COVANCE INC

Also included in assets held for sale is a parcel of land located in Vienna, Virginia, which was previously the site of a toxicology facility, in Covance’s early development segment, that was closed in the fourth quarter of 2011. The property has a carrying value of approximately $30.4 million at September 30, 2014 and the Company is currently in negotiations for the sale of the property.

On November 2, 2014, Covance entered into an Agreement and Plan of Merger (the “Agreement”) with Laboratory Corporation of America Holdings (“LabCorp”). Under the Agreement, LabCorp will acquire 100% of the outstanding shares of Covance common stock. Shareholders of Covance will, for each share of common stock, receive $75.76 in cash and 0.2686 shares of LabCorp common stock. The transaction is subject to the approval of Covance shareholders, as well as other customary closing conditions, and is expected to close in the first quarter of 2015 upon satisfaction of those closing conditions.

Income from operations increased 22.2% to $76.5 million or 12.2% of net revenues for the three months ended September 30, 2014 from $62.6 million or 10.3% of net revenues for the corresponding 2013 period.  The increase was primarily driven by revenue growth, lower overall spending levels in the current year period due in part to savings from the Company’s cost reduction initiatives, as described above, and lower incentive compensation accruals, partially offset by higher R&D tax credits in the 2013 period.  In addition, income from operations for the three months ended September 30, 2014 and 2013 includes $3.2 million (or 0.5% of net revenues) and $4.9 million (or 0.8% of net revenues), respectively, in charges associated with the restructuring initiatives and other cost reduction actions described above.

During the nine months ended September 30, 2014, Covance’s operations provided net cash of $132.6 million, compared to providing $212.8 million in the corresponding 2013 period.  The change in net operating assets, net of businesses sold and acquired, used $148.5 million in cash during the nine months ended September 30, 2014, primarily due to a reduction in accrued liabilities (attributable primarily to incentive compensation payments made during the first quarter of 2014 relating to 2013 incentive compensation accruals and the remittance of VAT received from a client in 2013), a 5 day increase in days sales outstanding (accounts receivable, unbilled services and unearned revenue), and an increase in other assets and liabilities, net, partially offset by an increase in income taxes payable. The change in net operating assets used $22.8 million in cash during the nine months ended September 30, 2013, primarily due to a reduction in accrued liabilities and a net increase in other assets and liabilities, partially offset by an increase in income taxes payable.  Changes in days sales outstanding did not have a meaningful impact on operating cash flows during the 2013 period. Covance’s ratio of current assets to current liabilities was 2.79 at September 30, 2014 and 2.38 at December 31, 2013.

Investing activities for the nine months ended September 30, 2014 provided $25.6 million, compared to using $195.2 million for the corresponding 2013 period.  Investing activities for the first nine months of 2014 included the proceeds from the maturity of short-term investments consisting of bank term deposits totaling $109.8 million, as well as the receipt of proceeds totaling $28.3 million from the sale of both the Company’s antibody products service line and certain assets of its genomics laboratory, as described below. Capital spending for the first nine months of 2014 totaled $105.5 million, and was primarily for ongoing information technology projects, upgrade of existing equipment, and the purchase of new equipment, hardware and software. Approximately $45.4 million of capital spending in the first nine months of 2014 represents expenditures associated with assets that have not yet been placed in service at September 30, 2014.  As described below, also included in investing activities for the nine months ended September 30, 2014 is the acquisition of Medaxial totaling $10.5 million. Investing activities for the corresponding 2013 period included the purchase of short-term investments consisting of bank term deposits totaling $109.8 million. Capital spending for the 2013 period totaled $103.7 million, and was primarily for ongoing information technology projects, upgrade of existing equipment, and the purchase of new equipment, hardware and software.  Partially offsetting this spend was the receipt of proceeds of approximately $17.8 million in connection with the sale of investments, including $17.1 million upon the sale of our investment in BioClinica, Inc.