PRINCETON, N.J., Jan. 27 /PRNewswire-FirstCall/ -- Covance Inc. today reported earnings for its fourth quarter ended December 31, 2009 of $0.64 per diluted share. For the full-year, earnings per share were $2.73 on a GAAP basis, inclusive of $0.10 per share in gains related to sales of businesses and $0.03 from favorable income tax resolutions in the third quarter. Excluding the gains on sales and the tax item, full-year earnings per share were $2.60.
“On the commercial front, continued strong business awards in clinical development and central laboratory led to record adjusted net orders in the fourth quarter of $643 million, representing an adjusted book-to-bill ratio of 1.33 to 1. For the second consecutive quarter, Early Development recorded a quarterly adjusted book-to-bill greater than 1.0 to 1. On a trailing twelve month basis, our Late-Stage Development adjusted book-to-bill was approximately 1.45 to 1.
Operating income for the fourth quarter of 2009 declined 49.6% year-over-year to $23.1 million, compared to $45.8 million in the fourth quarter of last year. Operating margins for the fourth quarter of 2009 were 11.3% compared to 21.4% in the fourth quarter of 2008 and 11.4% last quarter. Improvement in toxicology margins from the third quarter were offset by a decline in clinical pharmacology profitability. Full year operating margins were 12.6% compared to 24.3% in the prior year. Early Development operating margins in 2010 are expected to be flat year-on-year.
The Late-Stage Development segment includes central laboratory, Phase II-III clinical development, and commercialization services (periapproval and market access services). Late-Stage Development net revenues for the fourth quarter of 2009 grew 25.6% to $281.9 million compared to $224.4 million in the fourth quarter of 2008 and $278.9 million last quarter. The year-on-year growth was led by the continued exceptional performances of central laboratory and clinical development. Foreign exchange positively impacted year-on-year revenue growth in the quarter by 630 basis points. For the full year 2009, net revenues grew 21.8% to $1,075.8 million compared to $883.3 million in 2008. Late-Stage Development revenues are expected to grow in the mid-teens range in 2010.
Corporate Information
Corporate expenses totaled $32.0 million in the fourth quarter of 2009 compared to $33.5 million last quarter and $26.3 million in the fourth quarter of last year. For the full year, corporate expenses totaled $125.6 million (or 6.7% of net revenues) compared to $111.9 million (or 6.5% of net revenues) in 2008. We continue to make investments that will improve our ability to provide strategic partnering and integrated services as well as investments in infrastructure to enhance our ability to manage future growth. In 2010, corporate expenses are expected to be approximately 7% of revenue.
Free cash flow (defined as operating cash flow less capital expenditures) for the fourth quarter of 2009 was $52 million, consisting of operating cash flow of $85 million less capital expenditures of $33 million. Free cash flow in 2009 was $128 million, consisting of operating cash flow of $259 million less capital expenditures of $131 million. In 2010, we expect free cash flow to be approximately $120 million, consisting of operating cash flow of approximately $300 million less capital expenditures of approximately $180 million. The free cash flow target for 2010 assumes net Days Sales Outstanding (DSO) remains at 40 days.
We continue to experience a lower effective tax rate due to a shift in the geographic mix of earnings and from tax planning initiatives. The effective tax rate was 25.3% in the fourth quarter and 27.0% for the full-year (excluding the impact of favorable income tax resolutions in the third quarter and the gain on sales in 2009). Our 2010 EPS target assumes an effective tax rate of approximately 26.5%.
Covance, with headquarters in Princeton, New Jersey, is one of the world’s largest and most comprehensive drug development services companies with annual revenues greater than $1.8 billion, global operations in more than 25 countries, and more than 10,000 employees worldwide. Information on Covance’s products and services, recent press releases, and SEC filings can be obtained through its website at www.covance.com.
Statements contained in this press release, which are not historical facts, such as statements about prospective earnings, savings, revenue, operations, revenue and earnings growth and other financial results are forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements including the statements contained herein regarding anticipated trends in the Company’s business are based largely on management’s expectations and are subject to and qualified by risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include, without limitation, competitive factors, outsourcing trends in the pharmaceutical industry, levels of industry research and development spending, the Company’s ability to continue to attract and retain qualified personnel, the fixed price nature of contracts or the loss of large contracts, risks associated with acquisitions and investments, the Company’s ability to increase order volume, the pace of translation of orders into revenue in late-stage development services, fluctuations in currency exchange rates, and other factors described in the Company’s filings with the Securities and Exchange Commission including its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The Company undertakes no duty to update any forward looking statement to conform the statement to actual results or changes in the Company’s expectations.
Covance Inc.
