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Covance Reports Full-Year 2007 Revenue Growth Of 15.4% and Seventh Consecutive Year of EPS Growth in Excess of 20%

- 4Q EPS Grows 21.8% to $0.72 on 19.8% Revenue Growth -

PRINCETON, N.J., Jan. 30 /PRNewswire-FirstCall/ -- Covance Inc. (NYSE: CVD) today reported earnings for its fourth quarter ended December 31, 2007 of $0.78 per diluted share and full-year EPS of $2.71; both periods include a $0.06 per share gain from the sale of its centralized ECG business. Excluding the gain on sale, earnings were $0.72 per diluted share in the fourth quarter, representing 21.8% year-over-year EPS growth, and $2.65 per diluted share for the full-year, representing annual EPS growth of 20.5% over 2006 EPS of $2.20 (which excludes a $0.04 per share tax gain from the 2006 results).

"I congratulate the entire Covance team for another year of outstanding achievement for our clients and shareholders. Increasing levels of client satisfaction led to strong repeat work resulting in more than $500 million in net orders for the quarter and a 20.6% growth in our backlog to $2.7 billion," said Joe Herring, Chairman and Chief Executive Officer. "In the fourth quarter, revenue growth was robust at 19.8% and operating margins remained solid at 14.8%. Performance reflected strong demand for both our early- and late-stage development service offerings. In addition, we significantly reduced our DSO to 36 days, the lowest level in more than 5 years, helping to drive strong free cash flow for the quarter and the year.

"In 2007, our capital expenditures exceeded $200 million, with a substantial portion allocated to investments in capacity expansion and IT infrastructure to support our future growth. Covance's consistent history of generating strong returns on capital combined with the increasing demand for our drug development services, leads us to increase strategic capital investment in 2008 in order to support our long-term growth opportunity.

"Our ongoing success with productivity enhancements made a significant contribution again in 2007, as evidenced by a 4.3% increas of business (6,590) -

(Gain) loss on sale of property

and equipment (1,346) 11

Equity investee earnings (2,451) (1,588)

Changes in operating assets and

liabilities, net of businesses

acquired and sold:

Accounts receivable (16,847) 6,332

Unbilled services 304 (842)

Inventory (5,336) (8,921)

Accounts payable (2,836) 8,380

Accrued liabilities 37,153 12,547

Unearned revenue 35,392 10,544

Income taxes payable 9,310 6,754

Other assets and liabilities, net (16,954) (12,392)

Net cash provided by operating

activities 293,530 254,169

Cash flows from investing activities:

Capital expenditures (201,037) (136,800)

Proceeds from sale of business 35,200 -

Acquisition of businesses - (75,668)

Other, net 322 806

Net cash used in investing activities (165,515) (211,662)

Cash flows from financing activities:

Stock issued under employee stock

purchase and option plans 33,423 39,905

Purchase of treasury stock (66,356) (28,032)

Net cash (used in) provided by

financing activities (32,933) 11,873

Effect of exchange rate changes on cash 4,593 4,713

Net change in cash and cash equivalents 99,675 59,093

Cash and cash equivalents, beginning

of period 219,810 160,717

Cash and cash equivalents, end of

period $319,485 $219,810

e in revenue per FTE, incremental Six Sigma benefits of $12 million, and a 40 basis point expansion in operating margin for the year. In 2008, we continue to target low- to mid-teens revenue growth and a 20% year-over-year growth in EPS to $3.18 per diluted share."

Consolidated Results

($ in millions except 4Q07 4Q06 Change FY 2007 FY 2006 Change


Total Revenues $435.7 $359.1 $1,631.5 $1,406.1

Less: Reimbursable

Out-of-Pockets $24.7 $16.1 $85.1 $65.9

Net Revenues $411.0 $343.0 19.8% $1,546.4 $1,340.2 15.4%

Operating Income $61.0 $51.3 18.9% $228.6 $193.2 18.3%

Operating Margin % 14.8% 15.0% 14.8% 14.4%

Net Income $50.9 $38.3 32.9% $175.9 $145.0 21.3%

Diluted EPS $0.78 $0.59 32.7% $2.71 $2.24 21.3%

Income Tax Gain - - - $ 2.5

Gain on Sale, net of

tax $4.1 - $4.1 -

Net Income Excluding

Gain on Sale and Tax

Tax Gain $46.8 $38.3 22.0% $171.8 $142.5 20.5%

Diluted EPS Excluding

Gain on Sale

and Tax Gain $0.72 $0.59 21.8% $2.65 $2.20 20.5%

Operating Segment Results

Early Development

($ in millions) 4Q07 4Q06 Change FY 2007 FY 2006 Change

Net Revenues $207.9 $167.2 24.3% $777.7 $632.8 22.9%


Income $51.5 $38.6 33.3% $195.9 $153.6 27.6%

Margin % 24.8% 23.1% 25.2% 24.3%

The Company's Early Development segment includes preclinical toxicology, analytical chemistry, clinical pharmacology services, and research products. Early Development net revenues for the fourth quarter of 2007 grew 24.3% year- on-year to $207.9 million, compared to $167.2 million in the fourth quarter of 2006, representing exceptionally strong performances across the segment's service offerings. For the full year 2007, net revenues increased 22.9% to $777.7 million compared to $632.8 million in 2006.

Operating income for the fourth quarter of 2007 increased 33.3% to $51.5 million compared to $38.6 million for the fourth quarter of last year. Operating margins for the fourth quarter of 2007 grew 170 basis points to 24.8% versus 23.1% in the fourth quarter of the prior year on the strong performances across the segment. Full year operating margins grew 90 basis points to 25.2% compared to 24.3% in the prior year. We expect continued expansion in Early Development operating margin in 2008 on a full-year basis.

Late-Stage Development

($ in millions) 4Q07 4Q06 Change FY 2007 FY 2006 Change

Net Revenues $203.1 $175.8 15.6% $768.8 $707.4 8.7%


Income $32.6 $32.7 -0.4% $128.1 $123.6 3.6%

Margin % 16.0% 18.6% 16.7% 17.5%

The Late-Stage Development segment includes central laboratory, Phase II- III clinical development, and commercialization services (periapproval services and market access services). Late-Stage Development net revenues for the fourth quarter of 2007 grew 15.6% to $203.1 million compared to $175.8 million in the fourth quarter of 2006. Central laboratory and clinical development services each delivered revenue growth in excess of 20% in the quarter. Full year Late-Stage Development net revenues grew 8.7% to $768.8 million compared to $707.4 million in 2006. The sale of the centralized ECG business, which will remain in the base of the comparison year, will impact revenue growth in 2008 by approximately 350 basis points.

Operating income for the fourth quarter of 2007 was $32.6 million compared to $32.7 million in the fourth quarter of the prior year. Operating margins for the fourth quarter of 2007 were 16.0% versus 18.6% in the fourth quarter of 2006 and 17.5% last quarter. Late-Stage Development margins were impacted by an issue within a large clinical development study. Excluding this impact, operating margin would have expanded on a sequential basis. Full year operating margins were 16.7% compared to 17.5% in the prior year. We expect operating margin expansion in Late-Stage Development in 2008 on a full-year basis.

Corporate Information

The Company's backlog at December 31, 2007 grew 20.6% year-over-year to $2.68 billion compared to $2.23 billion at December 31, 2006. Net orders were $502 million in the fourth quarter of 2007 and $1.99 billion for the full year.

Corporate expenses totaled $23.0 million in the fourth quarter of 2007 compared to $26.1 million last quarter and $20.0 million in the fourth quarter of last year. Looking forward to 2008, we expect corporate expenses, as a percent of revenue, to return to the range of 6.5% as we continue to make investments in infrastructure to enhance our ability to manage future growth.

Cash and cash equivalents at December 31, 2007 grew to a record $319 million compared to $260 million at September 30, 2007 and $220 million at the end of last year, due to strong cash generation from business operations and $35 million in proceeds from the sale of Cardiac Safety Services.

Free cash flow for the fourth quarter was $21 million, consisting of operating cash flow of $117 million less capital expenditures of $96 million, which included a $20 million site purchase in Virginia. Full-year free cash flow was a robust $93 million, consisting of operating cash flow of $294 million less capital expenditures of $201 million. We expect full year 2008 capital spending to increase to approximately $250 million and free cash flow to be approximately $40 million, including significant expenditures for the new Arizona preclinical facility and investments in information technology infrastructure.

Net Days Sales Outstanding (DSO) decreased significantly to 36 days at December 31, 2007 compared to 47 days at September 30, 2007 and 49 days at December 31, 2006.

The Company's investor conference call will be webcast on January 31 at 9:00 am EDT. Management's commentary and presentation slides will be available through

Covance, with headquarters in Princeton, New Jersey, is one of the world's largest and most comprehensive drug development services companies with annual revenues greater than $1.5 billion, global operations in more than 20 countries, and more than 8,700 employees worldwide. Information on Covance's products and services, recent press releases, and SEC filings can be obtained through its website at

Statements contained in this press release, which are not historical facts, such as statements about prospective earnings, savings, revenue, operations, revenue and earnings growth and other financial results are forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements including the statements contained herein regarding anticipated trends in the Company's business are based largely on management's expectations and are subject to and qualified by risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include, without limitation, competitive factors, outsourcing trends in the pharmaceutical industry, levels of industry research and development spending, the Company's ability to continue to attract and retain qualified personnel, the fixed price nature of contracts or the loss of large contracts, risks associated with acquisitions and investments, the Company's ability to increase order volume, the pace of translation of orders into revenue in late-stage development services, and other factors described in the Company's filings with the Securities and Exchange Commission including its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The Company undertakes no duty to update any forward looking statement to conform the statement to actual results or changes in the Company's expectations.

Financial Exhibits Follow




(Dollars in thousands, except per share data)

Three Months Ended Years Ended

December 31 December 31

2007 2006 2007 2006


Net revenues $410,966 $342,976 $1,546,419 $1,340,203

Reimbursable out-of-

pockets 24,736 16,111 85,097 65,855

Total revenues 435,702 359,087 1,631,516 1,406,058

Costs and expenses:

Cost of revenue 273,874 222,145 1,017,686 882,190

Reimbursed out-of-

pocket expenses 24,736 16,111 85,097 65,855

Selling, general

and administrative 58,918 53,594 233,890 207,388

Depreciation and

amortization 17,182 15,920 66,197 57,388

Total costs and

expenses 374,710 307,770 1,402,870 1,212,821

Income from operations 60,992 51,317 228,646 193,237

Other (income) expense,


Interest income, net (3,030) (2,376) (9,801) (7,564)

Foreign exchange


(gain) loss, net (1,137) 240 (1,375) 212

Gain on sale of

business (6,590) - (6,590) -

Other income, net (10,757)(a) (2,136) (17,766)(a) (7,352)

Income before taxes

and equity investee

earnings 71,749(a) 53,453 246,412(a) 200,589

Taxes on income 21,608(a) 15,790 72,934(a) 57,179(b)

Equity investee

earnings 768 650 2,451 1,588

Net income $50,909(a) $38,313 $175,929(a) $144,998(b)

Basic earnings per

share $0.80(a) $0.60 $2.76(a) $2.28(b)

Weighted average

shares outstanding

- basic 63,834,768 63,716,880 63,747,732 63,585,722

Diluted earnings per

share $0.78(a) $0.59 $2.71(a) $2.24(b)

Weighted average

shares outstanding

- diluted 64,921,515 64,795,375 64,820,406 64,782,212

(a) Includes the impact of a $6,590 gain on sale of Cardiac Safety

Services ($4,152 net of tax) during the fourth quarter of 2007.

(b) Includes the impact of a $2,467 income tax gain from the resolution of

several income tax matters during the third quarter of 2006.

Excluding the impact of the $6.6 million pre-tax gain on sale of business

in Q4'07 and the $2.5 million income tax gain recorded in Q3'06:

Income before taxes and

equity investee

earnings $65,159 n/a $239,822 n/a

Taxes on income $19,170 n/a $70,496 $59,646

Net income $46,757 n/a $171,777 $142,531

Basic earnings per

share $0.73 n/a $2.69 $2.24

Diluted earnings per

share $0.72 n/a $2.65 $2.20



DECEMBER 31, 2007 and 2006

(Dollars in thousands)

December 31 December 31

2007 2006


Current Assets:

Cash & cash equivalents $319,485 $219,810

Accounts receivable, net 217,657 205,473

Unbilled services 88,835 89,139

Inventory 54,788 49,628

Deferred income taxes 7,825 4,320

Prepaid expenses and other current

assets 81,467 71,196

Total Current Assets 770,057 639,566

Property and equipment, net 646,040 500,057

Goodwill, net 105,486 119,725

Other assets 38,602 38,330

Total Assets $1,560,185 $1,297,678


Current Liabilities:

Accounts payable $32,252 $35,479

Accrued payroll and benefits 95,313 76,657

Accrued expenses and other current

liabilities 66,838 50,855

Unearned revenue 144,870 109,559

Income taxes payable 18,887 17,154

Total Current Liabilities 358,160 289,704

Deferred income taxes 32,562 31,052

Other liabilities 59,275 53,627

Total Liabilities 449,997 374,383

Stockholders' Equity:

Common stock 746 734

Paid-in capital 492,373 426,806

Retained earnings 933,106 757,809

Other Comprehensive Income:

Cumulative translation

adjustment 45,328 35,170

FAS 158 adjustment (21,174) (23,389)

Treasury stock (340,191) (273,835)

Total Stockholders' Equity 1,110,188 923,295

Total Liabilities and

Stockholders' Equity $1,560,185 $1,297,678




(Dollars in thousands)

Years Ended December 31

2007 2006

Cash flows from operating activities:

Net income $175,929 $144,998

Adjustments to reconcile net income

to net cash provided by

operating activities:

Depreciation and amortization 66,197 57,388

Non-cash compensation expense

associated with employee benefit

and stock compensation plans 26,508 30,397

Deferred income tax (benefit)

provision (4,903) 561

Gain on sale

SOURCE Covance Inc.
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