PRINCETON, N.J., Feb. 4, 2014 /PRNewswire/ -- Covance Inc. (NYSE: CVD) today reported results for its fourth quarter and year ended December 31, 2013. Net revenue in the fourth quarter was $623.1 million, representing 10.8% growth from the fourth quarter of 2012's GAAP result of $562.2 million, and 11.1% growth from the fourth quarter of 2012's pro forma result of $560.7 million. On a GAAP basis, the company reported earnings of $0.80 per diluted share in the fourth quarter of 2013 as compared to GAAP earnings of $0.61 in the fourth quarter of 2012. Excluding charges associated with restructuring, other cost reduction actions and other items in both periods, the company reported pro forma earnings per diluted share of $0.87, up 18.6% over the pro forma earnings of $0.73 for the fourth quarter of 2012.

On a full-year basis, net revenue in 2013 was $2.4 billion, representing 10.2% growth from 2012's GAAP result of $2.18 billion, and 10.6% growth from 2012's pro forma result of $2.17 billion. On a GAAP basis, the company reported earnings per diluted share of $3.15 in 2013 as compared to GAAP earnings of $1.68 in 2012. Excluding charges associated with restructuring, other cost reduction actions and other items in both periods, the company reported pro forma earnings per diluted share of $3.23 in 2013, up 19.6% over the pro forma earnings of $2.70 for 2012.

"In 2013, Covance continued to benefit from market share gains in central laboratories, strong operational delivery in clinical development, improving market conditions in toxicology, and successful execution of our on-going strategic IT projects. This performance enabled us to significantly exceed our 2013 financial targets, with a return to double-digit revenue growth, pro forma EPS of $3.23, and free cash flow in excess of $240 million. In addition, we delivered strong orders throughout the year, resulting in record adjusted net orders of $3 billion, and an adjusted net book-to-bill of 1.25 to 1 for the year," said Joe Herring, Chairman and Chief Executive Officer. "For the fourth quarter, revenue grew to $623 million, up 11.1% from 2012 pro forma revenue, and pro forma earnings per share grew 18.6% to $0.87. Adjusted net orders in the fourth quarter were $769 million, representing an adjusted net book-to-bill of 1.23 to 1.

"Late-Stage Development fourth quarter revenues grew 14.5% year-on-year to $395 million. This increase was led by 17% growth in central laboratories and 13% growth in clinical development. Late-Stage Development pro forma operating margins increased 140 basis points year-on-year and 10 basis points sequentially to 22.7%. In Early Development, revenue grew 5.7% year-on-year on a pro forma basis, led by growth in clinical pharmacology and toxicology. Sequentially, revenues grew $7.9 million from the third quarter, driven primarily by strong sequential growth in toxicology. Early Development fourth quarter pro forma operating margins of 12.1% were flat sequentially after normalizing for the UK R&D credits, as strength in toxicology was offset by normal seasonality in clinical pharmacology.

"Looking ahead to 2014, for the full year, we expect year-on-year revenue growth in the 6% to 10% range and pro forma diluted earnings per share, excluding costs from our ongoing restructuring activities, in the range of $3.65 to $4.00 (assuming foreign exchange rates remain at year-end 2013 levels). In the first quarter of 2014, we expect revenue to be up from the fourth quarter level and pro forma earnings per share to increase sequentially by a couple of cents, as we forecast an increase in Late-Stage Development net revenues and earnings to be partially off-set by seasonally-lower first quarter Early Development results."

Consolidated Results



    ($ in millions except
     EPS)                 4Q13         4Q12         Change       FY13           FY12           Change
    --------------------- ----         ----         ------       ----           ----           ------

    Total Revenues             $669.8       $609.1                    $2,595.1       $2,365.7

    Less: Reimbursable
     Out-of-Pockets             $46.7        $46.9                      $192.8         $185.1

    Net Revenues               $623.1       $562.2         10.8%      $2,402.3       $2,180.6         10.2%

    Operating Income            $55.0        $43.1         27.5%        $217.3         $115.9         87.6%

       Operating Margin           8.8%         7.7%                        9.0%           5.3%

    Net Income                  $45.8        $33.9         35.3%        $179.2          $94.7         89.2%

    Diluted Earnings per
     Share                      $0.80        $0.61         30.5%         $3.15          $1.68         87.2%
    --------------------        -----        -----         ----          -----          -----         ----

    Revenue from
     Facilities Closed in
     2012**                         -         $1.5                           -           $8.8

    Net Revenue,
     continuing ops*           $623.1       $560.7         11.1%      $2,402.3       $2,171.9         10.6%

    Restructuring Costs
     and Other Items            ($9.8)       ($6.6)                     ($26.8)        ($73.1)

    Loss from Facilities
     Closed in 2012**               -        ($2.9)                          -          ($9.3)

    Operating Income,
     excluding items*           $64.7        $52.5         23.2%        $244.2         $198.2         23.2%

      Operating Margin,
       excluding items*          10.4%         9.4%                       10.2%           9.1%

    Gain on Sale of
     Investments                    -            -                       $16.4           $1.5

    Impairment of Equity
     Investment                     -            -                           -          ($7.4)

    Favorable Income Tax
     Developments                $3.0            -                        $3.0          $11.5

    Net Income, excluding
     items*                     $49.6        $40.3         23.0%        $183.7         $151.9         20.9%

    Diluted EPS,
     excluding items*           $0.87        $0.73         18.6%         $3.23          $2.70         19.6%
    -----------------           -----        -----         ----          -----          -----         ----

    * 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)    4Q13         4Q12         Change       FY13         FY12         Change
    --------------     ----         ----         ------       ----         ----         ------

    Net Revenues            $228.3       $217.4          5.0%      $870.5       $869.5             0.1%

    Operating Income         $21.9        $18.7         17.3%       $87.5         $4.0         2,087.6%

    Operating Margin           9.6%         8.6%                     10.1%         0.5%
    ----------------           ---          ---                      ----          ---

    Revenue from
     Facilities Closed
     in 2012**                   -         $1.5                         -         $8.8

    Net Revenue,
     continuing ops         $228.3       $215.9          5.7%      $870.5       $860.8             1.1%

    Restructuring
     Costs and Other
     Items                   ($5.7)       ($4.3)                   ($13.2)      ($69.5)

    Loss from
     Facilities Closed
     in 2012**                   -        ($2.9)                        -        ($9.3)

    Operating Income,
     excluding items         $27.6        $25.9          6.7%      $100.7        $82.7            21.7%

    Operating Margin,
     excluding items          12.1%        12.0%                     11.6%         9.6%
    -----------------         ----         ----                      ----          ---

    ** 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 2013 were $228.3 million, compared to $217.4 million on a GAAP basis and $215.9 million on a pro forma basis in the fourth quarter of last year. Last year's pro forma revenue excluded $1.5 million in revenue from the three sites closed by the end of 2012. On a pro forma basis, net revenue increased 5.7%, including a 60 basis point foreign exchange tailwind, as continued strong growth in clinical pharmacology and improved results in toxicology were partially offset by declines in discovery support and certain pharmaceutical chemistry services. Sequential growth of $7.9 million was primarily driven by toxicology.

GAAP operating income in the fourth quarter of 2013 was $21.9 million, and included $0.8 million in costs associated with our previously-announced restructuring actions and $4.9 million in asset impairment charges relating to our Manassas and Basel properties, which are being marketed for sale. This compares to GAAP operating income of $18.7 million in the fourth quarter of 2012, which included restructuring costs of $4.3 million and losses at facilities closed in 2012 of $2.9 million. Pro forma operating income, excluding these costs, was $27.6 million in the fourth quarter of this year, a 6.7% increase from the $25.9 million reported in the fourth quarter of 2012 as growth in clinical pharmacology and toxicology and the shift to above margin treatment for the UK R&D credit more than offset declines in discovery support and certain chemistry services. Pro forma operating margins were 12.1% in the fourth quarter of 2013, versus 12.0% in the fourth quarter of 2012 and 13.1% last quarter. Third quarter 2013 margins included a six month impact of the shift to above margin treatment of the UK R&D credit (as the law was signed in July 2013, but applied retroactive to April 1, 2013) versus only a three month impact in the current quarter.

On January 31, 2014, Covance sold its high-complexity genomics laboratory, located in Seattle, Washington, to Laboratory Corporation of America Holdings, and entered into a five year services agreement, pursuant to which Covance will collaborate with LabCorp to continue to offer these services to its clients. Covance expects to report a small gain on this sale in its first quarter ending March 31, 2014, which will be excluded from its pro forma earnings per share. Covance will continue to provide other genomics services to its clients through its central laboratories.

Late-Stage Development

    ($ in millions)   4Q13         4Q12         Change       FY13           FY12           Change
    --------------    ----         ----         ------       ----           ----           ------

    Net Revenues           $394.8       $344.8         14.5%      $1,531.8       $1,311.1         16.8%

    Operating Income        $89.2        $72.7         22.8%        $338.5         $277.6         22.0%

    Operating Margin         22.6%        21.1%                       22.1%          21.2%
    ----------------         ----         ----                        ----           ----

    Restructuring
     Costs                  ($0.3)       ($0.7)                      ($4.1)         ($1.3)

    Operating Income,
     excluding items        $89.5        $73.4         22.0%        $342.6         $278.8         22.9%

    Operating Margin,
     excluding items         22.7%        21.3%                       22.4%          21.3%
    -----------------        ----         ----                        ----           ----

The Late-Stage Development segment includes central laboratory, Phase IIb-IV clinical development, and market access services. Net revenues for the fourth quarter of 2013 grew 14.5% year-on-year to $394.8 million, and increased $8.5 million sequentially from the third quarter level. In the quarter, foreign exchange favorably impacted revenue growth by 170 basis points. Year-over-year growth was driven by increases of 17% in central laboratories and 13% in clinical development, while the sequential revenue increase was led by growth in clinical development followed by growth in central laboratories.

Operating income for the fourth quarter was $89.2 million on a GAAP basis and included $0.3 million in costs associated with our ongoing restructuring actions. On a pro forma basis, operating income was $89.5 million, up 22.0% year-over-year. Pro Forma operating income also increased $2.1 million sequentially. Pro forma operating margins were 22.7% in the fourth quarter of 2013, versus 21.3% in the fourth quarter of 2012 and 22.6% last quarter. The year-on-year increase in profitability was driven by operating leverage in both clinical development and central laboratories, partially offset by increased spending on strategic IT projects. On a sequential basis, operating margins increased 10 basis points overcoming a headwind from the normalization of the UK R&D credit and increased IT spending due primarily to margin expansion in clinical development.

Corporate Information

The company reported fourth quarter adjusted net orders of $769 million. Backlog at December 31, 2013 grew to $6.92 billion compared to $6.83 billion at September 30, 2013 and $6.64 billion at December 31, 2012. Foreign exchange contributed $36 million to backlog growth on a sequential basis.

Corporate expenses totaled $56.2 million in the fourth quarter of 2013 (including $3.8 million in restructuring costs) compared to $51.4 million last quarter (including $2.8 million in restructuring costs) and $48.3 million in the fourth quarter of 2012 (including $1.5 million in restructuring costs). The largest driver of the year-over-year and sequential increases in corporate expenses are 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 December 31, 2013 were $729 million compared to $593 million at September 30, 2013 and $493 million at December 31, 2012. During the fourth quarter, the company raised $250 million from the issuance of senior notes. Proceeds from these notes and cash from operations were used to fully repay the $265 million outstanding balance on the revolving credit facility. The revolving credit facility will be maintained to provide flexibility to execute our growth strategy over the long-term.

Net Days Sales Outstanding (DSO) declined one day in the fourth quarter to 34 days at December 31, 2013 compared to 35 days at September 30, 2013 and 36 days at December 31, 2012.

Free cash flow (defined as operating cash flow less capital expenditures) for the fourth quarter of 2013 was $134 million, consisting of operating cash flow of $193 million less capital expenditures of $58 million. Free cash flow for the year was $243 million, consisting of operating cash flow of $406 million less capital expenditures of $162 million. Free cash flow in both the fourth quarter and full year of 2013 include a client payment of approximately $28 million for Value Added Tax, which had been pending resolution between the client and the tax authorities during the year. Following resolution in the fourth quarter, the client paid this amount to Covance, which will in turn be remitted to the tax authorities in the first quarter of 2014.

The pro forma effective tax rate in the fourth quarter was 21.6%, down 670 basis points sequentially from the pro forma effective tax rate of 28.3% last quarter. The effective tax rate in the third quarter included a six month impact, or approximately 900 basis points, from the shift in accounting of the UK R&D credit. The fourth quarter effective tax rate included a benefit of approximately 220 basis points (contributing approximately $0.02 in earnings per share) attributable to the finalization of our 2013 pre-tax earnings mix, where a greater proportion of our earnings came from operations in tax jurisdictions with lower income tax rates. The 2013 full year pro forma effective tax rate was 22.9% and is expected to be approximately 24.5% in 2014.

The Company's investor conference call will be webcast on February 5 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 $2.4 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 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, 2013 AND 2012
                                                                                                                                                                                                                                                                                                         
                                                                                                                                                                                                                                                                                                           
                                                                                                                                (Dollars in thousands, except per share data)
                                                                                                                                                                                                                                                                                                         
                                                                                                                                                                                                                                                                                                         
                                                                                                                                                                                                 
                                                                                  Three Months Ended December 31                                 Years Ended December 31
                                                                                  ------------------------------                                 -----------------------
                                                                                                                                                                                                                                                                                                         
                                                                                                                  2013                                                        2012                                               2013                                                2012
                                                                                                                  ----                                                        ----                                               ----                                                ----
                                                                                                                                                                                                                                                     
                                                                                           (UNAUDITED)
                                                                                                                                                                                                                                                                                                         
                                                                                                                                                                                                                                                                                                         
    Net revenues                                                                                              $623,094                                                    $562,180                                         $2,402,313                                          $2,180,621
                                                                                                                                                                                                                                                                                                         
    Reimbursable out-of-pocket expenses                                                                         46,675                                                      46,964                                            192,817                                             185,138
                                                                                                                                                                                                                                                                                                         
         Total revenues                                                                                        669,769                                                     609,144                                          2,595,130                                           2,365,759
                                                                                                               -------                                                     -------                                          ---------                                           ---------
                                                                                                                                                                                                                                                                                                         
                                                                                                                                                                                                                                                                                                         
    Costs and expenses:
                                                                                                                                                                                                                                                                                                         
      Cost of revenue                                                                                          436,857                                                     395,841                                          1,692,173                                           1,570,223
                                                                                                                                                                                                                                                                                                         
      Reimbursable out-of-pocket expenses                                                                       46,675                                                      46,964                                            192,817                                             185,138
                                                                                                                                                                                                                                                                                                         
      Selling, general and administrative                                                                       93,564                                                      92,823                                            360,012                                             358,854
                                                                                                                                                                                                                                                                                                         
      Depreciation and amortization                                                                             32,845                                                      30,423                                            127,917                                             117,708
                                                                                                                                                                                                                                                                                                         
      Impairment charges                                                                                         4,877                                                           -                                              4,877                                              17,959
                                                                                                                                                                                                                                                                                                         
            Total costs and expenses                                                                           614,818  (a)                                                566,051  (c)                                     2,377,796  (b)                                      2,249,882  (d)
                                                                                                               -------                                                     -------                                          ---------                                           ---------
                                                                                                                                                                                                                                                                                                         
                                                                                                                                                                                                                                                                                                         
    Income from operations                                                                                      54,951  (a)                                                 43,093  (c)                                       217,334  (b)                                        115,877  (d)
                                                                                                                                                                                                                                                                                                         
                                                                                                                                                                                                                                                                                                         
    Other expense (income), net:
                                                                                                                                                                                                                                                                                                         
      Interest expense, net                                                                                      1,450                                                       1,153                                              4,084                                               3,506
                                                                                                                                                                                                                                                                                                         
      Foreign exchange transaction loss, net                                                                        14                                                         173                                              1,925                                               1,474
                                                                                                                                                                                                                                                                                                         
      Gain on sale of investments                                                                                    -                                                           -                                            (16,400)                                             (1,459)
                                                                                                                                                                                                                                                                                                         
      Impairment of equity investment                                                                                -                                                           -                                                  -                                               7,373
                                                                                                                                                                                                                                                                                                         
      Loss on sale of business                                                                                       -                                                           -                                                  -                                                 169
                                                                                                                                                                                                                                                                                                         
            Other expense (income), net                                                                          1,464                                                       1,326                                            (10,391) (b)                                         11,063  (d)
                                                                                                                 -----                                                       -----                                            -------                                              ------
                                                                                                                                                                                                                                                                                                         
                                                                                                                                                                                                                                                                                                         
    Income before taxes and equity investee earnings                                                            53,487  (a)                                                 41,767  (c)                                       227,725  (b)                                        104,814  (d)
                                                                                                                                                                                                                                                                                                         
                                                                                                                                                                                                                                                                                                         
    Taxes on income                                                                                              7,641  (a)                                                  7,870  (c)                                        48,518  (b)                                         10,099  (d)
                                                                                                                                                                                                                                                                                                         
                                                                                                                                                                                                                                                                                                         
    Equity investee earnings                                                                                         -                                                           -                                                  -                                                  17
                                                                                                                                                                                                                                                                                                         
                                                                                                                                                                                                                                                                                                         
    Net income                                                                                                 $45,846  (a)                                                $33,897  (c)                                      $179,207  (b)                                        $94,732  (d)
                                                                                                               =======                                                     =======                                           ========                                             =======
                                                                                                                                                                                                                                                                                                         
                                                                                                                                                                                                                                                                                                         
    Basic earnings per share                                                                                     $0.83  (a)                                                  $0.63  (c)                                         $3.28  (b)                                          $1.73  (d)
                                                                                                                                                                                                                                                                                                         
                                                                                                                                                                                                                                                                                                         
    Weighted average shares outstanding - basic                                                             55,021,244                                                  53,698,334                                         54,648,533                                          54,844,641
                                                                                                                                                                                                                                                                                                         
                                                                                                                                                                                                                                                                                                         
    Diluted earnings per share                                                                                   $0.80  (a)                                                  $0.61  (c)                                         $3.15  (b)                                          $1.68  (d)
                                                                                                                                                                                                                                                                                                         
                                                                                                                                                                                                                                                                                                         
    Weighted average shares outstanding - diluted                                                           57,205,147                                                  55,197,968                                         56,899,013                                          56,290,010
                                                                                                                                                                                                                                                                                                         
                                                                                                                                                                                                                                                                                                         
                                                                                                                                                                                                                                                                                                         
    (a) Three months ended December 31, 2013 includes, as applicable, $4,874 in charges associated with restructuring and other cost reduction actions ($3,224 net of tax), $4,877 of asset impairment charges ($3,568 net of tax) and favorable income tax items totaling $3,035.
                                                                                                                                                                                                                                                                                                         
    (b) Year ended December 31, 2013 includes, as applicable, $21,950 in charges associated with restructuring and other cost reduction actions ($14,576 net of tax), $16,400 gain on sale of investments ($10,654 net of tax), $4,877 of asset impairment charges ($3,568 net of tax) and
     favorable income tax items totaling $3,035.
                                                                                                                                                                                                                                                                                                         
    (c) Three months ended December 31, 2012 includes, 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).
                                                                                                                                                                                                                                                                                                         
    (d) 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 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.
                                                                           
                                                                           
                                                                           
                                                                                                                                                                                                                                                                                                         
                                                                                                                                                                                                                                                                                                         
                                                                                                                                                                                                                                                                                                         
    Excluding the impact of charges associated with restructuring and other cost reduction actions, impairment charges, gain on sale of investments,
    ------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                                                                                                                                                         
    costs associated with the settlement of an inventory supply agreement, losses at sites that were closed during the period and favorable
    ---------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                                                                                                                                                         
    tax items, as applicable:
    -------------------------
                                                                                                                                                                                                                                                                                                         
                                                                                                                                                                                                                                                                                                         
    Income from operations                                                                                     $64,702                                                     $52,521                                           $244,161                                            $198,208
                                                                                                                                                                                                                                                                                                         
                                                                                                                                                                                                                                                                                                         
    Taxes on income                                                                                            $13,635                                                     $10,866                                            $54,490                                             $41,135
                                                                                                                                                                                                                                                                                                         
                                                                                                                                                                                                                                                                                                         
    Net income                                                                                                 $49,603                                                     $40,329                                           $183,662                                            $151,941
                                                                                                                                                                                                                                                                                                         
                                                                                                                                                                                                                                                                                                         
    Basic earnings per share                                                                                     $0.90                                                       $0.75                                              $3.36                                               $2.77
                                                                                                                                                                                                                                                                                                         
                                                                                                                                                                                                                                                                                                         
    Diluted earnings per share                                                                                   $0.87                                                       $0.73                                              $3.23                                               $2.70
                                                                                                                                                                                                                                                                                                         

                                                                  COVANCE INC.


                                                          CONSOLIDATED BALANCE SHEETS


                                                    DECEMBER 31, 2013 and DECEMBER 31, 2012


                                                             (Dollars in thousands)



                                                                          December 31           December 31

                                                                                          2013                  2012
                                                                                          ----                  ----


    ASSETS

    Current Assets:

             Cash & cash equivalents                                                  $617,686              $492,824

             Short-term investments                                                    111,359                     -

             Accounts receivable, net                                                  331,815               339,558

             Unbilled services                                                         141,707               136,878

             Inventory                                                                  48,257                49,270

             Deferred income taxes                                                      51,543                44,903

             Income taxes receivable                                                         -                 3,642

              Prepaid expenses and other current
              assets                                                                   201,621               167,629


                 Total Current Assets                                                1,503,988             1,234,704


    Property and equipment, net                                                        913,612               891,319

    Goodwill                                                                           109,820               109,820

    Other assets                                                                        29,168                52,499

                 Total Assets                                                       $2,556,588            $2,288,342



    LIABILITIES and STOCKHOLDERS' EQUITY

    Current Liabilities:

             Accounts payable                                                          $59,713               $34,430

             Accrued payroll and benefits                                              170,806               144,681

              Accrued expenses and other current
              liabilities                                                              153,808               127,686

             Unearned revenue                                                          240,398               255,776

             Short-term debt                                                                 -               320,000

             Income taxes payable                                                        7,952                     -


                 Total Current Liabilities                                             632,677               882,573


    Long-term debt                                                                     250,000                     -

    Deferred income taxes                                                               32,035                27,912

    Other liabilities                                                                   76,630                70,665

                 Total Liabilities                                                     991,342               981,150



    Stockholders' Equity:

             Common stock                                                                  809                   791

             Paid-in capital                                                           859,535               744,114

             Retained earnings                                                       1,779,833             1,600,626

             Accumulated other comprehensive income                                     25,746                28,520

             Treasury stock                                                         (1,100,677)           (1,066,859)

                 Total Stockholders' Equity                                          1,565,246             1,307,192


                 Total Liabilities and Stockholders'
                  Equity                                                            $2,556,588            $2,288,342


                                          COVANCE INC.


                              CONSOLIDATED STATEMENTS OF CASH FLOWS


                         FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012


                                     (Dollars in thousands)



                                 Years Ended December 31
                                 -----------------------


                                                            2013            2012
                                                            ----            ----

    Cash flows
     from
     operating
     activities:

      Net income                                        $179,207         $94,732

      Adjustments
       to
       reconcile
       net income
       to net cash
       provided by

        operating
         activities:

         Depreciation
         and
         amortization                                    127,917         117,708

        Non-cash
         impairment
         charges                                           4,877          41,736

        Non-cash
         compensation
         expense
         associated
         with
         employee
         benefit

           and stock
            compensation
            plans                                         41,538          40,759

        Deferred
         income tax
         expense
         (benefit)                                         5,023          (8,404)

        Gain on
         sale of
         investments                                     (16,400)         (1,459)

        Loss on
         sale of
         business                                              -             169

        Loss on
         disposal
         of
         property
         and
         equipment                                         1,236           1,181

        Equity
         investee
         earnings                                              -             (17)

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

           Accounts
            receivable                                     7,743         (28,541)

           Unbilled
            services                                      (4,829)        (23,419)

           Inventory                                      (1,300)         10,918

           Accounts
            payable                                       25,283          (1,963)

           Accrued
            liabilities                                   50,885           8,205

           Unearned
            revenue                                      (15,378)         54,998

           Income
            taxes                                         14,315         (10,522)

           Other
            assets and
            liabilities,
            net                                          (14,467)        (35,920)

    Net cash
     provided
     by
     operating
     activities                                          405,650         260,161
                                                         -------         -------


    Cash flows
     from
     investing
     activities:

      Capital
       expenditures                                     (162,170)       (151,679)

      Purchase of
       short-
       term
       investments                                      (109,794)              -

      Proceeds
       from sale
       of
       investments                                        17,781           4,682

      Other, net                                             648           1,017

    Net cash
     used in
     investing
     activities                                         (253,535)       (145,980)
                                                        --------        --------


    Cash flows
     from
     financing
     activities:

      Net
       (repayments)
       borrowings
       under
       revolving
       credit
       facility                                         (320,000)        290,000

      Borrowings
       under
       long-term
       debt                                              250,000               -

      Stock
       issued
       under
       option
       plans                                              71,180          13,772

      Purchase of
       treasury
       stock                                             (33,818)       (323,773)

    Net cash
     used in
     financing
     activities                                          (32,638)        (20,001)
                                                         -------         -------

    Effect of
     exchange
     rate
     changes on
     cash                                                  5,385           9,541
                                                           -----           -----

    Net change
     in cash
     and cash
     equivalents                                         124,862         103,721


    Cash and
     cash
     equivalents,
     beginning
     of period                                           492,824         389,103
                                                         -------         -------


    Cash and
     cash
     equivalents,
     end of
     period                                             $617,686        $492,824
                                                        ========        ========

                                                                                                                                            COVANCE INC.


                                                                                                                                  GAAP to Pro Forma Reconciliation


                                                                                                                                               Q4 2013


                                                                                                                            (Dollars in thousands, except per share data)


                                                                                                                                        (UNAUDITED)


                                                                                                                                 Adjustments
                                                                                                                                 -----------

                                                                                               GAAP                         Restructuring                                   Other               Income Tax             Pro Forma
                                                                                                                           and Other Cost                                 Items (2)             Items (3)
                                                                                                                              Reduction
                                                                                                                           Activities (1)
                                                                                                                                                                                                                                        ---


    Net revenues                                                                                           $623,094                                                                                                                $623,094

    Reimbursable out-of-pocket expenses                                                                      46,675                                                                                                                  46,675

         Total revenues                                                                                     669,769                                  -                                       -                      -               669,769
                                                                                                            -------                                ---                                     ---                    ---               -------


    Costs and expenses:

      Cost of revenue                                                                                       436,857                                                                                                                 436,857

      Reimbursable out-of-pocket expenses                                                                    46,675                                                                                                                  46,675

      Selling, general and administrative                                                                    93,564                             (4,456)                                                                              89,108

      Depreciation and amortization                                                                          32,845                               (418)                                                                              32,427

      Impairment charges                                                                                      4,877                                                                     (4,877)                                           -


            Total costs and expenses                                                                        614,818                             (4,874)                                 (4,877)                     -               605,067
                                                                                                            -------                             ------                                  ------                    ---               -------


    Income from operations                                                                                   54,951                              4,874                                   4,877                      -                64,702


    Other expense, net:

      Interest expense, net                                                                                   1,450                                                                                                                   1,450

      Foreign exchange transaction loss, net                                                                     14                                                                                                                      14

            Other expense, net                                                                                1,464                                  -                                       -                      -                 1,464
                                                                                                              -----                                ---                                     ---                    ---                 -----


    Income before taxes                                                                                      53,487                              4,874                                   4,877                      -                63,238


    Taxes on income                                                                                           7,641                              1,650                                   1,309                  3,035                13,635


    Net income                                                                                              $45,846                             $3,224                                  $3,568                $(3,035)              $49,603
                                                                                                            =======                             ======                                  ======                =======               =======


    Basic earnings per share                                                                                  $0.83                              $0.06                                   $0.06                 $(0.06)                $0.90


    Weighted average shares outstanding - basic                                                          55,021,244                         55,021,244                              55,021,244             55,021,244            55,021,244


    Diluted earnings per share                                                                                $0.80                              $0.06                                   $0.06                 $(0.05)                $0.87


    Weighted average shares outstanding - diluted                                                        57,205,147                         57,205,147                              57,205,147             57,205,147            57,205,147



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

    (2) Represents asset impairment charges.

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


                                                                                                                                                COVANCE INC.


                                                                                                                                      GAAP to Pro Forma Reconciliation


                                                                                                                                                  Q4 2012


                                                                                                                               (Dollars in thousands, except per share data)


                                                                                                                                           (UNAUDITED)


                                                                                                                                Adjustments
                                                                                                                                -----------

                                                                                GAAP                                        Restructuring                                      Other                 Operating              Pro Forma
                                                                                                                           Activities (1)                                    Items (2)              Results at
                                                                                                                                                                                                   Sites Wound-
                                                                                                                                                                                                     Down (3)
                                                                                                                                                                                                                                             ---


    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

            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

            Other expense, net                                                                 1,326                                                -                                           -                        -                 1,326
                                                                                               -----                                              ---                                         ---                      ---                 -----


    Income before taxes                                                                       41,767                                           10,191                                      (3,613)                   2,850                51,195


    Taxes on income                                                                            7,870                                            3,223                                      (1,111)                     884                10,866


    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


                                                                                                                                 For the year ended December 31, 2013


                                                                                                                            (Dollars in thousands, except per share data)


                                                                                                                                        (UNAUDITED)


                                                                                                                         Adjustments
                                                                                                                         -----------

                                                                         GAAP                                        Restructuring                                        Other               Income Tax             Pro Forma
                                                                                                                    and Other Cost                                      Items (2)             Items (3)
                                                                                                                       Reduction
                                                                                                                    Activities (1)
                                                                                                                                                                                                                                      ---


    Net revenues                                                                   $2,402,313                                                                                                                                  $2,402,313

    Reimbursable out-of-pocket expenses                                               192,817                                                                                                                                     192,817

         Total revenues                                                             2,595,130                                                -                                             -                      -             2,595,130
                                                                                    ---------                                              ---                                           ---                    ---             ---------


    Costs and expenses:

      Cost of revenue                                                               1,692,173                                                                                                                                   1,692,173

      Reimbursable out-of-pocket
       expenses                                                                       192,817                                                                                                                                     192,817

      Selling, general and administrative                                             360,012                                          (19,032)                                                                                   340,980

      Depreciation and amortization                                                   127,917                                           (2,918)                                                                                   124,999

      Impairment charges                                                                4,877                                                                                         (4,877)                                           -

            Total costs and expenses                                                2,377,796                                          (21,950)                                       (4,877)                     -             2,350,969
                                                                                    ---------                                          -------                                        ------                    ---             ---------


    Income from operations                                                            217,334                                           21,950                                         4,877                      -               244,161


    Other (income) expense, net:

      Interest expense, net                                                             4,084                                                                                                                                       4,084

      Foreign exchange transaction loss,
       net                                                                              1,925                                                                                                                                       1,925

      Gain on sale of investments                                                     (16,400)                                                                                        16,400                                            -

            Other (income) expense, net                                               (10,391)                                               -                                        16,400                      -                 6,009
                                                                                      -------                                              ---                                        ------                    ---                 -----


    Income before taxes                                                               227,725                                           21,950                                       (11,523)                     -               238,152


    Taxes on income                                                                    48,518                                            7,374                                        (4,437)                 3,035                54,490


    Net income                                                                       $179,207                                          $14,576                                       $(7,086)               $(3,035)             $183,662
                                                                                     ========                                          =======                                       =======                =======              ========


    Basic earnings per share                                                            $3.28                                            $0.27                                        $(0.13)                $(0.06)                $3.36


    Weighted average shares outstanding
     -basic                                                                        54,648,533                                       54,648,533                                    54,648,533             54,648,533            54,648,533


    Diluted earnings per share                                                          $3.15                                            $0.26                                        $(0.12)                $(0.05)                $3.23


    Weighted average shares outstanding
     -diluted                                                                      56,899,013                                       56,899,013                                    56,899,013             56,899,013            56,899,013



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

    (2) Consists of gain on sale of investments $16,400 and asset impairment charges ($4,877).

    (3) Primarily 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                                      Other                                         Operating                                       Income Tax                                       Pro Forma
                                                                                                                           Activities (1)                                    Items (2)                                       Results at                                       Items (4)
                                                                                                                                                                                                                            Sites Wound-
                                                                                                                                                                                                                              Down (3)
                                                                                                                                                                                                                                                                                                                                                               
                                                                                                                                                                                                                                                                                                                                                               
                                                                                                                                                                                                                                                                                                                                                               
    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 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.
                                                                                                                                                                                                                                                                                                                                                               

SOURCE Covance Inc.