PRINCETON, N.J., Oct. 29, 2013 /PRNewswire/ -- Covance Inc. (NYSE: CVD) today reported results for its third quarter ended September 30, 2013. Net revenue was $606.7 million, representing 11.4% growth from the third quarter of 2012's GAAP result of $544.8 million, and 12.0% growth from the third quarter of 2012's pro forma result of $541.9 million. On a GAAP basis, the company reported earnings of $0.78 per diluted share in the third quarter of 2013 as compared to GAAP earnings of $0.69 in the third quarter of 2012. Excluding charges associated with restructuring and other cost reduction actions totaling $4.9 million, the company reported earnings per diluted share of $0.83, up 15.8% over the pro forma earnings of $0.72 for the third quarter of 2012.

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

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

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

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

Consolidated Results



    ($ in millions
     except EPS)         3Q13         3Q12         Change        YTD13           YTD12           Change
    --------------       ----         ----         ------        -----           -----           ------

    Total Revenues            $647.0       $597.6                      $1,925.3        $1,756.6

    Less: Reimbursable
     Out-of-Pockets            $40.3        $52.8                        $146.1          $138.2

    Net Revenues              $606.7       $544.8          11.4%       $1,779.2        $1,618.4           9.9%

    Operating Income           $62.6        $30.6         104.7%         $162.4           $72.8         123.1%

       Operating Margin         10.3%         5.6%                          9.1%            4.5%

    Net Income                 $44.2        $37.8          16.9%         $133.4           $60.8         119.2%

    Earnings per Share         $0.78        $0.69          13.3%          $2.35           $1.07         119.0%
    ------------------         -----        -----          ----           -----           -----         -----

    Revenue from
     facilities closed
     in 2012**                     -         $2.9                             -            $7.3

    Net Revenue,
     continuing ops*          $606.7       $541.9          12.0%       $1,779.2        $1,611.2          10.4%

    Restructuring Costs
     and other items           ($4.9)      ($18.1)                       ($17.1)         ($66.5)

    Loss from facilities
     closed in 2012**              -        ($2.6)                            -           ($6.4)

    Operating Income,
     excluding items*          $67.5        $51.3          31.7%         $179.5          $145.7          23.2%

      Operating Margin,
       excluding items*         11.1%         9.5%                         10.1%            9.0%

    Gain on Sale of
     Investments                   -         $1.5                         $16.4            $1.5

    Impairment of Equity
     Investment                    -            -                             -           ($7.4)

    Favorable Income Tax
     Developments                  -        $11.5                             -           $11.5

    Net Income,
     excluding items*          $47.3        $39.6          19.4%         $134.1          $111.6          20.1%

    Diluted EPS,
     excluding items*          $0.83        $0.72          15.8%          $2.36           $1.97          20.0%
    -----------------          -----        -----          ----           -----           -----          ----

    * See attached pro forma income
     statements for reconciliation of
     2013 and 2012 GAAP to pro forma
     amounts.
    ** Facilities closed in 2012 include
     Chandler, Honolulu, and Basel.

Operating Segment Results

Early Development



    ($ in millions)    3Q13         3Q12         Change        YTD13         YTD12         Change
    --------------     ----         ----         ------        -----         -----         ------

    Net Revenues            $220.4       $220.7         (0.2%)       $642.2        $652.1         (1.5%)

    Operating Income
     (Loss)                  $27.2         $7.1         283.3%        $65.6        ($14.7)

    Operating Margin          12.3%         3.2%                       10.2%        (2.3%)
    ----------------          ----          ---                        ----         -----

    Revenue from
     facilities closed
     in 2012**                   -         $2.9                           -          $7.3

    Net Revenue,
     continuing ops         $220.4       $217.8           1.2%       $642.2        $644.8         (0.4%)

    Restructuring
     Costs and other
     items                   ($1.6)      ($17.2)                      ($7.5)       ($65.1)

    Loss from
     facilities closed
     in 2012**                   -        ($2.6)                          -         ($6.4)

    Operating Income,
     excluding items         $28.8        $26.9           7.0%        $73.1         $56.9          28.6%

    Operating Margin,
     excluding items          13.1%        12.4%                       11.4%          8.8%
    -----------------         ----         ----                        ----           ---

    ** Facilities closed in 2012
     include Chandler, Honolulu,
     and Basel.

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

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

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

Late-Stage Development

    ($ in millions)   3Q13         3Q12         Change       YTD13           YTD12         Change
    --------------    ----         ----         ------       -----           -----         ------

    Net Revenues           $386.4       $324.1         19.2%       $1,137.0        $966.3         17.7%

    Operating Income        $86.8        $64.4         34.8%         $249.3        $204.9         21.7%

    Operating Margin         22.5%        19.9%                        21.9%         21.2%
    ----------------         ----         ----                         ----          ----

    Restructuring
     Costs                  ($0.5)       ($0.4)                       ($3.8)        ($0.6)

    Operating Income,
     excluding items        $87.4        $64.8         34.8%         $253.1        $205.5         23.2%

    Operating Margin,
     excluding items         22.6%        20.0%                        22.3%         21.3%
    -----------------        ----         ----                         ----          ----

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

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

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

Corporate Information

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

Corporate expenses totaled $51.4 million in the third quarter of 2013 (including $2.8 million in restructuring costs) compared to $49.9 million last quarter (including $2.3 million in restructuring costs) and $40.9 million in the third quarter of 2012 (including $0.5 million in restructuring costs). The largest driver of the year-over-year increase in corporate expenses is spending on our strategic IT initiatives followed by higher incentive compensation expenses related to stronger-than-budgeted business performance.

Cash, cash equivalents and short-term investments at September 30, 2013 were $593 million compared to $446 million at June 30, 2013 and $441 million at September 30, 2012. Short-term debt was reduced by $60 million in the third quarter to $265 million as of September 30. As announced on October 8, Covance entered into a note purchase agreement for the private placement of $250 million in senior notes planned to be issued in November.

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

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

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

The company's investor conference call will be webcast on October 30 at 9:00 am ET. Management's commentary and presentation slides will be available through www.covance.com.

Covance, with headquarters in Princeton, New Jersey, is one of the world's largest and most comprehensive drug development services companies with annual revenues greater than $2.2 billion and more than 12,000 employees located in over 60 countries. Information on Covance's products and services, recent press releases, and SEC filings can be obtained through its website at www.covance.com.

Statements contained in this press release, which are not historical facts, such as statements about prospective earnings, savings, revenue, operations, revenue and earnings growth and other financial results are forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements including the statements contained herein regarding anticipated trends in the company's business are based largely on management's expectations and are subject to and qualified by risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include, without limitation, competitive factors, outsourcing trends in the pharmaceutical industry, levels of industry research and development spending, the company's ability to continue to attract and retain qualified personnel, the fixed price nature of contracts or the loss or delay of large studies, risks associated with acquisitions and investments, the company's ability to increase order volume, the pace of translation of orders into revenue in late-stage development services, testing mix and geographic mix of kit receipts in central laboratories, fluctuations in currency exchange rates, the realization of savings from the company's announced restructuring actions, the cost and pace of completion of our information technology projects and the realization of benefits therefrom, the satisfaction of the conditions of the note purchase agreement and the closing thereof, and other factors described in the company's filings with the Securities and Exchange Commission including its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company's expectations.

Financial Exhibits Follow





                                                                                                  COVANCE INC.


                                                                                         CONSOLIDATED INCOME STATEMENTS


                                                                        FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012


                                                                                 (Dollars in thousands, except per share data)


                                                                                              (UNAUDITED)


                                                     Three Months Ended September 30                           Nine Months Ended September 30
                                                     -------------------------------                           ------------------------------

                                                                                     2013                                                      2012            2013            2012
                                                                                     ----                                                      ----            ----            ----


    Net revenues                                                                 $606,722                                                  $544,818      $1,779,219      $1,618,441

    Reimbursable out-of-pocket expenses                                            40,328                                                    52,844         146,142         138,174

         Total revenues                                                           647,050                                                   597,662       1,925,361       1,756,615
                                                                                  -------                                                   -------       ---------       ---------


    Costs and expenses:

      Cost of revenue                                                             424,857                                                   389,724       1,255,316       1,174,382

      Reimbursable out-of-pocket expenses                                          40,328                                                    52,844         146,142         138,174

      Selling, general and administrative                                          87,052                                                    94,401         266,448         266,031

      Depreciation and amortization                                                32,191                                                    30,102          95,072          87,285

      Goodwill impairment charge                                                        -                                                         -               -          17,959

            Total costs and expenses                                              584,428  (a)                                              567,071  (c)  1,762,978  (b)  1,683,831  (d)
                                                                                  -------                                                   -------       ---------       ---------


    Income from operations                                                         62,622  (a)                                               30,591  (c)    162,383  (b)     72,784  (d)


    Other (income) expense, net:

      Interest expense, net                                                           759                                                       920           2,634           2,353

      Foreign exchange transaction loss, net                                          882                                                       281           1,911           1,301

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

      Impairment of equity investment                                                   -                                                         -               -           7,373

      Loss on sale of business                                                          -                                                         -               -             169

            Other (income) expense, net                                             1,641                                                      (258) (c)    (11,855) (b)      9,737  (d)
                                                                                    -----                                                      ----         -------           -----


    Income before taxes and equity investee earnings                               60,981  (a)                                               30,849  (c)    174,238  (b)     63,047  (d)


    Tax expense (benefit)                                                          16,780  (a)                                               (6,971) (c)     40,877  (b)      2,229  (d)


    Equity investee earnings                                                            -                                                         -               -              17


    Net income                                                                    $44,201  (a)                                              $37,820  (c)   $133,361  (b)    $60,835  (d)
                                                                                  =======                                                   =======        ========         =======


    Basic earnings per share                                                        $0.81  (a)                                                $0.70  (c)      $2.45  (b)      $1.10  (d)


    Weighted average shares outstanding - basic                                54,703,763                                                53,687,748      54,524,296      55,206,190


    Diluted earnings per share                                                      $0.78  (a)                                                $0.69  (c)      $2.35  (b)      $1.07  (d)


    Weighted average shares outstanding - diluted                              56,939,181                                                55,201,552      56,754,527      56,701,280



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

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

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

    (d) Nine months ended September 30, 2012 includes, as applicable,
     $23,739 in restructuring costs ($16,177 net of tax), $24,781 in
     inventory impairment charges and costs associated with the
     settlement of an inventory supply agreement ($17,147 net of tax),
     $17,959 of goodwill impairment charges ($17,959 net of tax),
     $7,373 of impairment of equity investment ($7,373 net of tax),
     $6,424 in losses at sites in wind-down ($4,567 net of tax),
     $1,459 gain on sale of investment ($945 net of tax) and favorable
     income tax items totaling $11,501.




    Excluding the impact of charges associated with restructuring and other cost reduction actions, impairment charges, costs associated with the settlement of an inventory supply agreement, losses at sites in wind-down, gain on sale
     of investments and favorable tax items, as applicable:
    -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



    Income from operations                                                                                     $67,515                                            $51,272                                     $179,459                    $145,687


    Taxes on income                                                                                            $18,610                                            $10,473                                      $40,855                     $30,269


    Net income                                                                                                 $47,264                                            $39,598                                     $134,059                    $111,612


    Basic earnings per share                                                                                     $0.86                                              $0.74                                        $2.46                       $2.02


    Diluted earnings per share                                                                                   $0.83                                              $0.72                                        $2.36                       $1.97



                                                                     COVANCE INC.


                                                             CONSOLIDATED BALANCE SHEETS


                                                       SEPTEMBER 30, 2013 and DECEMBER 31, 2012


                                                                (Dollars in thousands)



                                                                             September 30             December 31

                                                                                                2013                  2012
                                                                                                ----                  ----

                                                                              (UNAUDITED)

    ASSETS

    Current Assets:

             Cash & cash equivalents                                                        $482,800              $492,824

             Short-term investments                                                          109,794                     -

             Accounts receivable, net                                                        353,940               339,558

             Unbilled services                                                               147,355               136,878

             Inventory                                                                        49,516                49,270

             Deferred income taxes                                                            49,363                44,903

             Income taxes receivable                                                               -                 3,642

             Prepaid expenses and other current assets                                       203,200               167,629


                 Total Current Assets                                                      1,395,968             1,234,704


    Property and equipment, net                                                              891,680               891,319

    Goodwill                                                                                 109,820               109,820

    Other assets                                                                              40,846                52,499

                 Total Assets                                                             $2,438,314            $2,288,342



    LIABILITIES and STOCKHOLDERS' EQUITY

    Current Liabilities:

             Accounts payable                                                                $52,020               $34,430

             Accrued payroll and benefits                                                    143,599               144,681

              Accrued expenses and other current
              liabilities                                                                    104,032               127,686

             Unearned revenue                                                                266,522               255,776

             Short-term debt                                                                 265,000               320,000

             Income taxes payable                                                             11,663                     -


                 Total Current Liabilities                                                   842,836               882,573


    Deferred income taxes                                                                     21,186                27,912

    Other liabilities                                                                         75,840                70,665

                 Total Liabilities                                                           939,862               981,150



    Stockholders' Equity:

             Common stock                                                                        807                   791

             Paid-in capital                                                                 836,056               744,114

             Retained earnings                                                             1,733,987             1,600,626

             Accumulated other comprehensive income                                           23,966                28,520

             Treasury stock                                                               (1,096,364)           (1,066,859)

                 Total Stockholders' Equity                                                1,498,452             1,307,192


                 Total Liabilities and Stockholders'
                  Equity                                                                  $2,438,314            $2,288,342




                                                                                               COVANCE INC.


                                                                                   CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                           FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012


                                                                                          (Dollars in thousands)


                                                                                              (UNAUDITED)


                                                                                                                                 Nine Months Ended September 30
                                                                                                                                 ------------------------------


                                                                                                                                                              2013      2012
                                                                                                                                                              ----      ----

    Cash flows from operating activities:

      Net income                                                                                                                                          $133,361   $60,835

      Adjustments to reconcile net income to net cash provided by

        operating activities:

        Depreciation and amortization                                                                                                                       95,072    87,285

        Non-cash impairment charges                                                                                                                              -    44,610

        Non-cash compensation expense associated with employee benefit

           and stock compensation plans                                                                                                                     29,863    29,774

        Deferred income tax benefit                                                                                                                         (6,787)  (23,648)

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

        Loss on sale of business                                                                                                                                 -       169

        Loss on disposal of property and equipment                                                                                                             487       674

        Equity investee earnings                                                                                                                                 -       (17)

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

           Accounts receivable                                                                                                                             (14,382)  (10,404)

           Unbilled services                                                                                                                               (10,477)  (27,561)

           Inventory                                                                                                                                          (246)    9,115

           Accounts payable                                                                                                                                 17,590     2,565

           Accrued liabilities                                                                                                                             (24,736)   (1,396)

           Unearned revenue                                                                                                                                 10,746    33,374

           Income taxes                                                                                                                                     20,228       568

           Other assets and liabilities, net                                                                                                               (21,474)  (51,581)

    Net cash provided by operating activities                                                                                                              212,845   152,903
                                                                                                                                                           -------   -------


    Cash flows from investing activities:

      Capital expenditures                                                                                                                                (103,703) (105,199)

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

      Proceeds from sale of investments                                                                                                                     17,781     4,682

      Other, net                                                                                                                                               528     1,006

    Net cash used in investing activities                                                                                                                 (195,188)  (99,511)
                                                                                                                                                          --------   -------


    Cash flows from financing activities:

      Net (repayments) borrowings under revolving credit facility                                                                                          (55,000)  310,000

      Stock issued under option plans                                                                                                                       57,172     5,794

      Purchase of treasury stock                                                                                                                           (29,505) (322,452)

    Net cash used in financing activities                                                                                                                  (27,333)   (6,658)
                                                                                                                                                           -------    ------

    Effect of exchange rate changes on cash                                                                                                                   (348)    5,535
                                                                                                                                                              ----     -----

    Net change in cash and cash equivalents                                                                                                                (10,024)   52,269


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


    Cash and cash equivalents, end of period                                                                                                              $482,800  $441,372
                                                                                                                                                          ========  ========



                                                                                                COVANCE INC.


                                                                                      GAAP to Pro Forma Reconciliation


                                                                                                   Q3 2013


                                                                                (Dollars in thousands, except per share data)


                                                                                              (UNAUDITED)


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

                                                                GAAP                                              Restructuring             Pro Forma
                                                                                                                 and Other Cost
                                                                                                                    Reduction
                                                                                                                 Activities (1)
                                                                                                                                                             ---


    Net revenues                                                               $606,722                                                                 $606,722

    Reimbursable out-of-
     pocket expenses                                                             40,328                                                                   40,328

         Total revenues                                                         647,050                                                  -               647,050
                                                                                -------                                                ---               -------


    Costs and expenses:

      Cost of revenue                                                           424,857                                                                  424,857

      Reimbursable out-of-
       pocket expenses                                                           40,328                                                                   40,328

      Selling, general and
       administrative                                                            87,052                                             (4,475)               82,577

      Depreciation and
       amortization                                                              32,191                                               (418)               31,773

            Total costs and expenses                                            584,428                                             (4,893)              579,535
                                                                                -------                                             ------               -------


    Income from operations                                                       62,622                                              4,893                67,515


    Other (income) expense, net:

      Interest expense, net                                                         759                                                                      759

      Foreign exchange
       transaction loss, net                                                        882                                                                      882

            Other (income) expense,
             net                                                                  1,641                                                  -                 1,641
                                                                                  -----                                                ---                 -----


    Income before taxes                                                          60,981                                              4,893                65,874


    Taxes on income                                                              16,780                                              1,830                18,610


    Net income                                                                  $44,201                                             $3,063               $47,264
                                                                                =======                                             ======               =======


    Basic earnings per share                                                      $0.81                                              $0.06                 $0.86


    Weighted average shares
     outstanding -basic                                                      54,703,763                                         54,703,763            54,703,763


    Diluted earnings per
     share                                                                        $0.78                                              $0.05                 $0.83


    Weighted average shares
     outstanding -diluted                                                    56,939,181                                         56,939,181            56,939,181



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



                                                                                                                                                                                 COVANCE INC.


                                                                                                                                                                       GAAP to Pro Forma Reconciliation


                                                                                                                                                                                    Q3 2012


                                                                                                                                                                 (Dollars in thousands, except per share data)


                                                                                                                                                                            (UNAUDITED)


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

                                                                                                       GAAP                                        Restructuring                                       Other                 Operating                Income Tax             Pro Forma
                                                                                                                                                  Activities (1)                                     Items (2)               Results at               Items (4)
                                                                                                                                                                                                                           Sites in Wind-
                                                                                                                                                                                                                              Down (3)
                                                                                                                                                                                                                                                                                              ---


    Net revenues                                                                                                  $544,818                                                                                                                   $(2,967)                                    $541,851

    Reimbursable out-of-pocket expenses                                                                             52,844                                                                                                                                                                 52,844

         Total revenues                                                                                            597,662                                                 -                                            -                     (2,967)                     -               594,695
                                                                                                                   -------                                               ---                                          ---                     ------                    ---               -------


    Costs and expenses:

      Cost of revenue                                                                                              389,724                                                                                         (4,000)                    (4,544)                                     381,180

      Reimbursable out-of-pocket expenses                                                                           52,844                                                                                                                                                                 52,844

      Selling, general and administrative                                                                           94,401                                           (12,989)                                                                   (162)                                      81,250

      Depreciation and amortization                                                                                 30,102                                            (1,083)                                                                   (870)                                      28,149

            Total costs and expenses                                                                               567,071                                           (14,072)                                      (4,000)                    (5,576)                     -               543,423
                                                                                                                   -------                                           -------                                       ------                     ------                    ---               -------


    Income from operations                                                                                          30,591                                            14,072                                        4,000                      2,609                      -                51,272


    Other (income) expense, net:

      Interest expense, net                                                                                            920                                                                                                                                                                    920

      Foreign exchange transaction loss, net                                                                           281                                                                                                                                                                    281

      Gain on sale of investment                                                                                    (1,459)                                                                                         1,459                                                                       -

            Other (income) expense, net                                                                               (258)                                                -                                        1,459                          -                      -                 1,201
                                                                                                                      ----                                               ---                                        -----                        ---                    ---                 -----


    Income before taxes                                                                                             30,849                                            14,072                                        2,541                      2,609                      -                50,071


    Taxes on income                                                                                                 (6,971)                                            4,425                                          730                        788                 11,501                10,473


    Net income                                                                                                     $37,820                                            $9,647                                       $1,811                     $1,821               $(11,501)              $39,598
                                                                                                                   =======                                            ======                                       ======                     ======               ========               =======


    Basic earnings per share                                                                                         $0.70                                             $0.18                                        $0.03                      $0.03                 $(0.21)                $0.74


    Weighted average shares outstanding - basic                                                                 53,687,748                                        53,687,748                                   53,687,748                 53,687,748             53,687,748            53,687,748


    Diluted earnings per share                                                                                       $0.69                                             $0.17                                        $0.03                      $0.03                 $(0.21)                $0.72


    Weighted average shares outstanding - diluted                                                               55,201,552                                        55,201,552                                   55,201,552                 55,201,552             55,201,552            55,201,552



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

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

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

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



                                                                                                                                    COVANCE INC.


                                                                                                                          GAAP to Pro Forma Reconciliation


                                                                                                                                     YTD Q3 2013


                                                                                                                    (Dollars in thousands, except per share data)


                                                                                                                                 (UNAUDITED)


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

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


    Net revenues                                                                                                $1,779,219                                                                                     $1,779,219

    Reimbursable out-of-pocket expenses                                                                            146,142                                                                                        146,142

         Total revenues                                                                                          1,925,361                                                  -                     -             1,925,361
                                                                                                                 ---------                                                ---                   ---             ---------


    Costs and expenses:

      Cost of revenue                                                                                            1,255,316                                                                                      1,255,316

      Reimbursable out-of-pocket expenses                                                                          146,142                                                                                        146,142

      Selling, general and administrative                                                                          266,448                                            (14,576)                                    251,872

      Depreciation and amortization                                                                                 95,072                                             (2,500)                                     92,572

            Total costs and expenses                                                                             1,762,978                                            (17,076)                    -             1,745,902
                                                                                                                 ---------                                            -------                   ---             ---------


    Income from operations                                                                                         162,383                                             17,076                     -               179,459


    Other (income) expense, net:

      Interest expense, net                                                                                          2,634                                                                                          2,634

      Foreign exchange transaction loss, net                                                                         1,911                                                                                          1,911

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

            Other (income) expense, net                                                                            (11,855)                                                 -                16,400                 4,545
                                                                                                                   -------                                                ---                ------                 -----


    Income before taxes                                                                                            174,238                                             17,076               (16,400)              174,914


    Taxes on income                                                                                                 40,877                                              5,724                (5,746)               40,855


    Net income                                                                                                    $133,361                                            $11,352              $(10,654)             $134,059
                                                                                                                  ========                                            =======              ========              ========


    Basic earnings per share                                                                                         $2.45                                              $0.21                $(0.20)                $2.46


    Weighted average shares outstanding - basic                                                                 54,524,296                                         54,524,296            54,524,296            54,524,296


    Diluted earnings per share                                                                                       $2.35                                              $0.20                $(0.19)                $2.36


    Weighted average shares outstanding - diluted                                                               56,754,527                                         56,754,527            56,754,527            56,754,527



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

    (2) Represents gain on sale of investments.



                                                                                                                                                                                   COVANCE INC.


                                                                                                                                                                         GAAP to Pro Forma Reconciliation


                                                                                                                                                                                   YTD Q3 2012


                                                                                                                                                                  (Dollars in thousands, except per share data)


                                                                                                                                                                             (UNAUDITED)


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

                                                                                                                        GAAP                                  Restructuring                                       Other                 Operating                Income Tax             Pro Forma
                                                                                                                                                             Activities (1)                                     Items (2)               Results at               Items (4)
                                                                                                                                                                                                                                      Sites in Wind-
                                                                                                                                                                                                                                         Down (3)
                                                                                                                                                                                                                                                                                                         ---


    Net revenues                                                                                                                   $1,618,441                                                                                                           $(7,256)                                  $1,611,185

    Reimbursable out-of-pocket expenses                                                                                               138,174                                                                                                                                                        138,174

         Total revenues                                                                                                             1,756,615                                         -                                            -                     (7,256)                     -             1,749,359
                                                                                                                                    ---------                                       ---                                          ---                     ------                    ---             ---------


    Costs and expenses:

      Cost of revenue                                                                                                               1,174,382                                                                                (24,781)                   (11,483)                                   1,138,118

      Reimbursable out-of-pocket expenses                                                                                             138,174                                                                                                                                                        138,174

      Selling, general and administrative                                                                                             266,031                                   (21,446)                                                                   (384)                                     244,201

      Depreciation and amortization                                                                                                    87,285                                    (2,293)                                                                 (1,813)                                      83,179

      Goodwill impairment charge                                                                                                       17,959                                                                                (17,959)                                                                      -

            Total costs and expenses                                                                                                1,683,831                                   (23,739)                                     (42,740)                   (13,680)                     -             1,603,672
                                                                                                                                    ---------                                   -------                                      -------                    -------                    ---             ---------


    Income from operations                                                                                                             72,784                                    23,739                                       42,740                      6,424                      -               145,687


    Other (income) expense, net:

      Interest expense, net                                                                                                             2,353                                                                                                                                                          2,353

      Foreign exchange transaction loss, net                                                                                            1,301                                                                                                                                                          1,301

      Impairment of equity investment                                                                                                   7,373                                                                                 (7,373)                                                                      -

      Gain on sale of investment                                                                                                       (1,459)                                                                                 1,459                                                                       -

      Loss on sale of business                                                                                                            169                                                                                                                                                            169

            Other (income) expense, net                                                                                                 9,737                                         -                                       (5,914)                         -                      -                 3,823
                                                                                                                                        -----                                       ---                                       ------                        ---                    ---                 -----


    Income before taxes and equity investee earnings                                                                                   63,047                                    23,739                                       48,654                      6,424                      -               141,864


    Taxes on income                                                                                                                     2,229                                     7,562                                        7,120                      1,857                 11,501                30,269


    Equity investee earnings                                                                                                               17                                                                                                                                                             17


    Net income                                                                                                                        $60,835                                   $16,177                                      $41,534                     $4,567               $(11,501)             $111,612
                                                                                                                                      =======                                   =======                                      =======                     ======               ========              ========


    Basic earnings per share                                                                                                            $1.10                                     $0.29                                        $0.75                      $0.08                 $(0.21)                $2.02


    Weighted average shares outstanding - basic                                                                                    55,206,190                                55,206,190                                   55,206,190                 55,206,190             55,206,190            55,206,190


    Diluted earnings per share                                                                                                          $1.07                                     $0.29                                        $0.73                      $0.08                 $(0.20)                $1.97


    Weighted average shares outstanding - diluted                                                                                  56,701,280                                56,701,280                                   56,701,280                 56,701,280             56,701,280            56,701,280



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

    (2) Consists of inventory impairment and costs associated with the settlement of an inventory supply agreement ($24,781), goodwill impairment ($17,959),

          impairment of equity investment ($7,373) and a gain on the sale of an investment $1,459.

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

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

SOURCE Covance Inc.