PRINCETON, N.J., Jan. 28 /PRNewswire-FirstCall/ -- Covance Inc.
(NYSE: CVD) today reported earnings for its fourth quarter ended
December 31, 2008 of $0.72 per diluted share. For the full-year,
earnings per share were $3.08, up 13.3% year-on-year from $2.71 in
2007. Excluding the gain on sale of Covance's centralized ECG
business from both years, earnings per share grew 14.5% to $3.03 in
2008 from $2.65 in 2007. "As previously announced, reduced demand
in our Early Development segment from a combination of a lower
level of new project initiations and increased project delays in
our toxicology and clinical pharmacology services led to a
sequential decline in segment revenue and operating income," said
Joe Herring, Chairman and Chief Executive Officer. "Demand for our
Late-Stage Development services remained on-track in the fourth
quarter, including revenue growth of 10.5% (13.5% excluding the
impact of foreign exchange), operating margins of 19.6%, record
orders, and a net book-to-bill exceeding 1.6 to 1. On a
consolidated basis, fourth quarter net revenues grew 6.7% (10.9%
excluding the impact of foreign exchange), operating margin was
14.5%, and EPS was flat year-on-year (excluding the gain on sale
from both periods). "On the commercial front, adjusted net orders
in the fourth quarter were $567 million ($555 million on an
unadjusted basis), representing an adjusted book-to-bill ratio of
1.29 to 1. Backlog grew 62% year-on-year to $4.33 billion. In
addition, in the latter part of 2008, we secured two seven-year,
sole source contracts for our central laboratory services from
top-ten drug companies, under which orders will be recognized as
new projects are awarded. "On December 18 we released our targets
for 2009, which outlined revenue growth of 5% to 10% over 2008 and
earnings per share in the range of $3.00 to $3.20. These targets
assumed demand for early development services begins to pick up
between the second and third quarters of this year, late-stage
backlog would continue to convert to revenue at historical rates,
and foreign exchange rates would remain at budgeted levels
throughout the year. Relative to these assumptions, we are off to a
somewhat slower start in Early Development services and there
continues to be significant volatility in the US dollar, although
central laboratory kits are running ahead of budget. Balancing the
slower start in Early Development with the ongoing strength of new
orders and revenue flow in Late-Stage Development, we continue to
maintain our full-year earnings targets." Consolidated Results ($in
millions except EPS) 4Q08 4Q07 Change FY2008 FY2007 Change ----
---- ------ ------ ------ ------ Total Revenues $463.8 $435.7
$1,827.1 $1,631.5 Less: Reimbursable Out-of-Pockets $25.2 $24.7
$99.0 $85.1 Net Revenues $438.6 $411.0 6.7% $1,728.1 $1,546.4 11.7%
Operating Income $63.5 $61.0 4.1% $263.7 $228.6 15.3% Operating
Margin % 14.5% 14.8% 15.3% 14.8% Net Income $45.7 $50.9 (10.3)%
$196.8 $175.9 11.8% Diluted EPS $0.72 $0.78 (8.4)% $3.08 $2.71
13.3% Gain on Sale, net of tax $0.1 $4.1 $2.6 $4.1 Net Income
Excluding Gain on Sale $45.6 $46.8 (2.5)% $194.1 $171.8 13.0%
Diluted EPS Excluding Gain on Sale $0.72 $0.72 (0.6)% $3.03 $2.65
14.5% Operating Segment Results Early Development ($in millions)
4Q08 4Q07 Change FY2008 FY2007 Change ---- ---- ------ ------
------ ------ Net Revenues $214.2 $207.9 3.1% $844.8 $777.7 8.6%
Operating Income $45.8 $51.5 (11.1)% $205.4 $195.9 4.8% Margin %
21.4% 24.8% 24.3% 25.2% The Company's Early Development segment
includes nonclinical toxicology, analytical chemistry, clinical
pharmacology services, and research products. Early Development net
revenues for the fourth quarter of 2008 grew 3.1% year-over-year to
$214.2 million, compared to $207.9 million in the fourth quarter of
2007. Continued solid growth in analytical chemistry was offset by
a decline in revenues in toxicology and clinical pharmacology. In
addition, foreign exchange negatively impacted revenue growth in
the quarter by approximately 520 basis points. For the full year
2008, net revenues increased 8.6% to $844.8 million compared to
$777.7 million in 2007. Operating income for the fourth quarter of
2008 declined 11.1% year-over-year to $45.8 million, compared to
$51.5 million in the fourth quarter of last year. Operating margins
for the fourth quarter of 2008 were 21.4% compared to 24.8% in the
fourth quarter of 2007 and 25.5% last quarter. Fourth quarter
operating margins were impacted by a lower level of new project
initiations and increased project delays in toxicology and clinical
pharmacology. Full year operating margins were 24.3% compared to
25.2% in the prior year. Late-Stage Development ($in millions) 4Q08
4Q07 Change FY2008 FY2007 Change ---- ---- ------ ------ ------
------ Net Revenues $224.4 $203.1 10.5% $883.3 $768.8 14.9%
Operating Income $44.0 $32.6 35.1% $170.1 $128.1 32.8% Margin %
19.6% 16.0% 19.3% 16.7% The Late-Stage Development segment includes
central laboratory, Phase II-III clinical development, and
commercialization services (periapproval services and market access
services). Late-Stage Development net revenues for the fourth
quarter of 2008 grew 10.5% to $224.4 million compared to $203.1
million in the fourth quarter of 2007. Excluding the impact of the
sale of our ECG business, which was divested in November 2007 but
remains in the comparison year, Late-Stage Development revenue
growth was 12.9%. Growth was again led by central laboratory and
clinical development. Foreign exchange negatively impacted revenue
growth in the quarter by approximately 300 basis points. Full year
Late-Stage Development net revenues grew 14.9% to $883.3 million
compared to $768.8 million in 2007. Operating income for the fourth
quarter of 2008 was $44.0 million compared to $32.6 million in the
fourth quarter of the prior year. Operating margins for the fourth
quarter of 2008 increased to 19.6% from 16.0% in the fourth quarter
of 2007 and on strong performances in clinical development and in
central laboratory services. Full year operating margins were 19.3%
compared to 16.7% in the prior year. Corporate Information The
Company's backlog at December 31, 2008 grew 61.5% year-over-year to
$4.33 billion compared to $2.68 billion at December 30, 2007.
Foreign exchange negatively impacted sequential backlog growth by
approximately $30 million. Adjusted net orders (net orders adjusted
for dedicated capacity contracts) were $567 million in the fourth
quarter of 2008 and $2.15 billion for the full year. Corporate
expenses totaled $26.3 million in the fourth quarter of 2008
compared to $29.2 million last quarter and $23.0 million in the
fourth quarter of last year. Full-year corporate expenses totaled
$111.9 million compared to $95.4 million in the prior year. We
expect corporate expenses to average between 6.0% and 7.0% of
revenues going forward as we continue to make investments in
infrastructure to enhance our ability to manage future growth. Cash
and cash equivalents at December 31, 2008 were $221 million
compared to $209 million at September 30, 2008 and $319 million at
December 31, 2007. At December 31, 2008, short-term debt totaled
$50 million. In October, the Company borrowed $50 million to
finance the purchase of the Greenfield, Indiana campus from Eli
Lilly. Net Days Sales Outstanding (DSO) decreased significantly to
37 days at December 31, 2008 compared to 41 days at September 30,
2008 and 36 days at December 31, 2007. Free cash flow (defined as
operating cash flow less capital expenditures) for the fourth
quarter was $0.2 million, consisting of operating cash flow of $113
million less capital expenditures of $113 million, which includes
the $50 million to purchase the Greenfield, Indiana campus. Free
cash flow for full year 2008 was negative $33 million, consisting
of operating cash flow of $286 million less capital expenditures of
$319 million. In 2009, we expect free cash flow to be approximately
$90 million and capital expenditures to be approximately $200
million. The free cash flow target for 2009 assumes DSO at 40 days.
The effective tax rate in the fourth quarter of 2008 was 28.5%. The
effective tax rate for 2009 is expected to increase slightly, to
approximately 29.0%. The Company's investor conference call will be
webcast on January 29 at 9:00 am EST. Management's commentary and
presentation slides will be available through
http://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 $1.7 billion, global operations in more than 20 countries, and
more than 9,600 employees worldwide. Information on Covance's
products and services, recent press releases, and SEC filings can
be obtained through its website at http://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 of large contracts, 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, 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, 2008 AND 2007 (Dollars in
thousands, except per share data) Three Months Ended Years Ended
December 31 December 31 ------------- ------------ 2008 2007 2008
2007 ---- ---- ---- ---- (UNAUDITED) Net revenues $438,645 $410,966
$1,728,098 $1,546,419 Reimbursable out- of-pockets 25,190 24,736
98,969 85,097 ------ ------ ------ ------ Total revenues 463,835
435,702 1,827,067 1,631,516 ------- ------- --------- ---------
Costs and expenses: Cost of revenue 294,679 273,874 1,142,697
1,017,686 Reimbursed out-of- pocket expenses 25,190 24,736 98,969
85,097 Selling, general and administrative 61,071 58,918 250,180
233,890 Depreciation and amortization 19,399 17,182 71,571 66,197
------ ------ ------ ------ Total costs and expenses 400,339
374,710 1,563,417 1,402,870 ------- ------- --------- ---------
Income from operations 63,496 60,992 263,650 228,646 Other (income)
expense, net: Interest income, net (833) (3,030) (6,461) (9,801)
Foreign exchange transaction loss (gain), net 674 (1,137) (142)
(1,375) Gain on sale of business (143) (6,590) (4,070) (6,590) ----
------ ------ ------ Other income, net (302)(a) (10,757)(b)
(10,673)( c ) (17,766)(b) ---- ------- ------- ------- Income
before taxes and equity investee earnings 63,798(a) 71,749(b)
274,323( c ) 246,412(b) Taxes on income 18,195(a) 21,608(b) 79,415(
c ) 72,934(b) Equity investee earnings 75 768 1,852 2,451 -------
------- -------- -------- Net income $45,678(a) $50,909(b)
$196,760( c ) $175,929(b) ======= ======= ======== ======== Basic
earnings per share $0.72(a) $0.80(b) $3.12( c ) $2.76(b) Weighted
average shares outstanding - basic 63,188,155 63,834,768 63,096,155
63,747,732 Diluted earnings per share $0.72(a) $0.78(b) $3.08( c )
$2.71(b) Weighted average shares outstanding - diluted 63,647,684
64,921,515 63,981,505 64,820,406 (a) Includes the impact of a $143
gain on sale of Cardiac Safety Services ($93 net of tax) during the
fourth quarter of 2008. (b) Includes the impact of a $6,590 gain on
sale of Cardiac Safety Services ($4,152 net of tax) during the
fourth quarter of 2007. ( c ) Includes the impact of a $4,070 gain
on sale of Cardiac Safety Services ($2,646 net of tax) during the
year ended 2008. Excluding the impact of the gain on sale of
business: -----------------------------------------------------
Income before taxes and equity investee earnings $63,655 $65,159
$270,253 $239,822 Taxes on income $18,145 $19,170 $77,991 $70,496
Net income $45,585 $46,757 $194,114 $171,777 Basic earnings per
share $0.72 $0.73 $3.08 $2.69 Diluted earnings per share $0.72
$0.72 $3.03 $2.65 COVANCE INC. CONSOLIDATED BALANCE SHEETS DECEMBER
31, 2008 AND 2007 (Dollars in thousands) December 31, December 31,
2008 2007 ---- ---- ASSETS Current Assets: Cash & cash
equivalents $221,334 $319,485 Accounts receivable, net 228,951
217,657 Unbilled services 112,719 88,835 Inventory 68,206 54,788
Deferred income taxes 15,029 7,825 Prepaid expenses and other
current assets 91,451 81,467 ------ ------ Total Current Assets
737,690 770,057 Property and equipment, net 860,957 646,040
Goodwill, net 105,486 105,486 Other assets 48,955 38,602 ------
------ Total Assets $1,753,088 $1,560,185 ========== ==========
LIABILITIES and STOCKHOLDERS' EQUITY Current Liabilities: Accounts
payable $41,887 $32,252 Accrued payroll and benefits 104,607 95,313
Accrued expenses and other current liabilities 86,521 66,838
Unearned revenue 162,556 144,870 Short-term debt 50,000 - Income
taxes payable 14,224 18,887 ------ ------ Total Current Liabilities
459,795 358,160 Deferred income taxes 51,385 32,562 Other
liabilities 47,059 59,275 ------ ------ Total Liabilities 558,239
449,997 ------- ------- Stockholders' Equity: Common stock 754 746
Paid-in capital 551,598 492,373 Retained earnings 1,129,569 933,106
Accumulated other comprehensive income (13,975) 24,154 Treasury
stock (473,097) (340,191) -------- -------- Total Stockholders'
Equity 1,194,849 1,110,188 --------- --------- Total Liabilities
and Stockholders' Equity $1,753,088 $1,560,185 ==========
========== COVANCE INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Dollars in thousands)
Years Ended December 31 ----------- 2008 2007 ---- ---- Cash flows
from operating activities: Net income $196,760 $175,929 Adjustments
to reconcile net income to net cash provided by operating
activities: Depreciation and amortization 71,571 66,197 Non-cash
compensation expense associated with employee benefit and stock
compensation plans 25,389 26,508 Deferred income tax provision
(benefit) 9,343 (4,903) Gain on sale of business (4,070) (6,590)
Loss (gain) on sale of property and equipment 1,064 (1,346) Equity
investee earnings (1,852) (2,451) Changes in operating assets and
liabilities, net of businesses acquired and sold: Accounts
receivable (11,294) (16,847) Unbilled services (23,884) 304
Inventory (13,418) (5,336) Accounts payable 9,635 (2,836) Accrued
liabilities 26,952 37,153 Unearned revenue 17,686 35,392 Income
taxes payable (2,702) 9,310 Other assets and liabilities, net
(15,023) (16,954) ------- ------- Net cash provided by operating
activities 286,157 293,530 ------- ------- Cash flows from
investing activities: Capital expenditures (318,928) (201,037)
Proceeds from sale of business 4,070 35,200 Minority equity
investment (3,136) - Other, net 385 322 ------ ------ Net cash used
in investing activities (317,609) (165,515) -------- -------- Cash
flows from financing activities: Net borrowings under revolving
credit facility 50,000 - Stock issued under employee stock purchase
and option plans 31,500 33,423 Purchase of treasury stock (132,906)
(66,356) -------- ------- Net cash used in financing activities
(51,406) (32,933) ------- ------- Effect of exchange rate changes
on cash (15,293) 4,593 ------- ----- Net change in cash and cash
equivalents (98,151) 99,675 Cash and cash equivalents, beginning of
period 319,485 219,810 ------- ------- Cash and cash equivalents,
end of period $221,334 $319,485 ======== ======== DATASOURCE:
Covance Inc. CONTACT: Paul Surdez of Covance Inc., +1-609-452-4807
Web Site: http://www.covance.com/
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