UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Commission File Number: 1-12213
COVANCE INC.
(Exact name of Registrant as specified in its Charter)
Delaware 22-3265977
(State of Incorporation) (I.R.S. Employer Identification No.)
210 Carnegie Center, Princeton, New Jersey 08540
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (609) 452-4440
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each Exchange
Title of each Class on which Registered
------------------- -------------------
<S> <C>
Common Stock, $.01 Par Value New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of April 9, 1998, the Registrant had 57,982,480 shares of Common Stock
outstanding.
<PAGE>
Covance Inc.
Form 10-Q For the Quarterly Period Ended March 31, 1998
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets--March 31, 1998 and December 31, 1997.............. 3
Consolidated Statements of Income--Three Months ended
March 31, 1998 and 1997...................................................... 4
Consolidated Statements of Cash Flows--Three Months ended
March 31, 1998 and 1997...................................................... 5
Notes to Consolidated Financial Statements..................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................... 7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K............................................ 11
Signature Page ...................................................................... 12
</TABLE>
2
<PAGE>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
COVANCE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in thousands) March 31, December 31,
1998 1997
-------- --------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents....................... $ 17,730 $ 28,027
Accounts receivable, net......................... 103,562 104,789
Unbilled services................................ 49,270 40,980
Inventory........................................ 19,756 18,088
Deferred income taxes............................ 11,123 10,474
Prepaid expenses and other assets................ 28,164 28,120
--------- ---------
Total Current Assets.......................... 229,605 230,478
Property and equipment, net........................ 195,271 193,129
Goodwill, net...................................... 50,405 50,979
Other assets....................................... 9,592 9,428
--------- ---------
Total Assets.................................. $ 484,873 $ 484,014
========= =========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable................................. $ 22,620 $ 24,344
Accrued payroll and benefits..................... 33,089 39,647
Accrued expenses and other liabilities........... 29,413 30,702
Unearned revenue................................. 63,489 62,099
Short-term debt.................................. 10,000 10,000
Income taxes payable............................. 11,812 4,198
--------- ---------
Total Current Liabilities..................... 170,423 170,990
Long-term debt..................................... 122,059 132,423
Deferred income taxes.............................. 11,496 10,758
Other liabilities.................................. 12,402 12,786
--------- ---------
Total Liabilities............................. 316,380 326,957
--------- ---------
Commitments and Contingent Liabilities
Stockholders' Equity:
Common Stock - Par value $0.01 per share;
140,000,000 shares authorized;
57,832,154 and 57,678,977 shares issued
and outstanding at March 31, 1998
and December 31, 1997, respectively.............. 578 577
Paid-in capital.................................. 61,294 58,276
Retained earnings................................ 108,216 97,764
Cumulative translation adjustment................ (1,595) 440
--------- ---------
Total Stockholders' Equity.................... 168,493 157,057
--------- ---------
Total Liabilities and Stockholders' Equity.... $ 484,873 $ 484,014
========= =========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
<PAGE>
COVANCE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
(Dollars in thousands, except per share data) 1998 1997
------------ -------------
<S> <C> <C>
Net revenues ....................................... $ 168,509 $ 135,723
Cost and expenses:
Cost of revenue .................................. 112,729 90,825
Selling, general and administrative expenses ..... 26,911 20,651
Depreciation and amortization .................... 8,555 7,108
----------- ------------
Total ....................................... 148,195 118,584
----------- ------------
Income from operations ............................. 20,314 17,139
----------- ------------
Other expense, net:
Interest expense, net ............................ 1,695 2,015
Other expense .................................... 113 474
----------- ------------
Other expense, net .......................... 1,808 2,489
----------- ------------
Income before taxes and equity investee results .... 18,506 14,650
Taxes on income .................................... 7,860 6,153
Equity investee loss (gain) ........................ 194 (130)
----------- ------------
Net income ......................................... $ 10,452 $ 8,627
=========== ============
Basic earnings per share ........................... $ 0.18 $ 0.15
Weighted average shares outstanding - basic ........ 57,775,312 57,063,644
Diluted earnings per share ......................... $ 0.18 $ 0.15
Weighted average shares outstanding - diluted ...... 58,241,983 57,253,369
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
4
<PAGE>
COVANCE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
(Dollars in thousands) 1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................................ $ 10,452 $ 8,627
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ................................... 8,555 7,108
Stock issued under employee benefit and stock
compensation plans ............................................ 1,352 --
Deferred income tax provision ................................... 89 51
Other ........................................................... 219 (42)
Changes in operating assets and liabilities:
Accounts receivable ........................................... 1,227 2,772
Unbilled services ............................................. (8,290) (514)
Inventory ..................................................... (1,668) (332)
Accounts payable .............................................. (1,724) (3,937)
Accrued liabilities ........................................... (7,847) (5,043)
Unearned revenue .............................................. 1,390 (2,486)
Income taxes payable .......................................... 7,614 4,020
Other assets and liabilities, net ............................. (3,110) 1,771
-------- --------
Net cash provided by operating activities ......................... 8,259 11,995
-------- --------
Cash flows from investing activities:
Capital expenditures ............................................ (9,957) (14,502)
Other, net ...................................................... 10 51
-------- --------
Net cash used in investing activities ............................. (9,947) (14,451)
-------- --------
Cash flows from financing activities:
Repayments of long-term debt .................................... (10,000) (6,000)
Proceeds from short-term debt ................................... -- 4,000
Stock issued under employee stock purchase and
stock option plans ............................................ 1,391 --
-------- --------
Net cash used in financing activities ............................. (8,609) (2,000)
-------- --------
Net change in cash and cash equivalents ........................... (10,297) (4,456)
Cash and cash equivalents, beginning of period .................... 28,027 25,416
-------- --------
Cash and cash equivalents, end of period .......................... $ 17,730 $ 20,960
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
5
<PAGE>
COVANCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1998
1. Basis of Presentation
The accompanying unaudited consolidated financial statements reflect all
adjustments of a normal recurring nature, which are, in the opinion of
management, necessary for a fair statement of the results of operations for the
interim periods presented. The consolidated financial statements have been
compiled without audit and are subject to such year-end adjustments as may be
considered appropriate and should be read in conjunction with the historical
consolidated financial statements of Covance Inc. and subsidiaries ("Covance")
for the years ended December 31, 1997, 1996 and 1995 included in the Annual
Report on Form 10-K for the fiscal year ended December 31, 1997. Operating
results for the three months ended March 31, 1998 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1998.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of these unaudited consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
Earnings Per Share
Earnings per share has been calculated in accordance with Financial
Accounting Standards Board Statement No. 128, Earnings Per Share. In computing
diluted earnings per share for the three months ended March 31, 1998 and 1997,
the denominator was increased by 466,671 shares and 189,725 shares,
respectively, representing the dilution of stock options outstanding at March
31, 1998 and 1997 with exercise prices less than the average market price of
Covance's Common Stock during each respective period.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement No. 130, Reporting Comprehensive Income ("SFAS 130"). This Statement
establishes standards for reporting and display of comprehensive income and its
components in the financial statements. Initial application of this Statement is
required for interim periods of fiscal years beginning after December 15, 1997;
however, interim period disclosure is limited to reporting a total for
comprehensive income. In accordance with SFAS 130, Covance has determined total
comprehensive income, net of tax, to be $9.2 million and $5.7 million for the
three months ended March 31, 1998 and 1997, respectively. Covance's total
comprehensive income represents net income plus the after-tax effect of the
change in the cumulative translation adjustment equity account for the periods
presented.
3. Supplemental Cash Flow Information
Cash paid for interest for the three months ended March 31, 1998 and 1997
totaled $1.7 million and $2.8 million, respectively. Cash paid for income taxes
for the three months ended March 31, 1998 and 1997 totaled $0.7 million and $1.3
million, respectively.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the unaudited
Consolidated Financial Statements and related Notes thereto of Covance included
herein, and the Consolidated Financial Statements and related Notes thereto
included in Covance's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
Overview
Covance is a leading contract research organization ("CRO") providing a
wide range of integrated product development services on a worldwide basis to
the biotechnology, pharmaceutical and medical device industries. In addition,
and to a lesser extent, Covance also provides services such as health economics
and outcomes for managed care organizations, hospitals and other health care
providers and laboratory testing services to the chemical, agrochemical and food
industries. The foregoing services can be broadly classified into two lines of
business: early development services (preclinical, early clinical and
biomanufacturing) and late-stage development services (clinical and
periapproval, central laboratory, pharmaceutical packaging and health economics
and outcomes). Covance believes it is one of the largest biopharmaceutical CROs,
based on 1997 annual net revenues, and one of a few that are capable of
providing comprehensive global product development services. Covance offers its
clients high quality services designed to reduce product development time,
allowing them to introduce their products into the marketplace faster and, thus,
maximize the period of market exclusivity and monetary return on their
investments. Additionally, Covance's comprehensive services and broad experience
provide clients with a variable cost alternative to fixed cost internal
development capabilities.
The operations that today constitute Covance were acquired by Corning
Incorporated ("Corning"), starting in 1987, as part of a strategy to create a
global, integrated and full service product development company. In keeping with
this strategy, during 1996, Covance acquired two new operations. In recognition
of the rapid changes in the biopharmaceutical industry's marketplace,
particularly the need for the industry to further demonstrate the benefits and
cost effectiveness of their products to payors, Covance purchased in March 1996
all the assets and substantially all of the liabilities of Health Technology
Associates, Inc., a leading health economics and outcomes company, in a
transaction accounted for as a purchase business combination. In October 1996,
Covance expanded its pharmaceutical packaging capabilities to Europe with the
purchase of Swiss-based CRS Pacamed AG, in a transaction accounted for as a
purchase business combination. In addition, Covance acquired a 91,000 square
foot facility in Horsham, United Kingdom, which is being used to provide, among
other things, pharmaceutical packaging services in Europe.
Historically, a majority of Covance's net revenues have been earned under
contracts which generally range in duration from a few months to two years.
Revenue from these contracts is generally recognized under either the percentage
of completion method of accounting or as services are rendered or products are
delivered. The contracts may contain provisions for renegotiation for cost
overruns arising from changes in the level of work scope. Renegotiated amounts
are included in net revenues when earned and realization is assured. In some
cases, for multi-year contracts a portion of the contract fee is paid at the
time the trial is initiated, with performance-based installments payable over
the contract duration as milestones are achieved. Covance routinely subcontracts
with independent physician investigators in connection with multi-site clinical
trials. Investigator fees are not reflected in net revenues or expenses since
such fees are granted by customers on a "pass-through basis" without risk or
reward to Covance. While most contracts are terminable either immediately or
upon notice by the client, they typically require payment of expenses to wind
down a study, payment of fees earned to date, and, in some cases, a termination
fee or a payment of some portion of the fees or profit that could have been
earned under the contract if it had not been terminated early.
Covance's cost of revenue includes appropriate amounts necessary to
complete the revenue and earnings process, and includes direct labor and related
benefit charges, other direct costs and allocable expenses (including indirect
labor, facility charges and information technology costs). These costs, as a
percentage of net revenues, tend and are expected to fluctuate from one period
to another (generally within a range of up to 200 basis points in either
direction) principally as a result of changes in labor utilization and the mix
of service offerings involving hundreds of studies conducted during any period
of time.
7
<PAGE>
Quarterly Results
Covance's quarterly operating results are subject to variation, and are
expected to continue to be subject to variation, as a result of factors such as
delays in initiating or completing significant drug development trials,
termination of drug development trials, acquisitions and exchange rate
fluctuations. Delays and terminations of studies or trials are often the result
of actions taken by clients or regulatory authorities and are not typically
controllable by Covance. Since a large amount of Covance's operating costs are
relatively fixed while revenue is subject to fluctuation, minor variations in
the commencement, progress or completion of drug development trials may cause
significant variations in quarterly operating results.
Results of Operations
Three Months Ended March 31, 1998 Compared with Three Months Ended March 31,
1997.
Net revenues increased 24.2% to $168.5 million for the three months ended
March 31, 1998 from $135.7 million for the corresponding 1997 period. Excluding
the impact on net revenues of foreign exchange rate differences between both
periods, growth in net revenues was 25.3%. Net revenues from Covance's
late-stage development services grew in excess of 20%, benefiting from the
continuing trend in outsourcing of clinical development activities. Net revenues
from Covance's early development services also grew in excess of 20%.
Cost of revenue increased 24.1% to $112.7 million for the three months
ended March 31, 1998 from $90.8 million for the corresponding 1997 period as a
result of the increase in net revenues. Cost of revenue, as a percentage of net
revenues, was 66.9% for both the three months ended March 31, 1998 and the
corresponding 1997 period.
Overall, selling, general and administrative expense, which consists
primarily of administrative payroll and related benefit charges, advertising and
promotional expenses, administrative travel and allocable expenses (facility
charges and information technology costs), increased 30.3% to $26.9 million for
the three months ended March 31, 1998 from $20.7 million for the corresponding
1997 period. As a percentage of net revenues, selling, general and
administrative expense increased to 16.0% for the three months ended March 31,
1998 from 15.2% for the corresponding 1997 period. The increase in selling,
general and administrative expense of 30.3% is attributable to a number of
factors, including higher recruitment expenses, as more employees were hired
during the 1998 three month period compared to the corresponding 1997 period,
and higher sales and marketing expenses, as Covance has further strengthened its
global sales force and centralized its marketing efforts since the first quarter
of 1997.
Depreciation and amortization increased 20.4% to $8.6 million or 5.1% of
net revenues for the three months ended March 31, 1998 from $7.1 million or 5.2%
of net revenues for the corresponding 1997 period as the growth in net revenues
outpaced the increase in these non-cash charges.
Income from operations increased $3.2 million or 18.5% to $20.3 million
for the three months ended March 31, 1998 from $17.1 million for the
corresponding 1997 period. As a percentage of net revenues, income from
operations decreased to 12.1% for the three months ended March 31, 1998 from
12.6% for the corresponding 1997 period primarily as a result of the increase in
selling, general and administrative expenses.
Other expense, net, decreased $0.7 million to $1.8 million for three
months ended March 31, 1998 from $2.5 million for the corresponding 1997 period.
This decrease is a result of a reduction in interest expense of $0.3 million,
relating to Covance's lower level of debt, and a decrease in foreign exchange
transaction losses of $0.4 million.
Covance's effective tax rate for the three months ended March 31, 1998
increased to 42.5% from 42.0% for the corresponding 1997 period. Since Covance
operates on a global basis, its effective tax rate is subject to variation from
period to period due to the changes in the geographic distribution of its
pre-tax earnings.
Net income increased $1.8 million or 21.2% to $10.5 million for the three
months ended March 31, 1998 from $8.6 million for the corresponding 1997 period.
8
<PAGE>
Liquidity and Capital Resources
Covance's primary cash needs on both a short and long-term basis are for
capital expenditures, expansion of services, possible future acquisitions,
geographic expansion, working capital and other general corporate purposes.
Management believes that its long-term revolving credit facility will provide
Covance with sufficient financial flexibility and ready access to cash on both a
short-term and a long-term basis to fund, as required, capital expenditures,
potential future acquisitions and other longer-term growth opportunities. At
March 31, 1998, there was $110.0 million of outstanding borrowings and $11.5
million of outstanding letters of credit, with a remaining availability of
$128.5 million under Covance's long-term revolving credit facility.
At December 31, 1997, Covance Biotechnology Services Inc. ("Covance
Biotechnology") had $3.0 million in long-term debt outstanding with the North
Carolina Biotechnology Center. This debt matures in December 1999 and is
guaranteed by Covance. In addition, Covance Biotechnology has a $10.0 million
short-term revolving credit facility with a bank, of which $10.0 million of
borrowings were outstanding as of March 31, 1998. This short-term revolving
credit facility carries interest at a rate substantially equivalent to the rate
in effect on Covance's borrowings under its long-term credit facility and is
guaranteed by Covance.
In October 1997, a foreign subsidiary of Covance borrowed 13.5 million
Swiss Francs from a bank. This loan bears interest at a fixed rate of 2.9% per
annum and matures in three years. In connection with the loan, Covance provided
a letter of credit in favor of the lender which may be drawn upon in event of
default.
During the three months ended March 31, 1998, Covance's operations
provided net cash of $8.3 million compared to $12.0 million for the
corresponding 1997 period. Cash flows from net earnings adjusted for non-cash
activity provided $20.7 million for the three months ended March 31, 1998, up
$4.9 million or 31.3% from the corresponding 1997 period. The change in net
operating assets used $12.4 million in cash during the three months ended March
31, 1998, primarily as a result of an increase in unbilled receivables and a
reduction in accrued liabilities, while this net change used only $3.7 million
during the first three months of 1997.
Working capital was $59.2 million at March 31, 1998, a reduction of $0.3
million from December 31, 1997. Aggregate accounts receivable and unbilled
services at March 31, 1998 of $152.8 million were up $7.1 million or 4.8% from
the December 31, 1997 level of $145.8 million. Covance's ratio of current assets
to current liabilities was 1.35 at both March 31, 1998 and December 31, 1997.
Investing activities for the three months ended March 31, 1998 used $9.9
million compared to $14.5 million for the corresponding 1997 period. Capital
spending for the first three months of 1998 totaled $10.0 million, primarily for
outfitting of new facilities, purchase of new equipment, maintenance and upgrade
of existing equipment and computer equipment and software for newly hired
employees, compared to $14.5 million for the corresponding 1997 period.
Foreign Currency
Since Covance operates on a global basis, it is exposed to various foreign
currency risks. Two specific risks arise from the nature of the contracts
Covance executes with its customers since from time to time contracts are
denominated in a currency different than the particular Covance subsidiary's
local currency. This contract currency denomination issue is generally
applicable only to a portion of the contracts executed by Covance's foreign
subsidiaries providing clinical and periapproval services. The first risk occurs
as revenue recognized for services rendered is denominated in a currency
different from the currency in which the subsidiary's expenses are incurred. As
a result, the subsidiary's net revenues and resultant earnings can be affected
by fluctuations in exchange rates. While some contracts provide either that
currency fluctuations from the rates in effect at the time the contract is
executed are the responsibility of the customer and others provide that currency
fluctuations from the rates in effect at the time the contract is executed up to
a specified threshold (generally plus or minus a few percentage points) are
absorbed by Covance while fluctuations in excess of the threshold are the
customer's responsibility, most contracts do not specifically address
responsibility for currency fluctuations. Historically, fluctuations in exchange
rates from those in effect at the time contracts were executed have not had a
material effect upon Covance's consolidated financial results.
9
<PAGE>
The second risk results from the passage of time between the invoicing of
customers under these contracts and the ultimate collection of customer payments
against such invoices. Because the contract is denominated in a currency other
than the subsidiary's local currency, Covance recognizes a receivable at the
time of invoicing for the local currency equivalent of the foreign currency
invoice amount. Changes in exchange rates from the time the invoice is prepared
and payment from the customer is received will result in Covance receiving
either more or less in local currency than the local currency equivalent of the
invoice amount at the time the invoice was prepared and the receivable
established. This difference is recognized by Covance as a foreign currency
transaction gain or loss, as applicable, and is reported in other expense
(income) in Covance's Consolidated Statements of Income.
Finally, Covance's consolidated financial statements are denominated in
U.S. dollars. Accordingly, changes in exchange rates between the applicable
foreign currency and the U.S. dollar will affect the translation of each foreign
subsidiary's financial results into U.S. dollars for purposes of reporting
Covance's consolidated financial results. The process by which each foreign
subsidiary's financial results are translated into U.S. dollars is as follows:
income statement accounts are translated at average exchange rates for the
period; balance sheet asset and liability accounts are translated using end of
period exchange rates; and equity accounts are translated at historical rates.
Translation of the balance sheet in this manner affects the stockholders' equity
account, referred to as the cumulative translation adjustment account. This
account exists only in the foreign subsidiary's U.S. dollar balance sheet and is
necessary to keep the foreign balance sheet stated in U.S. dollars in balance.
To date such cumulative translation adjustments have not been material to
Covance's consolidated financial position.
Taxes
Since Covance conducts operations on a global basis, Covance's effective
tax rate has and will continue to depend upon the geographic distribution of its
pretax earnings among locations with varying tax rates. Covance's profits are
further impacted by changes in the tax rates of the various jurisdictions. In
particular, as the geographic mix of Covance's pre-tax earnings among various
tax jurisdictions changes, Covance's effective tax rate may vary from period to
period.
Inflation
While most of Covance's net revenues are earned under contracts, the
long-term contracts (those in excess of one year) generally include an inflation
or cost of living adjustment for the portion of the services to be performed
beyond one year from the contract date. As a result, Covance believes that the
effects of inflation generally do not have a material adverse effect on its
operations or financial condition.
Year 2000
Information systems are an integral part of the services and products the
Company provides. The Company has formed a group, led by its Chief Information
Officer, to assess the Year 2000 issue from an internal, supplier and customer
perspective. Presently, this group consists of thirteen individuals who are
dedicated full-time to the Year 2000 project. Covance plans to add six
individuals to this group during 1998. Covance's Year 2000 plan will have risk
assessment, evaluation and remediation schedules finalized during 1998. For
business critical systems, remediation, validation and implementation is already
underway. This plan is being executed under the guidance of Covance's senior
management, who will receive periodic progress reports from the group. Although
the Company believes at this time that neither the costs nor expenses of the
Year 2000 issue will be material to the Company, the ultimate costs and expenses
are currently unknown and such costs or the consequences of failure to correct
any Year 2000 issues could have a material impact on the Company's financial
condition, business or operations.
New Accounting Pronouncements
In June 1997, the FASB issued Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS 131"). This Statement
establishes standards for the way that public business enterprises report
information about operating segments in annual and interim financial statements.
It also establishes standards for related disclosures about products and
services, geographic areas and major customers. This Statement shall be
effective for financial statements for fiscal years beginning after December 15,
1997. Financial statement disclosures for prior periods are required to be
restated. Covance is in the process of evaluating the disclosure requirements.
This Statement, by its nature, will not impact Covance's consolidated results of
operations, financial position or cash flows.
10
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(1) Exhibit 27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
none
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COVANCE INC.
Dated: April 30, 1998 By: /s/ Christopher A. Kuebler
---------------------------
Christopher A. Kuebler
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Christopher A. Kuebler
- ----------------------------
Christopher A. Kuebler Chairman of the Board, President April 30, 1998
and Chief Executive Officer
(Principal Executive Officer)
/s/ Charles C. Harwood, Jr.
- ----------------------------
Charles C. Harwood, Jr. Corporate Senior Vice President April 30, 1998
and Chief Financial Officer
(Principal Financial Officer)
/s/ Michael Giannetto
- ----------------------------
Michael Giannetto Corporate Vice President April 30, 1998
and Controller
(Principal Accounting Officer)
</TABLE>
12
<PAGE>
EXHIBIT INDEX
Exhibit Description
- ------- -----------
27 Financial Data Schedule (for SEC use only)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Covance
consolidated financial statements for the three months ended March 31, 1998 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001023131
<NAME> Covance Inc.
<MULTIPLIER> 1
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 17,730,000
<SECURITIES> 0
<RECEIVABLES> 152,832,000
<ALLOWANCES> 0
<INVENTORY> 19,756,000
<CURRENT-ASSETS> 229,605,000
<PP&E> 203,155,000
<DEPRECIATION> 7,884,000
<TOTAL-ASSETS> 484,873,000
<CURRENT-LIABILITIES> 170,423,000
<BONDS> 0
0
0
<COMMON> 578,000
<OTHER-SE> 167,915,000
<TOTAL-LIABILITY-AND-EQUITY> 484,873,000
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<TOTAL-REVENUES> 168,509,000
<CGS> 112,729,000
<TOTAL-COSTS> 148,195,000
<OTHER-EXPENSES> 113,000
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<INTEREST-EXPENSE> 1,695,000
<INCOME-PRETAX> 18,506,000
<INCOME-TAX> 7,860,000
<INCOME-CONTINUING> 10,452,000
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,452,000
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
