<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
\X\ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999 or
\ \ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ---------------------- to -----------------
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
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 July 25, 1999, the Registrant had 58,794,431 shares of Common Stock
outstanding.
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COVANCE INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets--June 30, 1999 and December 31, 1998.................................... 3
Consolidated Statements of Income--Three and Six Months ended June 30, 1999 and 1998................ 4
Consolidated Statements of Cash Flows--Six Months ended June 30, 1999 and 1998...................... 5
Notes to Consolidated Financial Statements......................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 8
Item 3. Quantitative and Qualitative Disclosure About Market Risk................................... 15
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders......................................... 16
Item 6. Exhibits and Reports on Form 8-K............................................................ 17
SIGNATURE PAGE....................................................................................... 18
</TABLE>
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COVANCE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) JUNE 30, DECEMBER 31,
1999 1998
----- -----
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 25,081 $ 19,263
Accounts receivable, net................................... 158,319 139,145
Unbilled services.......................................... 53,472 41,589
Inventory.................................................. 25,050 26,726
Deferred income taxes...................................... 9,826 9,671
Prepaid expenses and other assets.......................... 37,615 38,095
-------- --------
Total Current Assets.................................... 309,363 274,489
Property and equipment, net.................................... 257,404 237,587
Goodwill, net.................................................. 86,102 71,999
Other assets................................................... 13,056 9,340
-------- --------
Total Assets............................................ $665,925 $593,415
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................... $ 30,089 $ 33,381
Accrued payroll and benefits............................... 37,005 41,505
Accrued expenses and other liabilities..................... 45,913 39,117
Unearned revenue........................................... 52,514 60,226
Short-term debt............................................ 13,000 13,000
Income taxes payable....................................... 5,598 5,772
-------- --------
Total Current Liabilities............................... 184,119 193,001
Long-term debt................................................. 199,166 149,909
Deferred income taxes.......................................... 12,120 12,416
Other liabilities.............................................. 15,470 13,074
-------- --------
Total Liabilities....................................... 410,875 368,400
-------- --------
Commitments and Contingent Liabilities
Stockholders' Equity:
Common Stock - Par value $0.01 per share; 140,000,000 shares
authorized 58,793,681 and 58,417,536 shares issued and outstanding
at June 30, 1999 and December 31, 1998,
respectively............................................... 588 584
Paid-in capital............................................ 88,873 75,853
Retained earnings.......................................... 171,727 146,372
Accumulated other comprehensive income--
Cumulative translation adjustment....................... (6,138) 2,206
-------- --------
Total Stockholders' Equity.............................. 255,050 225,015
-------- --------
Total Liabilities and Stockholders' Equity.............. $665,925 $593,415
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
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COVANCE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------- -------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1999 1998
------ -------- ------ --------
<S> <C> <C> <C> <C>
Net revenues................................. $ 215,060 $ 182,089 $ 425,692 $ 350,598
Cost and expenses:
Cost of revenue.......................... 140,906 119,338 282,336 232,066
Selling, general and administrative ..... 34,383 29,426 68,194 56,339
Depreciation and amortization............ 11,567 9,023 22,792 17,577
Merger-related costs..................... 5,249 -- 5,249 --
-------- -------- -------- --------
Total................................ 192,105 157,787 378,571 305,982
-------- -------- -------- --------
Income from operations....................... 22,955 24,302 47,121 44,616
-------- -------- -------- --------
Other expense, net:
Interest expense, net.................... 2,419 1,808 4,405 3,503
Other expense............................ 161 74 81 187
-------- -------- -------- --------
Other expense, net................... 2,580 1,882 4,486 3,690
-------- -------- -------- --------
Income before taxes and equity investee
results.................................. 20,375 22,420 42,635 40,926
Taxes on income.............................. 8,168 9,388 17,280 17,248
Equity investee loss......................... -- 164 -- 358
-------- -------- -------- --------
Net income................................... $ 12,207 $ 12,868 $ 25,355 $ 23,320
=========== ========== ========== ==========
Basic earnings per share..................... $ 0.21 $ 0.22 $ 0.43 $ 0.40
Weighted average shares outstanding - basic.. 58,751,478 57,953,563 58,657,220 57,864,438
Diluted earnings per share................... $ 0.21 $ 0.22 $ 0.43 $ 0.40
Weighted average shares outstanding - diluted 59,348,559 58,457,280 59,600,313 58,290,610
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
4
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COVANCE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
------------------------
(DOLLARS IN THOUSANDS) 1999 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 25,355 $ 23,320
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization....................... 22,792 17,577
Stock issued under employee benefit and stock
compensation plans................................ 4,479 3,321
Deferred income tax provision....................... (451) 991
Other............................................... 149 405
Changes in operating assets and liabilities:
Accounts receivable............................... (19,174) (23,744)
Unbilled services................................. (11,883) (8,096)
Inventory......................................... 1,676 (3,291)
Accounts payable.................................. (3,292) (4,439)
Accrued liabilities............................... 2,296 (1,714)
Unearned revenue.................................. (7,712) (6,597)
Income taxes payable.............................. (174) 4,500
Other assets and liabilities, net................ 656 (3,153)
------- -------
Net cash provided by (used in) operating activities..... 14,717 (920)
------- -------
Cash flows from investing activities:
Capital expenditures................................ (48,349) (23,523)
Acquisition of businesses........................... (16,128) --
Other, net.......................................... 564 54
------- -------
Net cash used in investing activities................... (63,913) (23,469)
------- -------
Cash flows from financing activities:
Proceeds from long-term debt........................ 50,000 5,000
Stock issued under employee stock purchase and
option plans...................................... 5,014 2,593
------- -------
Net cash provided by financing activities............... 55,014 7,593
------- -------
Net change in cash and cash equivalents................. 5,818 (16,796)
Cash and cash equivalents, beginning of period.......... 19,263 28,027
------- -------
Cash and cash equivalents, end of period................ $ 25,081 $ 11,231
======= =======
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
5
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COVANCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1999 AND 1998
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements reflect all
normal recurring adjustments 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 not been audited and are
subject to such year-end adjustments as may be considered appropriate. You
should read these consolidated financial statements together with the
historical consolidated financial statements of Covance Inc. and subsidiaries
("Covance") for the years ended December 31, 1998, 1997 and 1996 included in the
Annual Report on Form 10-K for the fiscal year ended December 31, 1998.
Operating results for the six months ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
These unaudited consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. Generally accepted
accounting principles require 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 ("FASB") Statement No. 128, EARNINGS PER SHARE. In
computing diluted earnings per share for the three months ended June 30, 1999
and 1998, the denominator was increased by 597,081 shares and 503,717 shares,
respectively, and for the six months ended June 30, 1999 and 1998, the
denominator was increased by 943,093 shares and 426,172 shares, respectively,
representing the dilution of stock options outstanding at June 30, 1999 and 1998
with exercise prices less than the average market price of Covance's Common
Stock during each respective period.
COMPREHENSIVE INCOME
Comprehensive income has been calculated in accordance with FASB Statement
No. 130, REPORTING COMPREHENSIVE INCOME. Covance has determined total
comprehensive income to be $9.0 million and $12.8 million for the three months
ended June 30, 1999 and 1998, respectively, and $17.0 million and $22.1 million
for the six months ended June 30, 1999 and 1998, respectively. Covance's total
comprehensive income represents net income plus the change in the cumulative
translation adjustment equity account for the periods presented.
SEGMENT REPORTING
Covance reports information about its operating segments and related
disclosures about products, services, geographic areas and major customers in
accordance with FASB Statement No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. See Note 6 for segment disclosure.
3. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest for the six months ended June 30, 1999 and 1998
totaled $2.5 million and $4.4 million, respectively. Cash paid for income taxes
for the six months ended June 30, 1999 and 1998 totaled $16.1 million and $13.1
million, respectively.
6
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COVANCE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
(UNAUDITED)
JUNE 30, 1999 AND 1998
4. ACQUISITIONS
During the six month period ended June 30, 1999, Covance paid approximately
$16.1 million in contingent purchase price associated with two of its 1996
acquisitions, consisting primarily of the March 1999 payment of approximately
$15.1 million in connection with its purchase of Health Technology Associates,
Inc. The goodwill associated with this acquisition aggregated $28.8 million.
5. MERGER COSTS
Covance entered into an Agreement and Plan of Merger as of April 28,
1999 (the "Proposed Merger") with Parexel International Corporation
("Parexel"). On June 25, 1999, Covance and Parexel mutually agreed to
terminate the Proposed Merger. In connection with the termination, Covance
and Parexel entered into a termination agreement whereby, among other things,
each party agreed to release the other from any claims relating to the
Proposed Merger and each party agreed to bear its own expenses incurred in
connection with the Proposed Merger. During the three months ended June 30,
1999, Covance incurred one-time, out-of-pocket transaction and integration
related costs (primarily professional fees for investment banking, attorneys,
accountants and consultants) of $5.2 million ($3.1 million, net of tax) in
connection with the Proposed Merger.
6. SEGMENT INFORMATION
Covance has two reportable segments: early development and late-stage
development. Early development services, which consist of Covance's preclinical
and Phase I clinical service capabilities, involve evaluating a new compound for
safety and early effectiveness as well as evaluating the absorption,
distribution, metabolism and excretion of the compound in the human body. It is
at this stage that a pharmaceutical company, based on available data, will
generally decide whether to continue further development of a drug. Late-stage
development services, which consist of Covance's clinical and clinical support
service capabilities, are geared toward demonstrating the clinical effectiveness
of a compound in treating certain diseases or conditions, obtaining regulatory
approval and maximizing the drug's commercial potential.
The accounting policies of the reportable segments are the same as those
described in Note 2. Segment net revenues and operating income for the three and
six months ended June 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
EARLY LATE-STAGE
DEVELOPMENT DEVELOPMENT TOTAL
----------- ----------- -----------
(Dollars in thousands)
<S>
THREE MONTHS ENDED JUNE 30, 1999
<C> <C> <C>
Net revenues from external customers $ 69,309 $ 145,751 $ 215,060
Operating income 11,297 (a) 16,907 (a) 28,204 (a)
THREE MONTHS ENDED JUNE 30, 1998
Net revenues from external customers 61,738 120,351 182,089
Operating income 9,366 14,936 24,302
SIX MONTHS ENDED JUNE 30, 1999
Net revenues from external customers 134,892 290,800 425,692
Operating income 19,287 (a) 33,083(a) 52,370 (a)
SIX MONTHS ENDED JUNE 30, 1998
Net revenues from external customers 118,686 231,912 350,598
Operating income 17,667 26,949 44,616
</TABLE>
-----------------
(a) Excludes one-time charge incurred in the second quarter of 1999 in
connection with the termination of the Proposed Merger totaling $5,249
($3,150 after tax).
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion together with the unaudited
Covance consolidated financial statements and the accompanying notes included in
this Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.
OVERVIEW
Covance is a leading contract research organization providing a wide range
of integrated product development services on a worldwide basis to the
pharmaceutical, biotechnology and medical device industries. In addition, and to
a lesser extent, Covance provides services such as health economics and outcomes
for managed care organizations, hospitals and other health care providers and
laboratory testing to the chemical, agrochemical and food industries. The
foregoing services comprise two segments for financial reporting purposes: early
development services (preclinical and Phase I clinical); and late-stage
development services (clinical and clinical support services). Covance believes
it is one of the largest biopharmaceutical contract research organizations,
based on 1998 annual net revenues, and one of a few that is capable of providing
comprehensive global product development services. Covance offers its clients
high quality services designed to reduce product development time. This enables
Covance's customers to introduce their products into the marketplace faster and
as a result, maximize the period of market exclusivity and monetary return on
their research and development investments. Additionally, Covance's
comprehensive services and broad experience provide its customers with a
variable cost alternative to fixed cost internal development capabilities.
Historically, a majority of Covance's net revenues have been earned under
contracts. These contracts 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 scope of work. 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. Additional payments are made based upon the
achievement of performance based milestones over the contract duration. Covance
routinely subcontracts with independent physician investigators in connection
with either single or multi-site clinical trials. Investigator fees are not
reflected in net revenues or expenses since these investigator fees are paid by
the customers to Covance on a "pass-through basis" (i.e., without risk or reward
to Covance). Most contracts are terminable either immediately or upon notice by
the client. These contracts typically require payment to Covance of expenses to
wind down a study, payment to Covance of fees earned to date, and, in some
cases, a termination fee or a payment to Covance of some portion of the fees or
profit that could have been earned by Covance under the contract if it had not
been terminated early.
Covance segregates its recurring operating expenses among three categories:
cost of revenue; selling, general and administrative expenses; and depreciation
and amortization. Cost of revenue consists of appropriate amounts necessary to
complete the revenue and earnings process, and includes direct labor and related
benefit charges, other direct costs, and an allocation of facility charges and
information technology costs. Cost of revenue, as a percentage of net revenues,
tends and is expected to fluctuate from one period to another, generally within
a range of up to 200 basis points in either direction. This variability is
principally a result of changes in labor utilization and the mix of service
offerings involving hundreds of studies conducted during any period of time.
Selling, general and administrative expenses consist primarily of administrative
payroll and related benefit charges, advertising and promotional expenses,
administrative travel and an allocation of facility charges and information
technology costs.
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
(1) delays in initiating or completing significant drug development trials, (2)
termination of drug development trials, (3) acquisitions and (4) exchange rate
fluctuations. Delays and terminations of trials are often the result of actions
taken by Covance's customers 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.
8
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RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1998.
Net revenues increased 18.1% to $215.1 million for the three months ended June
30, 1999 from $182.1 million for the corresponding 1998 period. Excluding the
impact of acquisitions and foreign exchange rate variances between both periods,
net revenues increased 16.3%. Net revenues from Covance's late-stage development
services grew 21.1%, or 19.6% excluding the impact of acquisitions and foreign
exchange rate variances between both periods, benefiting from the continuing
trend in outsourcing of clinical development activities. Net revenues from
Covance's more mature early development services grew 12.3%, or 9.8% excluding
the impact of acquisitions and foreign exchange rate variances between both
periods.
Cost of revenue increased 18.1% to $140.9 million for the three months
ended June 30, 1999 from $119.3 million for the corresponding 1998 period as a
result of the increase in net revenues. Cost of revenue, as a percentage of net
revenues, was 65.5% for both the three month periods ended June 30, 1999 and
1998.
Overall, selling, general and administrative expense increased 16.8% to
$34.4 million for the three months ended June 30, 1999 from $29.4 million for
the corresponding 1998 period. As a percentage of net revenues, selling, general
and administrative expense decreased 20 basis points to 16.0% for the three
months ended June 30, 1999 from 16.2% for the corresponding 1998 period.
Depreciation and amortization increased 28.2% to $11.6 million or 5.4% of
net revenues for the three months ended June 30, 1999 from $9.0 million or 5.0%
of net revenues for the corresponding 1998 period, due primarily to the goodwill
amortization associated with the November 1998 acquisitions and the contingent
purchase price payment made in March 1999.
Inclusive of a $5.2 million one-time merger-related charge incurred in
connection with the termination of the Proposed Merger, income from operations
decreased 5.5% to $23.0 million for the three months ended June 30, 1999 from
$24.3 million for the corresponding 1998 period. Excluding the impact of the
one-time merger-related charge, income from operations increased 16.1% to $28.2
million, or 13.1% of net revenues, from $24.3 million, or 13.3% of net revenues
for the corresponding 1998 period. The reduction in operating income as a
percentage of net revenues is primarily attributable to the increase in
depreciation and amortization. Excluding the impact of the one-time
merger-related charge, income from operations from Covance's late-stage and
early development segments totaled $16.9 million and $11.3 million,
respectively, at June 30, 1999 and $14.9 million and $9.4 million, respectively,
at June 30, 1998.
Other expense increased $0.7 million to $2.6 million for the three months
ended June 30, 1999 from $1.9 million for the corresponding 1998 period,
primarily due to an increase in interest expense.
Covance's effective tax rate for the three months ended June 30, 1999
decreased to 40.1% from 41.9% for the corresponding 1998 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.
Inclusive of the $3.1 million after tax impact of the one-time
merger-related charge, net income decreased 5.1% to $12.2 million for the three
months ended June 30, 1999 from $12.9 million for the corresponding 1998 period.
Excluding the after tax impact of the one-time merger-related charge, net income
increased 19.3% or $2.5 million to $15.4 million.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1998. Net
revenues increased 21.4% to $425.7 million for the six months ended June 30,
1999 from $350.6 million for the corresponding 1998 period. Excluding the impact
of acquisitions, net revenues increased 18.8%. Net revenues from Covance's
late-stage development services grew 25.4%, or 23.2% excluding the impact of
acquisitions, benefiting from the continuing trend in outsourcing of clinical
development activities. Net revenues from Covance's more mature early
development services grew 13.7%, or 10.1% excluding the impact of acquisitions.
Cost of revenue increased 21.7% to $282.3 million for the six months ended
June 30, 1999 from $232.1 million for the corresponding 1998 period, primarily
as a result of the increase in net revenues. Cost of revenue, as a percentage of
net revenues, was 66.3% and 66.2% for the six months ended June 30, 1999 and
1998, respectively.
Overall, selling, general and administrative expense increased 21.0% to
$68.2 million for the six months ended June 30, 1999 from $56.3 million for the
corresponding 1998 period. As a percentage of net revenues, selling, general and
administrative expense was 16.0% and 16.1% for the six months ended June 30,
1999 and 1998, respectively.
9
<PAGE>
Depreciation and amortization increased 29.7% to $22.8 million or 5.4% of
net revenues for the six months ended June 30, 1999 from $17.6 million or 5.0%
of net revenues for the corresponding 1998 period, due primarily to the goodwill
amortization associated with the November 1998 acquisitions and the contingent
purchase price payment made in March 1999.
Inclusive of a $5.2 million one-time merger-related charge incurred in
connection with the termination of the Proposed Merger, income from operations
increased 5.6% to $47.1 million for the six months ended June 30, 1999 from
$44.6 million for the corresponding 1998 period. Excluding the impact of the
one-time merger-related charge, income from operations increased 17.4% to $52.4
million, or 12.3% of net revenues, from $44.6 million or 12.7% of net revenues
for the corresponding 1998 period. The reduction in operating income as a
percentage of net revenues is primarily attributable to the increase in
depreciation and amortization. Excluding the impact of the one-time
merger-related charge, income from operations from Covance's late-stage and
early development segments totaled $33.1 million and $19.3 million,
respectively, at June 30, 1999 and $26.9 million and $17.7 million,
respectively, at June 30, 1998.
Other expense increased $0.8 million to $4.5 million for the six months
ended June 30, 1999 from $3.7 million for the corresponding 1998 period, due to
an increase in interest expense.
Covance's effective tax rate for the six months ended June 30, 1999
decreased to 40.5% from 42.1% for the corresponding 1998 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.
Inclusive of the $3.1 million after tax impact of the one-time
merger-related charge, net income increased 8.7% to $25.4 million for the six
months ended June 30, 1999 from $23.3 million for the corresponding 1998 period.
Excluding the after tax impact of the one-time merger-related charge, net income
increased 22% or $5.2 million to $28.5 million.
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 a combination of borrowing under its long-term
revolving credit facility, cash generated from operations and possible future
capital market financings 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 June 30, 1999, there was $190.0
million of outstanding borrowings and $11.3 million of outstanding letters of
credit, with a remaining availability of $48.7 million under Covance's long-term
revolving credit facility. Interest on all outstanding borrowings under
Covance's long-term revolving credit facility during the first six months of
1999 was computed based upon the London Interbank Offered Rate plus a margin and
approximated 5.3% per annum.
At June 30, 1999, Covance Biotechnology Services Inc. ("Covance
Biotechnology") had $3.0 million in short-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 June 30, 1999. 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 October 2000. 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 six months ended June 30, 1999, Covance's operations provided
net cash of $14.7 million, an increase of $15.6 million from the corresponding
1998 period. Cash flows from net earnings adjusted for non-cash activity
provided $52.3 million for the six months ended June 30, 1999, up $6.7 million
or 14.7% from the corresponding 1998 period. The change in net operating assets
used $37.6 million and $46.5 million in cash during the six months ended June
30, 1999 and 1998, respectively, primarily due to increases in accounts
receivable and unbilled services coupled with a reduction in unearned revenue in
both six month periods.
10
<PAGE>
Working capital was $125.2 million at June 30, 1999, an increase of $43.7
million from December 31, 1998. Aggregate accounts receivable and unbilled
services at June 30, 1999 of $211.8 million were up $31.1 million or 17.2% from
the December 31, 1998 level of $180.7 million. Covance's ratio of current assets
to current liabilities was 1.68 at June 30, 1999 and 1.42 at December 31, 1998.
Investing activities for the six months ended June 30, 1999 used $63.9
million compared to $23.5 million for the corresponding 1998 period. Capital
spending for the first half of 1999 totaled $48.3 million, primarily for
outfitting of new facilities, purchase of new equipment, upgrade of existing
equipment and computer equipment and software for newly hired employees,
compared to $23.5 million for the corresponding 1998 period. Investing
activities for the six months ended June 30, 1999 included cash payments of
contingent purchase price totaling approximately $16.1 million in connection
with two of Covance's 1996 acquisitions.
In July 1999, Covance financed the purchase of its newly constructed North
American packaging facility totaling approximately $20 million through
borrowings under its long-term revolving credit facility.
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 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. Some contracts provide that currency fluctuations from the
rates in effect at the time the contract is executed are the responsibility of
the customer. Other contracts 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.
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 at end of
period exchange rates; and equity accounts are translated at historical exchange
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.
11
<PAGE>
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 taxing
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 ISSUES
Information systems are an integral part of the services and products
Covance provides. Covance has formed a group, led by its Year 2000 Project
Director, working with a steering committee of executives from Covance, to
implement Covance's Year 2000 assessment and remediation plan. This plan
approached the Year 2000 problem from an internal, supplier and customer
perspective. Presently, there are approximately 70 full-time employee
equivalents who are dedicated to the Year 2000 project. This Year 2000 plan is
being executed under the guidance of Covance's senior management, including the
Chief Executive Officer and the Board of Directors. Specifically, the General
Manager and Group President of each applicable business location manage the Year
2000 plan at an operational level. In addition, other executives of Covance,
including the Chief Executive Officer, the Chief Financial Officer and/or
Controller and the General Counsel periodically review each business location
concerning the Year 2000 readiness of the location. The Board of Directors also
periodically reviews with Covance's management the progress under the Year 2000
plan.
STATE OF READINESS. The Year 2000 plan is intended to provide a
comprehensive and rigorous methodology for identifying and addressing the risks
of Year 2000 problems to Covance. Its goal is to minimize the number and
seriousness of any defects and related disruptions or problems stemming from
Year 2000 issues and to quickly repair any that do occur. Covance's Year 2000
plan has been divided into six phases: inventory, risk assessment, evaluation,
remediation, validation and implementation.
The inventory is intended to cover all of Covance's systems and processes
that involve the use of dates, whether or not the system is deemed Year 2000
compliant, including:
- computer related hardware;
- computer related software;
- internally developed systems;
- devices, equipment and scientific instrumentation;
- outsourced services;
- outsourced products; and
- client systems that Covance interacts with
We also assess systems interrelationships to minimize the adverse effects
non-compliant data or systems could have on remediated systems. During the risk
assessment we determine the potential impact to Covance's operations because of
Year 2000 non-compliance. Specifically, the most business critical systems are
prioritized and potential material liabilities identified. Evaluation involves
determining whether a system is Year 2000 compliant. The inventory, risk
assessment and evaluation phases of the Year 2000 plan commenced in October 1997
and were substantially completed for internal systems in May 1998.
In conjunction with the inventory, risk assessment and evaluations phases,
Covance has undertaken a company-wide and operation specific Year 2000 awareness
campaign for purposes of employee awareness and involvement. Covance believes
that employee awareness will maximize the completeness of its Year 2000
inventory and enhance the effectiveness of the Year 2000 plan generally.
12
<PAGE>
Also as part of the inventory, assessment and evaluation phases, Covance is
conducting an assessment of material third-party relationships for Year 2000
compliance. These third parties include investigational sites, utility
companies, telecommunications companies, business specific product suppliers,
such as software, animal feed and reagent suppliers or providers, transportation
companies, and payroll and benefit services companies. Important vendors,
suppliers and service providers are being requested to supply Covance with
certification that their systems are Year 2000 compliant, or to tell us that
they are not. Generally, where certification cannot be obtained, or even when
certification is obtained but the risk of disruption to Covance's business is
considered so potentially severe, Covance is investigating alternative sources
and considering stockpiling supplies to guard against potential shortages.
However, we cannot assure you that Covance's suppliers, vendors and service
providers will attain Year 2000 compliance or that suitable alternative
suppliers, vendors and service providers can be engaged. It is possible that
delays, increased costs or supplier, vendor or service provider failures could
have a material adverse impact on Covance's business, financial condition,
results of operations and cash flows, by, for example, negatively effecting
Covance's ability to meet its contractual or regulatory obligations or service
its customers.
While Covance is taking steps to raise awareness of the Year 2000 issue
among its customers, Covance does not believe it is appropriate to require
clients to certify their Year 2000 readiness and compliance. For the fiscal year
ended December 31, 1998, Covance had no single customer which accounted for
greater than 10% of its net revenues and only one customer which accounted for
more than 5% of its net revenues. However, if a significant customer or group of
customers were adversely effected by Year 2000 related problems, Covance's
business and revenue could be reduced and a material adverse effect on our
business, financial condition, results of operations and cash flows could
result.
Remediation is defined as the phase of the Year 2000 plan where systems are
fixed to maximize Year 2000 compliance so that they are able to properly
calculate dates without interfering with the proper operation of other
components of the system. Remediation includes the repair, replacement or
removal of non-compliant systems. Covance is presently in the process of
remediating its systems and will continue to do so, as necessary, for the
duration of the Year 2000 plan.
In the validation phase of the Year 2000 plan, remediated systems are
required to be tested and the testing to be documented. In addition, systems
deemed compliant in the evaluation phase are required to be documented as are
vendor and supplier systems. The validation phase has been substantially
completed for internal business critical systems, and is scheduled to be
completed for all other business critical systems by August 31, 1999.
The final phase of the Year 2000 plan is the implementation phase where
remediated systems, which have undergone and completed validation, are put into
operational use and observed for interaction with other aspects and components
of systems that may or may not be related to the Year 2000 issue to ensure that
they function as intended. This phase is scheduled to be 95% completed for
internal business critical systems by August 1999 and completed for business
critical systems by December 1999.
COSTS OF YEAR 2000 PROJECT. Beginning in early 1998, Covance began to incur
costs and make expenditures related to the Year 2000 project. Covance expects to
continue to incur costs and make expenditures relating to the Year 2000 project
through the end of the year 2000. These costs and expenditures can be broadly
classified into two categories:
(1) amounts that will be expensed as incurred. These amounts consist of
internal payroll relating to employees newly hired or redeployed to
work on the Year 2000 project, external consultants and the net book
value of non-Year 2000 compliant equipment to be replaced; and
(2) amounts that will be capitalized and depreciated over the useful lives
of the associated assets. These amounts consist of the purchase price
of new hardware, software and other equipment acquired to replace
existing hardware, software and other equipment that is not Year 2000
compliant.
Covance currently estimates that the costs of internal payroll, external
consultants and the net book value of equipment to be replaced, amounts that
have and will be expensed as incurred, will total between $8.1 million and $9.1
million over the three year period ending December 31, 2000. Of these amounts, a
total of $1.7 million and $3.3 million has been incurred and expensed during the
three and six month periods ended June 30, 1999, respectively, while a total of
$2.3 million was incurred and expensed during the year ended December 31, 1998.
13
<PAGE>
Covance currently estimates that the cost of new hardware, software and
other equipment to be acquired in replacement of existing non-Year 2000
compliant hardware, software and other equipment, will total between $7.5
million and $8.6 million. These amounts will be capitalized and depreciated over
the useful lives of the related assets and will primarily be incurred over the
two year period ending December 31, 1999. Of these amounts, capitalizable
expenditures totaling $1.2 million and $3.1 million have been made during the
three and six month period ended June 30, 1999, respectively, while a total of
$1.6 million in expenditures were made during the year ended December 31, 1998.
The primary source of funds for all costs to be incurred and expenditures
to be made is expected to be provided by Covance's operating cash flows.
RISKS OF YEAR 2000 PROBLEMS. Worst-case scenarios resulting from Year 2000
problems deemed by Covance to be most reasonably likely include the following:
- loss of power and other utility services which could result in
disruption to existing and future studies generally;
- harm to specimens and test samples used in studies and an adverse
impact on the health and well being of the animals;
- inability to obtain timely and sufficient supplies of reagents, lab
ware or animal feed, which could result in the inability to perform
existing and future laboratory and central laboratory studies and an
adverse impact on the health and well being of the animals;
- computer hardware, software and embedded technology failure which could
disrupt Covance's equipment, systems and networks resulting in an
inability to perform existing and future studies and/or an adverse
impact on the health and well being of patients;
- the loss of voice and data telecommunications capabilities, which could
result in an inability for Covance to internally communicate or to
communicate with, among others, its clients and investigational sites;
and
- the inability of Covance's third party investigational sites to become
Year 2000 compliant, which could result in the loss to Covance of their
services.
Any one or more of these or other events could result in business slowdowns
or suspensions, subject Covance to liability for breach of contract or personal
injury and have a material adverse effect on our business, financial condition,
results of operations and cash flows could result.
Deferrals of scheduled information technology projects as a result of the
need to remediate Year 2000 problems are not presently expected to have a
material adverse effect on Covance's business, financial condition, results of
operations and cash flows. However, in the event the implementation of the Year
2000 plan requires greater expenditures or more qualified employees than
presently estimated or qualified information technology workers become more
difficult or expensive to attract and retain, certain significant projects may
be subject to deferral. If such deferrals occur, they may have a material
adverse effect on Covance's business, financial condition, results of operations
and cash flows.
CONTINGENCY YEAR 2000 PLANS. Covance has developed and is continuing to
develop contingency plans for handling these critical areas in the event
remediation is unsuccessful. Contingency plans include:
- the utilization of back-up generators for power supply;
- identifying alternative suppliers for reagents, animal feed and other
supplies as well as stockpiling significant quantities of such supplies
in advance of the year 2000;
- porting from one long distance carrier to another and utilizing cell
phones and call access cards when available; and
- manning interactive voice response system phones with staff and
manually randomizing systems on paper to ensure the continued validity
of studies.
Contingency plans not yet developed will be developed on a case by case
basis and are scheduled to be in place by September 1999. However, contingency
plans themselves are subject to variables and uncertainties. Therefore, we
cannot assure you that Covance will correctly anticipate the level, impact or
duration of non-compliance of computer hardware, software, systems or suppliers.
We also cannot assure you that we will correctly anticipate the vendors or
service providers which may supply inaccurate information to Covance or
otherwise be unable to provide their service or product free of defect or
disruption arising from Year 2000 problems. We also cannot assure you that our
contingency plans will be adequate. Thus, there can be no assurance that the
Year 2000 problem, even after giving effect to the implementation of applicable
contingency plans, will not happen and this occurrence could have a material
adverse impact on Covance's business, financial condition, results of operations
and cash flows.
14
<PAGE>
FORWARD LOOKING STATEMENTS. STATEMENTS IN THIS MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, AS WELL AS IN CERTAIN
OTHER PARTS OF THIS QUARTERLY REPORT ON FORM 10-Q CONTAIN STATEMENTS THAT LOOK
FORWARD IN TIME. THESE STATEMENTS ARE FORWARD LOOKING STATEMENTS MADE UNDER THE
SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
FORWARD LOOKING STATEMENTS INCLUDE STATEMENTS CONCERNING PLANS, OBJECTIVES,
GOALS, STRATEGIES, FUTURE EVENTS OR PERFORMANCE, EXPECTATIONS, PREDICTIONS, AND
ASSUMPTIONS AND OTHER STATEMENTS WHICH ARE NOT STATEMENTS OF HISTORICAL FACTS.
ALL OUR FORWARD LOOKING STATEMENTS ARE BASED ON OUR CURRENT EXPECTATIONS AND MAY
BE EFFECTED BY RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY THOSE STATEMENTS. THESE RISKS AND
UNCERTAINTIES INCLUDE:
- COVANCE'S ABILITY TO IDENTIFY AND CORRECT ALL RELEVANT COMPUTER CODES
AND EMBEDDED CHIPS;
- COVANCE'S ABILITY TO ATTRACT AND RETAIN QUALIFIED INFORMATION
TECHNOLOGY PERSONNEL TO ADDRESS AND REMEDIATE YEAR 2000 PROBLEMS;
- THE AVAILABILITY OR AFFORDABILITY OF ALTERNATIVE SOURCES FOR CRITICAL
SUPPLIES AND SERVICES; o THE EFFECT OF THE YEAR 2000 PROBLEM ON
COVANCE'S SUPPLIERS, CUSTOMERS AND OTHER THIRD PARTIES; o COVANCE'S
ABILITY TO ESTIMATE COSTS OF YEAR 2000 REMEDIATION AND PREDICT PROBLEMS
AND COSTS THAT MIGHT ARISE WITH RESPECT TO YEAR 2000 ISSUES; AND
- COVANCE'S ABILITY TO ADDRESS OTHER YEAR 2000 ISSUES, AND RISKS AND
UNCERTAINTIES SET FORTH IN COVANCE'S FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION INCLUDING WITHOUT LIMITATION ITS ANNUAL REPORT ON
FORM 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
See Management's Discussion and Analysis of Financial Condition and Results of
Operations
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of Covance was held on April 27,
1999, pursuant to notice.
The following table sets forth the number of votes cast for, against or
withheld, as well as the number of abstentions and broker non-votes, as to each
matter voted on at the meeting:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
PROPOSAL VOTES FOR VOTES WITHHELD
------- --------- --------------
<S>
To elect three members to the Covance Class
II Board of Directors:
<C> <C>
J. Randall MacDonald 49,847,939 212,646
Kathleen G. Murray 49,856,674 203,911
William C. Ughetta 49,850,684 209,901
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF NUMBER OF BROKER
PROPOSAL VOTES FOR VOTES AGAINST ABSTENTIONS NON-VOTES
------- --------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
To approve the 1998 Non-Employee
Directors' Stock Option Plan and the
Deferred Stock Unit Plan for
Non-Employee Members of the Board of
Directors. 39,781,477 4,795,803 492,267 4,991,038
To approve an amendment to the
Employee Equity Participation Plan
increasing the number of shares of
Common Stock of Covance issuable pursuant
to the Employee Equity Participation
Plan from 6,000,000 to
12,000,000 and increasing the term of
the plan by a period of four years. 28,275,575 16,072,165 783,381 4,929,464
To ratify the appointment of
PricewaterhouseCoopers as independent
auditors of Covance for the fiscal year
ending December 31, 1999. 49,889,641 59,109 111,835
</TABLE>
16
<PAGE>
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
During the three month period ended June 30, 1999, two reports on Form
8-K were filed. The first, dated May 4, 1999, was filed reporting Covance's
announcement on April 29, 1999 of an Agreement and Plan of Merger between
Covance and Parexel International Corporation. The second, dated June 25, 1999,
was filed reporting Covance's announcement on June 25, 1999 of the termination
of the proposed merger with Parexel International Corporation.
17
<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: July 30, 1999 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>
<S> <C> <C>
SIGNATURE TITLE DATE
/s/ CHRISTOPHER A. KUEBLER
- ----------------------------
Christopher A. Kuebler Chairman of the Board, President July 30, 1999
and Chief Executive Officer
(Principal Executive Officer)
/S/ CHARLES C. HARWOOD, JR.
- -----------------------------
Charles C. Harwood, Jr. Corporate Senior Vice President July 30, 1999
and Chief Financial Officer
(Principal Financial Officer)
/S/ MICHAEL GIANNETTO
- -----------------------------
Michael Giannetto Corporate Vice President July 30, 1999
and Controller
(Principal Accounting Officer)
</TABLE>
18
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- ------------
27 Financial Data Schedule (for SEC use only)
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Covance
consolidated financial statements for the six months ended June 30, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001023131
<NAME> COVANCE INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 25,081,000
<SECURITIES> 0
<RECEIVABLES> 211,791,000
<ALLOWANCES> 0
<INVENTORY> 25,050,000
<CURRENT-ASSETS> 309,363,000
<PP&E> 277,998,000
<DEPRECIATION> 20,594,000
<TOTAL-ASSETS> 665,925,000
<CURRENT-LIABILITIES> 184,119,000
<BONDS> 0
0
0
<COMMON> 588,000
<OTHER-SE> 254,462,000
<TOTAL-LIABILITY-AND-EQUITY> 665,925,000
<SALES> 0
<TOTAL-REVENUES> 215,060,000
<CGS> 140,906,000
<TOTAL-COSTS> 192,105,000
<OTHER-EXPENSES> 161,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,419,000
<INCOME-PRETAX> 20,375,000
<INCOME-TAX> 8,168,000
<INCOME-CONTINUING> 12,207,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,207,000
<EPS-BASIC> 0.21
<EPS-DILUTED> 0.21
</TABLE>
