Covance (CVD) Q4 2010 Earnings Call January 27, 2011 9:00 am ET Executives Joseph Herring - Chairman and Chief Executive Officer William Klitgaard - Chief Financial Officer, Principal Accounting Officer, Corporate Senior Vice President and Treasurer Paul Surdez - VP of IR Analysts Derik De Bruin - UBS Investment Bank Ricky Goldwasser - Morgan Stanley Ross Muken - Deutsche Bank AG Alexander Draper - Raymond James & Associates Jeffrey Loo - S&P Equity Research Stephen Unger - Lazard Capital Markets LLC Douglas Tsao - Barclays Capital Tycho Peterson - JP Morgan Chase & Co Robert Jones - Goldman Sachs Group Inc. John Sullivan - Leerink Swann LLC James Kumpel - Madison Williams and Company LLC Eric Coldwell - Robert W. Baird & Co. Incorporated David Windley - Jefferies & Company, Inc. John Kreger - William Blair & Company L.L.C. Greg Bolan - Wells Fargo Securities, LLC Todd Van Fleet - First Analysis Securities Corporation Presentation Operator
Previous Statements by CVD
» Covance CEO Discusses Q3 2010 Results - Earnings Call Transcript
» Covance Inc. Q2 2010 Earnings Call Transcript
» Covance Inc. Q1 2010 Earnings Call Transcript
Certain financial measures we'll discuss on this call are non-GAAP measures, which excludes the effects of event outside of our normal operations. We believe that providing these measures help investors gain a more complete understanding of our results and is consistent with how management views our financial results.Now I will turn it over to Bill for a review of our financial performance, which begins on Page 4 of the slide show. William Klitgaard Thank you, Paul, and good morning, everyone. Before I get into the detailed results, let me talk about two special items which impacted the fourth quarter. The first is $18.4 million in costs incurred in the fourth quarter relating to the restructuring activities we announced in November. Our restructuring plans remain on track, and we expect to incur approximately $18 million remaining costs in 2011. During the fourth quarter, we also recorded income tax benefit of $7 million resulting primarily from the favorable resolution of certain tax items. In the remarks which follow, I will refer to results on both GAAP and pro forma basis. Pro forma results exclude the third quarter asset impairment charges, fourth quarter restructuring costs and favorable income tax resolutions during the year. For a reconciliation of GAAP to pro forma, please refer to supplemental schedules included in our press release issued last night. Now the results. Net revenue for the fourth quarter was $492 million, which is up $14 million sequentially, an increase of 1.3% over last year. Full year net revenues were $1.93 billion, which is up 3.1% from last year. Operating income on a GAAP basis in the fourth quarter was $28.9 million, and on a pro forma basis was $47.2 million or 9.6% of revenue. The GAAP figure includes $18.4 million from our fourth quarter restructuring actions, and the full year operating income on a GAAP basis was $47.5 million, and on a pro forma basis was $185.1 million or 9.6% of revenue. The GAAP figure includes $18.4 million in the fourth quarter restructuring costs and $119.2 million in third quarter asset impairment charges.
EPS on a GAAP basis for the fourth quarter was $0.45 per share and on pro a forma basis was $0.56. The GAAP figure includes $0.22 in costs from fourth quarter restructuring actions and a gain of $0.11 from the favorable conclusion of an income tax audit in the quarter. Earnings per share included $0.01 of tailwind from the accelerated share repurchase program we entered into in November, which was offset by $0.01 of headwind from foreign exchange. For the full year, EPS on a GAAP basis was $1.6 and on a pro forma basis was $2.15. The GAAP figure includes third quarter impairment of $1.15, $0.21 in costs associated with the fourth quarter restructuring and $0.27 from favorable income tax resolutions.As you might expect, given our financial performance, 2010 results include incentive compensation accruals well below target levels. As we enter into 2011, bonus targets we set and accruals increased to a normal 1x level, which resulted in a year-on-year headwind of approximately $0.20. We continue to enjoy the benefit of a lower effective tax rate due to a higher proportion of our earnings coming from a foreign operations where tax rates are lower and from tax fine [ph] initiative we've implemented. The effective tax rate for the quarter was 23%, and we expect a similar tax rate be in effect as we look ahead in to 2011. Now please turn to Slide 5. In the fourth quarter, Early Development contributed 45% of net revenue, and Late-Stage, 55%. I want to make a note that in 2011, as a consequence of our restructuring, our pie chart will combine the Clinical Development and Commercialization services into one bucket, that's for future reporting. In the fourth quarter, 55% of our revenue came from the U.S., 14% from Switzerland, 11% in the U.K., 8% from countries within the Eurozone and the remaining 12% from the rest of the world.
Now please turn to Page 6 to discuss segment results. In Early Development, fourth quarter net revenues grew $14 million sequentially to $221 million, an 8.6% increase year-over-year. The increase was primarily driven by the inclusion of our new sites in Alnwick, England and Porcheville, France, as well as some modest improvement in the Toxicology Services in the fourth quarter. Full year net revenue increased 6.1%, $840 million.Read the rest of this transcript for free on seekingalpha.com