |||
|
Weighted average shares outstanding - diluted |
|
61,226,477 |
|
61,226,477 |
|
61,226,477 |
| |||
(1) Represents costs incurred in connection with capacity rationalization, streamlining operations and other cost reduction actions.
COVANCE INC.
GAAP to Pro Forma Reconciliation
YTD Q2 2012
(Dollars in thousands, except per share data)
(UNAUDITED)
|
|
|
|
|
Adjustments |
|
|
| |||||||||
|
|
|
GAAP |
|
Restructuring |
|
Other |
|
Operating |
|
Pro Forma |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Net revenues |
|
$ |
1,073,623 |
|
|
|
|
|
$ |
(4,289 |
) |
$ |
1,069,334 |
| ||
|
Reimbursable out-of-pocket expenses |
|
85,330 |
|
|
|
|
|
|
|
85,330 |
| |||||
|
Total revenues |
|
1,158,953 |
|
— |
|
— |
|
(4,289 |
) |
1,154,664 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Cost of revenue |
|
784,658 |
|
|
|
(20,781 |
) |
(6,939 |
) |
756,938 |
| |||||
|
Reimbursable out-of-pocket expenses |
|
85,330 |
|
|
|
|
|
|
|
85,330 |
| |||||
|
Selling, general and administrative |
|
171,630 |
|
(8,458 |
) |
|
|
(222 |
) |
162,950 |
| |||||
|
Depreciation and amortization |
|
57,183 |
|
(1,209 |
) |
|
|
(943 |
) |
55,031 |
| |||||
|
Goodwill impairment charge |
|
17,959 |
|
|
|
(17,959 |
) |
|
|
— |
| |||||
|
Total costs and expenses |
|
1,116,760 |
|
(9,667 |
) |
(38,740 |
) |
(8,104 |
) |
1,060,249 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
(Loss) income from operations |
|
42,193 |
|
9,667 |
|
38,740 |
|
3,815 |
|
94,415 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Other expense, net: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Interest expense, net |
|
1,433 |
|
|
|
|
|
|
|
1,433 |
| |||||
|
Foreign exchange transaction loss, net |
|
1,020 |
|
|
|
|
|
|
|
1,020 |
| |||||
|
Impairment of equity investment |
|
7,373 |
|
|
|
(7,373 |
) |
|
|
— |
| |||||
|
Loss on sale of business |
|
169 |
|
|
|
|
|
|
|
169 |
| |||||
|
Other expense, net |
|
9,995 |
|
— |
|
(7,373 |
) |
— |
|
2,622 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Income before taxes and equity investee earnings |
|
32,198 |
|
9,667 |
|
46,113 |
|
3,815 |
|
91,793 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Tax (benefit) expense |
|
9,200 |
|
3,137 |
|
6,390 |
|
1,069 |
|
19,796 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Equity investee (loss) earnings |
|
17 |
|
|
|
|
|
|
|
17 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Net income |
|
$ |
23,015 |
|
$ |
6,530 |
|
$ |
39,723 |
|
$ |
2,746 |
|
$ |
72,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Basic earnings per share |
|
$ |
0.41 |
|
$ |
0.12 |
|
$ |
0.71 |
|
$ |
0.05 |
|
$ |
1.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Weighted average shares outstanding - basic |
|
55,965,410 |
|
55,965,410 |
|
55,965,410 |
|
55,965,410 |
|
55,965,410 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Diluted earnings per share |
|
$ |
0.40 |
|
$ |
0.11 |
|
$ |
0.69 |
|
$ |
0.05 |
|
$ |
1.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Weighted average shares outstanding - diluted |
|
57,456,154 |
|
57,456,154 |
|
57,456,154 |
|
57,456,154 |
|
57,456,154 |
| |||||
(1) Represents costs incurred to better align capacity to preclinical market demand and reduce cost structure.
(2) Consists of inventory impairment ($20,781), goodwill impairment ($17,959) and impairment of equity investment ($7,373).
(3) Represents results of operations at sites where wind-down activities have commenced.
COVANCE INC.
GAAP to Pro Forma Reconciliation
YTD Q2 2011
(Dollars in thousands, except per share data)
(UNAUDITED)
|
|
|
|
|
Adjustments |
|
|
| |||
|
|
|
GAAP |
|
Restructuring |
|
Pro Forma |
| |||
|
|
|
|
|
|
|
|
| |||
|
Net revenues |
|
$ |
1,020,206 |
|
|
|
$ |
1,020,206 |
| |
|
Reimbursable out-of-pocket expenses |
|
54,979 |
|
|
|
54,979 |
| |||
|
Total revenues |
|
1,075,185 |
|
— |
|
1,075,185 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Costs and expenses: |
|
|
|
|
|
|
| |||
|
Cost of revenue |
|
711,852 |
|
|
|
711,852 |
| |||
|
Reimbursable out-of-pocket expenses |
|
54,979 |
|
|
|
54,979 |
| |||
|
Selling, general and administrative |
|
166,000 |
|
(9,622 |
) |
156,378 |
| |||
|
Depreciation and amortization |
|
51,699 |
|
(810 |
) |
50,889 |
| |||
|
Total costs and expenses |
|
984,530 |
|
(10,432 |
) |
974,098 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Income from operations |
|
90,655 |
|
10,432 |
|
101,087 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Other expense, net: |
|
|
|
|
|
|
| |||
|
Interest expense, net |
|
1,297 |
|
|
|
1,297 |
| |||
|
Foreign exchange transaction loss, net |
|
115 |
|
|
|
115 |
| |||
|
Other expense, net |
|
1,412 |
|
— |
|
1,412 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Income before taxes and equity investee earnings |
|
89,243 |
|
10,432 |
|
99,675 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Tax (benefit) expense |
|
18,621 |
|
3,718 |
|
22,339 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Equity investee (loss) earnings |
|
(242 |
) |
|
|
(242 |
) | |||
|
|
|
|
|
|
|
|
| |||
|
Net income |
|
$ |
70,380 |
|
$ |
6,714 |
|
$ |
77,094 |
|
|
|
|
|
|
|
|
|
| |||
|
Basic earnings per share |
|
$ |
1.18 |
|
$ |
0.11 |
|
$ |
1.29 |
|
|
|
|
|
|
|
|
|
| |||
|
Weighted average shares outstanding - basic |
|
59,546,773 |
|
59,546,773 |
|
59,546,773 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Diluted earnings per share |
|
$ |
1.15 |
|
$ |
0.11 |
|
$ |
1.26 |
|
|
|
|
|
|
|
|
|
| |||
|
Weighted average shares outstanding - diluted |
|
61,105,838 |
|
61,105,838 |
|
61,105,838 |
| |||
(1) Represents costs incurred in connection with capacity rationalization, streamlining operations and other cost reduction actions.