PRINCETON, N.J., July 29, 2014 /PRNewswire/ -- Covance Inc. (NYSE: CVD) today reported results for its second quarter ended June 30, 2014. Net revenue was $639 million, representing 8.0% growth from the second quarter of 2013. On a GAAP basis, the company reported earnings of $0.29 per diluted share in the second quarter. The company reported pro forma earnings per diluted share of $0.95, up 21.5% over the second quarter of 2013. Pro forma results exclude asset impairment charges totaling $52.6 million, or $0.61 per share, and charges associated with restructuring and other cost reduction actions totaling $4.2 million or $0.05 per share.

"In the second quarter, a stronger-than-expected performance in Early Development and continued strong growth in central laboratories more than offset lower-than-expected growth in clinical development, leading to year-on-year revenue growth of 8%, expanded pro forma operating margins of 11.9%, and a 21.5% year-on-year increase in pro forma EPS," said Joe Herring, Chairman and Chief Executive Officer. "Commercial performance strengthened from the first quarter, with second quarter adjusted net orders of $773 million resulting in an adjusted net book-to-bill of 1.21 to 1.

"In Early Development, revenue of $231.2 million grew 7.7% year-on-year and 5.9% sequentially while pro forma operating margin increased 200 basis points year-on-year and 360 basis points sequentially to 13.3%. These better-than-expected results were driven by growth in demand for toxicology and pharmaceutical chemistry services, and continued strength in clinical pharmacology services.

"Late-Stage Development second quarter revenue grew 8.1% year-on-year to $408.3 million and pro forma operating margins were 22.1%, up 70 basis points from a year ago, but down 110 basis points from the strong first quarter margins on higher IT spending. Central laboratories and clinical development grew 11% and 4%, respectively, and market access services resumed year-on-year growth.

"Looking ahead, we expect increases of a few cents in earnings per share in both the third and fourth quarter. We now expect 2014 revenue growth of 6% to 8% and pro forma diluted earnings per share of $3.78 to $3.92 (excluding the gain on sale, costs associated with our restructuring activities, asset impairment charges and assuming foreign exchange rates remain at June 30, 2014 levels)."

Consolidated Results



    ($ in millions except EPS)        2Q14         2Q13         Change         YTD14            YTD13             Change
    -------------------------         ----         ----         ------         -----            -----             ------

    Total Revenues                          $687.1       $644.0                       $1,353.4          $1,278.3

    Less: Reimbursable Out-of-Pockets        $47.6        $51.7                          $93.9            $105.8

    Net Revenues                            $639.5       $592.3           8.0%        $1,259.5          $1,172.5            7.4%

    Operating Income                         $19.3        $51.5        (62.6%)           $86.2             $99.8         (13.6%)

       Operating Margin                       3.0%        8.7%                          6.8%             8.5%

    Net Income                               $16.9        $41.0        (58.7%)           $67.8             $89.2         (24.0%)

    Diluted Earnings per Share               $0.29        $0.72        (59.2%)           $1.17             $1.58         (25.5%)
    --------------------------               -----        -----         ------            -----             -----          ------

    Restructuring Costs                     ($4.2)      ($6.0)                        ($8.3)          ($12.2)

    Asset Impairments                      ($52.6)           -                       ($52.6)                -

    Operating Income, excluding
     items*                                  $76.0        $57.5          32.2%          $147.1            $111.9           31.4%

      Operating Margin, excluding
       items*                                11.9%        9.7%                         11.7%             9.5%

    Gain on Sale of Business/
     Investment                                  -        $0.7                           $1.6             $16.4

    Net Income, excluding items*             $54.7        $44.5          22.9%          $107.0             $86.8           23.3%

    Diluted EPS, excluding items*            $0.95        $0.78          21.5%           $1.85             $1.53           20.8%
    ----------------------------             -----        -----           ----            -----             -----            ----

* See attached pro forma income statements for reconciliation of 2014 and 2013 GAAP to pro forma amounts.

Operating Segment Results

Early Development

    ($ in millions)     2Q14         2Q13         Change       YTD14           YTD13           Change
    --------------      ----         ----         ------       -----           -----           ------

    Net Revenues              $231.2       $214.6         7.7%          $449.4          $421.9         6.5%

    Operating Income
     (Loss)                  ($22.4)       $21.9          n/c          ($2.9)          $38.4          n/c

    Operating Margin          (9.7%)       10.2%                      (0.7%)           9.1%
    ----------------           -----         ----                        -----             ---

    Restructuring Costs       ($0.7)      ($2.3)                      ($2.3)         ($5.9)

    Asset Impairments        ($52.6)                                 ($52.6)

    Operating Income,
     excluding items           $30.8        $24.2        27.1%           $51.9           $44.3        17.1%

    Operating Margin,
     excluding items           13.3%       11.3%                       11.5%          10.5%
    -----------------           ----         ----                         ----            ----

The Early Development segment includes preclinical toxicology, analytical chemistry, clinical pharmacology, discovery support, and research products. Net revenues in the second quarter of 2014 increased 7.7% year-on-year to $231.2 million, as strong growth in clinical pharmacology, toxicology and pharmaceutical chemistry services more than offset a decline in discovery support and the impact of the sale of our Seattle genomics laboratory. In the quarter, foreign exchange favorably impacted year-on-year revenue growth by 250 basis points. Sequentially, revenue increased by $13.0 million from the first quarter on continued strength in clinical pharmacology and a rebound in toxicology and pharmaceutical chemistry services.

GAAP operating loss in the second quarter of 2014 was $22.4 million, and included non-cash asset impairments totaling $52.6 million, associated primarily with the company's Chandler, Arizona facility, and $0.7 million in costs associated with our restructuring and cost reduction actions. This compares to operating income of $21.9 million in the second quarter of 2013, which included charges associated with restructuring and other cost reduction actions of $2.3 million. Pro forma operating income, excluding these items, was $30.8 million in the second quarter of this year, a 27.1% increase from the second quarter of 2013. Pro forma operating margins were 13.3% in the second quarter of this year, versus 11.3% in the second quarter of 2013 and 9.7% last quarter. The sequential increase in pro forma operating income was driven by the rebound in toxicology and pharmaceutical chemistry services and continued strength in clinical pharmacology.

Late-Stage Development

    ($ in millions)     2Q14        2Q13         Change       YTD14          YTD13           Change
    --------------      ----        ----         ------       -----          -----           ------

    Net Revenues             $408.3       $377.7         8.1%         $810.1          $750.6         7.9%

    Operating Income          $87.1        $79.5         9.5%         $180.1          $162.4        10.9%

    Operating Margin          21.3%       21.0%                      22.2%          21.6%
    ----------------           ----         ----                        ----            ----

    Restructuring Costs      ($3.1)      ($1.4)                     ($3.4)         ($3.3)

    Operating Income,
     excluding items          $90.2        $80.9        11.5%         $183.5          $165.7        10.7%

    Operating Margin,
     excluding items          22.1%       21.4%                      22.7%          22.1%
    -----------------          ----         ----                        ----            ----

The Late-Stage Development segment includes central laboratory, Phase IIb-IV clinical development, and market access services. Net revenues for the second quarter of 2014 grew 8.1% year-on-year to $408.3 million, a sequential increase of $6.4 million from the first quarter level. In the quarter, foreign exchange favorably impacted year-over-year revenue growth by 270 basis points. Year-over-year growth was primarily driven by central laboratories and market access services. Sequentially, growth in central laboratories more than offset a decline in clinical development services.

Operating income for the second quarter was $87.1 million on a GAAP basis and included $3.1 million in costs associated with our restructuring and cost reduction actions. On a pro forma basis, operating income was $90.2 million, up 11.5% year-over-year led by clinical development and central laboratory services, and down from the $93.3 million delivered last quarter. Pro forma operating margins expanded to 22.1% for the second quarter of 2014, up from 21.4% last year, but down from the very strong 23.2% last quarter on increased IT operating expense.

Corporate Information

The company reported second quarter adjusted net orders of $773 million. Backlog at June 30, 2014 was $6.92 billion compared to $6.90 billion at March 31, 2014 and $6.73 billion at June 30, 2013. Backlog was negatively impacted in the quarter by a $23 million foreign exchange headwind.

Corporate expenses totaled $45.4 million in the second quarter of 2014 (including $0.4 million in restructuring and other cost reduction actions) versus $45.6 million last quarter (including $2.3 million in restructuring and other cost reduction actions) and $49.9 million (including $2.3 million in restructuring and other cost reduction actions) in the second quarter of 2013. On a pro forma basis, excluding these costs, corporate spending was $45.0 million or 7.0% of net revenue in the second quarter of 2014 versus $43.4 million or 7.0% of net revenue last quarter and $47.6 million or 8.0% of net revenue in the second quarter of 2013. The sequential increase was driven by higher IT operating expense while the decline from last year was driven by higher incentive compensation expense in the 2013 period.

Cash, cash equivalents, and short-term investments at June 30, 2014 were $648 million compared to $660 million at March 31, 2014 and $446 million at June 30, 2013. Free cash flow (defined as operating cash flow less capital expenditures) for the second quarter of 2014 was $30 million, consisting of operating cash flow of $68 million less capital expenditures of $38 million. Year-to-date free cash flow was negative $76 million, consisting of operating cash flow of negative $3 million less capital expenditures of $73 million. We continue to expect full year free cash flow of approximately $130 million, net of capital expenditures of approximately $160 million. The free cash flow target for 2014 assumes net DSO at 40 days at December 31, 2014.

In the second quarter, the company repurchased $75 million of its common stock. Debt outstanding increased to $290 million, up $40 million from March 31, 2014.

Net Days Sales Outstanding (DSO) were 45 days at June 30, 2014 compared to 38 days at March 31, 2014 and 48 days at June 30, 2013.

The pro forma effective tax rate in the second quarter was 23.7% and is expected to be approximately 24% for the remainder of 2014.

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

Covance, the world's most comprehensive drug development company and a leader in nutritional analysis, is dedicated to advancing healthcare and delivering Solutions Made Real(TM). The company, headquartered in Princeton, New Jersey, has annual revenues greater than $2.4 billion and more than 12,500 employees located in over 60 countries. Information on Covance's solutions, 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 AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013


                                                                                                                      (Dollars in thousands, except per share data)


                                                                                                                                  (UNAUDITED)


                                                                Three Months Ended June 30                                    Six Months Ended June 30
                                                                --------------------------                                    ------------------------

                                                                                              2014                                                          2013                                                    2014                                      2013
                                                                                              ----                                                          ----                                                    ----                                      ----


    Net revenues                                                                          $639,456                                                      $592,298                                              $1,259,508                                $1,172,497

    Reimbursable out-of-pocket
     expenses                                                                               47,652                                                        51,678                                                  93,888                                   105,814

         Total revenues                                                                    687,108                                                       643,976                                               1,353,396                                 1,278,311
                                                                                           -------                                                       -------                                               ---------                                 ---------


    Costs and expenses:

      Cost of revenue                                                                      446,659                                                       419,115                                                 879,212                                   830,459

      Reimbursable out-of-pocket
       expenses                                                                             47,652                                                        51,678                                                  93,888                                   105,814

      Selling, general and
       administrative                                                                       87,324                                                        90,177                                                 174,606                                   179,396

      Depreciation and amortization                                                         33,645                                                        31,496                                                  66,974                                    62,881

      Impairment charges                                                                    52,564                                                             -                                                 52,564                                         -

            Total costs and expenses                                                       667,844    (a)                                                592,466    (c)                                        1,267,244    (b)                          1,178,550  (d)
                                                                                           -------                                                       -------                                               ---------                                 ---------


    Income from operations                                                                  19,264    (a)                                                 51,510    (c)                                           86,152    (b)                             99,761  (d)


    Other expense (income), net:

      Interest expense, net                                                                  2,809                                                         1,004                                                   5,257                                     1,875

      Foreign exchange transaction
       loss, net                                                                             1,542                                                           694                                                   1,944                                     1,029

      Gain on sale of business                                                                   -                                                            -                                                (1,648)                                        -

      Gain on sale of investments                                                                -                                                        (707)                                                      -                                 (16,400)

            Other expense (income), net                                                      4,351                                                           991    (c)                                            5,553    (b)                           (13,496) (d)
                                                                                             -----                                                           ---                                                   -----                                   -------


    Income before taxes                                                                     14,913    (a)                                                 50,519    (c)                                           80,599    (b)                            113,257  (d)


    Tax (benefit) expense                                                                  (2,024)   (a)                                                  9,525    (c)                                           12,846    (b)                             24,097  (d)


    Net income                                                                             $16,937    (a)                                                $40,994    (c)                                          $67,753    (b)                            $89,160  (d)
                                                                                           =======                                                       =======                                                 =======                                   =======


    Basic earnings per share                                                                 $0.30    (a)                                                  $0.75    (c)                                            $1.22    (b)                              $1.64  (d)


    Weighted average shares
     outstanding -basic                                                                 55,556,218                                                    54,662,093                                              55,618,752                                54,434,563


    Diluted earnings per share                                                               $0.29    (a)                                                  $0.72    (c)                                            $1.17    (b)                              $1.58  (d)


    Weighted average shares
     outstanding -diluted                                                               57,549,868                                                    56,880,115                                              57,769,847                                56,598,936



    (a) Three months ended June 30, 2014 includes, as applicable, $52,564 in asset impairment charges ($34,866 net of tax) and $4,198 in charges associated with restructuring and other cost reduction actions ($2,864 net of tax).


    (b) Six months ended June 30, 2014 includes, as applicable, $52,564 in asset impairment charges ($34,866 net of tax), $8,336 in charges associated with restructuring and other cost reduction actions ($5,451 net of tax) and $1,648 gain on sale
     of certain assets of Genomics Laboratory ($1,033 net of tax).


    (c) Three months ended June 30, 2013 includes, as applicable, $6,013 in charges associated with restructuring and other cost reduction actions ($3,942 net of tax), and $707 gain on sale of investment ($460 net of tax).


    (d) Six months ended June 30, 2013 includes, as applicable, $12,183 in charges associated with restructuring and other cost reduction actions ($8,289 net of tax), and $16,400 gain on sale of investments ($10,654 net of tax).




    Excluding the impact of impairment charges, charges associated with restructuring and other cost reduction actions, gain on sale of business and gain on sale of investments, as applicable:


    ---



    Income from operations                                                                 $76,026                                                       $57,523                                                $147,052                                  $111,944


    Taxes on income                                                                        $17,008                                                       $11,349                                                 $32,814                                   $22,245


    Net income                                                                             $54,667                                                       $44,476                                                $107,037                                   $86,795


    Basic earnings per share                                                                 $0.98                                                         $0.81                                                   $1.92                                     $1.59


    Diluted earnings per share                                                               $0.95                                                         $0.78                                                   $1.85                                     $1.53



                                                                    COVANCE INC.


                                                             CONSOLIDATED BALANCE SHEETS


                                                         JUNE 30, 2014 and DECEMBER 31, 2013


                                                               (Dollars in thousands)



                                                                                June 30                December 31

                                                                                                2014                     2013
                                                                                                ----                     ----

                                                                              (UNAUDITED)

    ASSETS

    Current Assets:

               Cash & cash equivalents                                                        $536,009                 $617,686

               Short-term investments                                                          111,844                  111,359

               Accounts receivable, net                                                        355,272                  331,815

               Unbilled services                                                               162,396                  141,707

               Inventory                                                                        52,429                   48,257

               Deferred income taxes                                                            54,211                   51,543

               Prepaid expenses and other current assets                                       233,574                  201,621


                   Total Current Assets                                                      1,505,735                1,503,988


    Property and equipment, net                                                             875,977                  913,612

    Goodwill                                                                                118,581                  109,820

    Other assets                                                                             38,351                   29,168

                   Total Assets                                                             $2,538,644               $2,556,588



    LIABILITIES and STOCKHOLDERS' EQUITY

    Current Liabilities:

               Accounts payable                                                                $83,048                  $59,713

               Accrued payroll and benefits                                                    123,122                  170,806

                Accrued expenses and other current
                liabilities                                                                    111,889                  153,808

               Unearned revenue                                                                202,560                  240,398

               Short-term debt                                                                  40,000                        -

               Income taxes payable                                                             20,572                    7,952


                   Total Current Liabilities                                                   581,191                  632,677


    Long-term debt                                                                          250,000                  250,000

    Deferred income taxes                                                                    13,402                   32,035

    Other liabilities                                                                        78,378                   76,630

                   Total Liabilities                                                           922,971                  991,342



    Stockholders' Equity:

               Common stock                                                                        824                      809

               Paid-in capital                                                                 943,652                  859,535

               Retained earnings                                                             1,847,586                1,779,833

               Accumulated other comprehensive income                                           37,708                   25,746

               Treasury stock                                                              (1,214,097)             (1,100,677)

                   Total Stockholders' Equity                                                1,615,673                1,565,246


                   Total Liabilities and Stockholders'
                    Equity                                                                  $2,538,644               $2,556,588


                                                          COVANCE INC.


                                              CONSOLIDATED STATEMENTS OF CASH FLOWS


                                         FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013


                                                     (Dollars in thousands)


                                                         (UNAUDITED)


                                                    Six Months Ended June 30
                                                    ------------------------


                                                                               2014           2013
                                                                               ----           ----

    Cash flows from operating
     activities:

      Net income                                                            $67,753        $89,160

      Adjustments to reconcile net
       income to net cash used in

        operating activities:

        Depreciation and amortization                                        66,974         62,881

        Non-cash impairment charges                                          52,564              -

        Non-cash compensation expense
         associated with employee
         benefit

           and stock compensation plans                                      19,726         19,311

        Deferred income tax benefit                                        (21,571)       (5,712)

        Gain on sale of business                                            (1,648)             -

        Gain on sale of investments                                               -      (16,400)

        Loss on disposal of property and
         equipment                                                              333            375

        Changes in operating assets and
         liabilities, net of businesses
         sold

           and acquired:

           Accounts receivable                                             (22,552)      (57,095)

           Unbilled services                                               (20,575)      (17,467)

           Inventory                                                        (5,029)         1,323

           Accounts payable                                                  23,288         18,312

           Accrued liabilities                                             (91,862)      (45,470)

           Unearned revenue                                                (37,867)      (14,095)

           Income taxes                                                      17,504          6,736

           Other assets and liabilities,
            net                                                            (49,562)      (44,441)

    Net cash used in operating
     activities                                                             (2,524)       (2,582)
                                                                             ------         ------


    Cash flows from investing
     activities:

      Capital expenditures                                                 (73,023)      (68,433)

      Acquisition of business, net of
       cash acquired                                                        (8,403)             -

      Proceeds from sale of business                                          8,429              -

      Proceeds from sale of
       investments                                                                -        17,781

      Other, net                                                                  -           394

    Net cash used in investing
     activities                                                            (72,997)      (50,258)
                                                                            -------        -------


    Cash flows from financing
     activities:

      Net borrowings under revolving
       credit facility                                                       40,000          5,000

      Stock issued under option plans                                        59,118         40,226

      Purchase of treasury stock                                          (113,420)      (27,118)

    Net cash (used in) provided by
     financing activities                                                  (14,302)        18,108
                                                                            -------         ------

    Effect of exchange rate changes
     on cash                                                                  8,146       (12,492)
                                                                              -----        -------

    Net change in cash and cash
     equivalents                                                           (81,677)      (47,224)


    Cash and cash equivalents,
     beginning of period                                                    617,686        492,824
                                                                            -------        -------


    Cash and cash equivalents, end
     of period                                                             $536,009       $445,600
                                                                           ========       ========

                                                                                                                COVANCE INC.


                                                                                                      GAAP to Pro Forma Reconciliation


                                                                                                                   Q2 2014


                                                                                                (Dollars in thousands, except per share data)


                                                                                                             (UNAUDITED)


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

                                                                GAAP                                           Restructuring                      Other            Pro Forma
                                                                                                                                              Items (2)
                                                                                                            and Other Cost

                                                                                                              Reduction

                                                                                                            Activities (1)
                                                                                                                                                                                 ---


    Net revenues                                                            $639,456                                                                                         $639,456

    Reimbursable out-of-
     pocket expenses                                                          47,652                                                                                           47,652

         Total revenues                                                      687,108                                                    -                       -             687,108
                                                                             -------                                                  ---                     ---             -------


    Costs and expenses:

      Cost of revenue                                                        446,659                                                                                          446,659

      Reimbursable out-of-
       pocket expenses                                                        47,652                                                                                           47,652

      Selling, general and
       administrative                                                         87,324                                              (3,784)                                      83,540

      Depreciation and
       amortization                                                           33,645                                                (414)                                      33,231

      Impairment charges                                                      52,564                                                                     (52,564)                   -


            Total costs and expenses                                         667,844                                              (4,198)                (52,564)             611,082
                                                                             -------                                               ------                  -------              -------


    Income from operations                                                    19,264                                                4,198                   52,564               76,026


    Other expense, net:

      Interest expense, net                                                    2,809                                                                                            2,809

      Foreign exchange
       transaction loss, net                                                   1,542                                                                                            1,542

            Other expense, net                                                 4,351                                                    -                       -               4,351
                                                                               -----                                                  ---                     ---               -----


    Income before taxes                                                       14,913                                                4,198                   52,564               71,675


    Tax (benefit) expense                                                    (2,024)                                               1,334                   17,698               17,008


    Net income                                                               $16,937                                               $2,864                  $34,866              $54,667
                                                                             =======                                               ======                  =======              =======


    Basic earnings per share                                                   $0.30                                                $0.05                    $0.63                $0.98


    Weighted average shares
     outstanding -basic                                                   55,556,218                                           55,556,218               55,556,218           55,556,218


    Diluted earnings per
     share                                                                     $0.29                                                $0.05                    $0.61                $0.95


    Weighted average shares
     outstanding -diluted                                                 57,549,868                                           57,549,868               57,549,868           57,549,868



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

    (2) Represents asset impairment charges.



                                                                                                             COVANCE INC.


                                                                                                   GAAP to Pro Forma Reconciliation


                                                                                                                Q2 2013


                                                                                             (Dollars in thousands, except per share data)


                                                                                                          (UNAUDITED)


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

                                                               GAAP                                          Restructuring                     Other            Pro Forma
                                                                                                                                           Items (2)
                                                                                                          and Other Cost

                                                                                                            Reduction

                                                                                                          Activities (1)
                                                                                                                                                                              ---


    Net revenues                                                          $592,298                                                                                        $592,298

    Reimbursable out-of-
     pocket expenses                                                        51,678                                                                                          51,678

         Total revenues                                                    643,976                                                    -                      -             643,976
                                                                           -------                                                  ---                    ---             -------


    Costs and expenses:

      Cost of revenue                                                      419,115                                                                                         419,115

      Reimbursable out-of-
       pocket expenses                                                      51,678                                                                                          51,678

      Selling, general and
       administrative                                                       90,177                                              (5,428)                                     84,749

      Depreciation and
       amortization                                                         31,496                                                (585)                                     30,911

            Total costs and expenses                                       592,466                                              (6,013)                      -             586,453
                                                                           -------                                               ------                     ---             -------


    Income from operations                                                  51,510                                                6,013                       -              57,523


    Other expense, net:

      Interest expense, net                                                  1,004                                                                                           1,004

      Foreign exchange
       transaction loss, net                                                   694                                                                                             694

      Gain on sale of
       investment                                                            (707)                                                                        707                    -

            Other expense, net                                                 991                                                    -                    707                1,698
                                                                               ---                                                  ---                    ---                -----


    Income before taxes                                                     50,519                                                6,013                   (707)              55,825


    Taxes on income                                                          9,525                                                2,071                   (247)              11,349


    Net income                                                             $40,994                                               $3,942                  $(460)             $44,476
                                                                           =======                                               ======                   =====              =======


    Basic earnings per share                                                 $0.75                                                $0.07                 $(0.01)               $0.81


    Weighted average shares
     outstanding -basic                                                 54,662,093                                           54,662,093              54,662,093           54,662,093


    Diluted earnings per
     share                                                                   $0.72                                                $0.07                 $(0.01)               $0.78


    Weighted average shares
     outstanding -diluted                                               56,880,115                                           56,880,115              56,880,115           56,880,115



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

    (2) Represents gain on sale of investment.

                                                                                                                COVANCE INC.


                                                                                                      GAAP to Pro Forma Reconciliation


                                                                                                                 YTD Q2 2014


                                                                                                (Dollars in thousands, except per share data)


                                                                                                             (UNAUDITED)


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

                                                                GAAP                                           Restructuring                      Other            Pro Forma
                                                                                                                                              Items (2)
                                                                                                              and Other

                                                                                                                 Cost

                                                                                                              Reduction

                                                                                                            Activities (1)
                                                                                                                                                                                   ---


    Net revenues                                                          $1,259,508                                                                                         $1,259,508

    Reimbursable out-of-
     pocket expenses                                                          93,888                                                                                             93,888

         Total revenues                                                    1,353,396                                                    -                       -             1,353,396
                                                                           ---------                                                  ---                     ---             ---------


    Costs and expenses:

      Cost of revenue                                                        879,212                                                                                            879,212

      Reimbursable out-of-
       pocket expenses                                                        93,888                                                                                             93,888

      Selling, general and
       administrative                                                        174,606                                              (7,504)                                       167,102

      Depreciation and
       amortization                                                           66,974                                                (832)                                        66,142

      Impairment charges                                                      52,564                                                                     (52,564)                     -

            Total costs and expenses                                       1,267,244                                              (8,336)                (52,564)             1,206,344
                                                                           ---------                                               ------                  -------              ---------


    Income from operations                                                    86,152                                                8,336                   52,564                147,052


    Other expense, net:

      Interest expense, net                                                    5,257                                                                                              5,257

      Foreign exchange
       transaction loss, net                                                   1,944                                                                                              1,944

      Gain on sale of business                                               (1,648)                                                                       1,648                      -

            Other expense, net                                                 5,553                                                    -                   1,648                  7,201
                                                                               -----                                                  ---                   -----                  -----


    Income before taxes                                                       80,599                                                8,336                   50,916                139,851


    Taxes on income                                                           12,846                                                2,885                   17,083                 32,814


    Net income                                                               $67,753                                               $5,451                  $33,833               $107,037
                                                                             =======                                               ======                  =======               ========


    Basic earnings per share                                                   $1.22                                                $0.10                    $0.61                  $1.92


    Weighted average shares
     outstanding -basic                                                   55,618,752                                           55,618,752               55,618,752             55,618,752


    Diluted earnings per
     share                                                                     $1.17                                                $0.09                    $0.59                  $1.85


    Weighted average shares
     outstanding -diluted                                                 57,769,847                                           57,769,847               57,769,847             57,769,847



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

    (2) Represents asset impairment charges $52,564 and gain on sale of business $1,648.



                                                                                                                  COVANCE INC.


                                                                                                        GAAP to Pro Forma Reconciliation


                                                                                                                  YTD Q2 2013


                                                                                                 (Dollars in thousands, except per share data)


                                                                                                              (UNAUDITED)


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

                                                               GAAP                                             Restructuring                      Other            Pro Forma
                                                                                                                                               Items (2)
                                                                                                             and Other Cost

                                                                                                               Reduction

                                                                                                             Activities (1)
                                                                                                                                                                                    ---


    Net revenues                                                         $1,172,497                                                                                           $1,172,497

    Reimbursable out-of-
     pocket expenses                                                        105,814                                                                                              105,814

         Total revenues                                                   1,278,311                                                      -                       -             1,278,311
                                                                          ---------                                                    ---                     ---             ---------


    Costs and expenses:

      Cost of revenue                                                       830,459                                                                                              830,459

      Reimbursable out-of-
       pocket expenses                                                      105,814                                                                                              105,814

      Selling, general and
       administrative                                                       179,396                                               (10,101)                                       169,295

      Depreciation and
       amortization                                                          62,881                                                (2,082)                                        60,799

            Total costs and expenses                                      1,178,550                                               (12,183)                       -             1,166,367
                                                                          ---------                                                -------                      ---             ---------


    Income from operations                                                   99,761                                                 12,183                        -               111,944


    Other (income) expense, net:

      Interest expense, net                                                   1,875                                                                                                1,875

      Foreign exchange
       transaction loss, net                                                  1,029                                                                                                1,029

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

            Other (income) expense,
             net                                                           (13,496)                                                     -                  16,400                  2,904
                                                                            -------                                                    ---                  ------                  -----


    Income before taxes                                                     113,257                                                 12,183                 (16,400)               109,040


    Taxes on income                                                          24,097                                                  3,894                  (5,746)                22,245


    Net income                                                              $89,160                                                 $8,289                $(10,654)               $86,795
                                                                            =======                                                 ======                 ========                =======


    Basic earnings per share                                                  $1.64                                                  $0.15                  $(0.20)                 $1.59


    Weighted average shares
     outstanding -basic                                                  54,434,563                                             54,434,563               54,434,563             54,434,563


    Diluted earnings per
     share                                                                    $1.58                                                  $0.15                  $(0.19)                 $1.53


    Weighted average shares
     outstanding -diluted                                                56,598,936                                             56,598,936               56,598,936             56,598,936



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

    (2) Represents gain on sale of investments.


SOURCE Covance Inc.