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TheStreet Open House

Covance Management Discusses Q2 2012 Results - Earnings Call Transcript

The second special item is a $9.7 million in costs associated with the restructuring action.

The third special item is the above-the-line asset impairment charges totaling $38.7 million; $17.9 million, which relates to the write-off of goodwill associated with our Basel clinic and $20.8 million, which relates to the write-off of excess preclinical inventory resulting from a reassessment of toxicology demand in light of current and expected future market conditions.

Finally, we have written off the remaining $7.4 million book value of our investment in a toxicology research product supply company.

My commentary, which follows will focus on our pro forma results, which exclude the impact of these items. You may find the GAAP to pro forma reconciliation is in the release we issued last night and the presentation we are reviewing today.

Now for the results. Pro forma net revenue to the second quarter were $538 million, an increase of 3.9% over the second quarter of last year. On a constant exchange rate basis, year-on-year growth was 6.1%. Sequentially, the stronger U.S. dollar resulted in a $4.5 million foreign exchange translation headwind. Pro forma operating income in the second quarter was $48.3 million, resulting in a pro forma operating margin of 9%. This is a 30 basis point sequential increase although down 130 basis points year-on-year. Pro forma diluted earnings per share was $0.65, up $0.05 from last quarter and down $0.01 year-on-year. The sequential increase in earnings per share was primarily driven by the full quarter benefit of our share repurchase program. The pro forma effective tax rate for the quarter was 21.5%. We expect a similar effective tax rate as we look ahead to the rest of 2012.

Please turn to Slide 5 of the presentation. In the second quarter, Early Development contributed 40% of net revenues and Late-Stage contributed 60%. 52% of our revenue came from the U.S., 14% from Switzerland, 12% from the U.K., 9% from countries in the eurozone and the remaining 13% from the rest of the world.

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