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Covance (NYSE:CVD)
Q4 2011 Earnings Call
January 26, 2012 9:00 am ET
Joseph L. Herring - Chairman and Chief Executive Officer
William E. Klitgaard - Chief Financial Officer, Corporate Senior Vice President and Treasurer
Paul Surdez -
Todd Van Fleet - First Analysis Securities Corporation, Research Division
Ross Muken - Deutsche Bank AG, Research Division
Garen Sarafian - Citigroup Inc, Research Division
Gregory T. Bolan - Sterne Agee & Leach Inc., Research Division
Lauren Migliore - Morningstar Inc., Research Division
Stephen S. Unger - Lazard Capital Markets LLC, Research Division
David H. Windley - Jefferies & Company, Inc., Research Division
John Kreger - William Blair & Company L.L.C., Research Division
James J. Kumpel - BB&T Capital Markets, Research Division
Ricky Goldwasser - Morgan Stanley, Research Division
Tycho W. Peterson - JP Morgan Chase & Co, Research Division
Robert P. Jones - Goldman Sachs Group Inc., Research Division
Douglas D. Tsao - Barclays Capital, Research Division
Timothy C. Evans - Wells Fargo Securities, LLC, Research Division
Good day, and welcome to the Covance Fourth Quarter 2011 Investor Conference Call. This call is being recorded. At this time, for opening remarks, I'd like to turn the call over to Vice President of Investor Relations, Mr. Paul Surdez. Please go ahead, sir.
Paul Surdez
Good morning and thank you for joining us for Covance's Fourth Quarter 2011 Earnings Teleconference and Webcast. Today, Joe Herring, Covance's Chairman and Chief Executive Officer; and Bill Klitgaard, Covance's Chief Financial Officer, will be presenting our fourth quarter financial results. Following our opening comments, we'll host the Q&A session.
In addition to the press release, 24 slides corresponding to the commentary you are about to hear are available on our website at www.covance.com.
Before we begin the commentary, I'd like to remind you that statements made during today's conference call and webcast, which are not historical facts, might be considered forward-looking statements. Such statements may include comments regarding future financial results and are subject to a number of risks and uncertainties, certain of which are beyond Covance's control. Actual results could differ materially from such statements due to a variety of facts, including the ones outlined in our SEC filings.
Certain financial measures we will discuss on this call are non-GAAP measures, which exclude the effects of events we consider to be outside of our normal operations, such as costs associated with restructuring or special charges, as well as the impact of the resolution of certain income tax matters. We believe that providing these measures helps investors gain a more complete understanding of our results and is consistent with how management views our financial results. For a reconciliation of GAAP to pro forma results, please refer to the supplemental schedules included in our press release issued last night.
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 E. Klitgaard
Thank you, Paul, and good morning, everyone. Before I get into the detailed results, let me talk about 3 special items which impacted the fourth quarter. Included in the fourth quarter results is approximately $31 million or $0.41 per share in diluted -- in charges that hit the EPS. Approximately $8.7 million or $0.10 per share relates to the completion of the previously announced restructuring action where we've been incurring costs all year. The remaining $22.4 million or $0.31 per share has 2 components. The first relates to the termination of the inventory supply agreement and related rationalization of research product inventory levels, which resulted in a charge of $10.3 million or $0.11 per share.
The second component is a charge of $12.1 million or $0.20 per share which recognized an impairment in the carrying value of an equity investment in a supplier of Research Products. Finally, in the quarter, we recognized a gain of approximately $0.03 per share from favorable income tax developments.
My commentary which follows will focus on the results excluding the impact of these items. Now to the results. Net revenue for the fourth quarter was $532 million, an increase of 8.3% over the fourth quarter of last year, or 7.3% on a constant currency basis. Sequentially, a strong U.S. dollar led to a $12.4 million headwind in FX, which is the primary driver of the $10.8 million sequential decline in net revenue.
For the full year, net revenue was $2.1 billion, which is up 8.8% year-on-year or 5.4% on a constant currency basis. Operating income on a GAAP basis in the fourth quarter was $39 million and on a pro-forma basis was $57.9 million.
Pro-forma operating margin this quarter was 10.9%, which was up 50 basis points sequentially and 130 basis points year-on-year. On a full-year basis, operating income was $180.6 million and on a GAAP basis was $215.3 million on a pro forma basis.
Fourth quarter EPS on a GAAP basis was $0.35 per share and on a pro-forma basis, was $0.73 per share. Full-year GAAP was $2.16 and pro-forma was $2.70. The pro-forma effective tax rate for the quarter was 22.4%, consistent with last quarter. And we currently expect our full-year 2012 tax rate to be approximately in this range excluding the impact of any one-time items or settlements or resolutions for the various tax authorities in the jurisdictions in which we operate.
Now please turn to Slide 5. In the fourth quarter, Early Development contributed 44% of net revenue, and Late Stage, 56%. In the fourth quarter, 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.
Now please turn to Slide 6 to discuss segment results. In Early Development, in the fourth quarter, net revenues were $234 million or 6.3% increase year-on-year, net of a minor 10 basis points headwind from foreign exchange. While we experienced year-over-year growth in most service areas, the leading drivers of the increase were robust growth in our Clinical Pharmacology services and the inclusion of our full quarter results from our Alnwick, U.K., Portugal -- Alnwick, U.K, and Portugal, France sites in the quarter compared to only 2 months of operations in 2010.
Sequentially, revenues declined $5.7 million, with FX accounting for 40% of the decline. Strong sequential growth in Discovery Support Services was more than offset by a sharp decline in Research Product revenues, and to a lesser extent, a decline in our legacy European Toxicology services. North American Toxicology services were flat sequentially.
Fourth quarter GAAP operating income was $17.7 million, while pro-forma operating income was $32.6 million, or 13.9% of net revenue. This compares with 14.6% last quarter.
In our third quarter earnings call, we said that we expected operating margins in Early Development to expand in the fourth quarter. However, the sharp decline in revenue for Research Products drove an unexpected operating loss on both the GAAP and pro-forma basis in the quarter, and that was the primary factor causing the miss to the expectations this quarter.
Now turning to Late-Stage Development. Net revenues in the fourth quarter were $298 million which is up 10% from the fourth quarter of last year, or 8.1% excluding foreign exchange. Year-on-year growth was led by the continued very strong performance of our Clinical Development services and solid growth in our market access services, which offset a decline in Central Lab revenue.
Sequentially, a $10 million FX headwind more than offset constant currency growth in each of our segment offerings. Late-Stage Development operating income on a GAAP basis was $58.2 million, and our pro-forma basis was $59.5 million or 20% of revenue. This compares to 19.3% last quarter and 20.2% in the prior year. The sequential increase in profitability was primarily due to an increase in margins in Central Labs, driven by a shift in the mix of testing, as well as that geographic location and investigators sites returning kits.
Please turn to Slide 7 to recap the order and backlog numbers. Adjusted net orders in the fourth quarter were a record $759 million, which represents an adjusted net book-to-bill of 1.42 to 1. Full year adjusted net orders were also a record at $2.53 billion, up 14% year-over-year. Backlog at December 31, stood at $6.14 billion, roughly flat year-on-year. Sequentially, the significant strengthening of the U.S. dollar in the fourth quarter decreased the value of our backlog by approximately $75 million.
Please turn to Slide 8 for a review of cash flow information. We ended the quarter with DSO at 38 days, up 7 days from the record low at the end of 2010, but at the same level at the end of the third quarter. Cash and equivalents were $389 million at the end of the year. In reported dollars, our cash balances declined to $11 million from the end of last quarter, and the decline includes the impact of the strengthening of the U.S. dollar during the quarter, which negatively impacted cash balances by $5 million.
During the quarter, we repaid $60 million of our debt and ended the year with only $30 million of debt outstanding. As we announced last night, our Board of Directors approved a $300 million share buyback in addition to the 800,000 shares remaining under previously authorized programs. Free cash flow for the quarter was $54 million consisting of operating cash flow of $102 million and capital expenditures of $48 million.
On a full-year basis, free cash flow was $109 million, consisting of operating cash flow of $243 million and capital spending of $135 million. CapEx was approximately 6.4% of revenue in 2011. As illustrated in Slide 9, we expect CapEx to increase to approximately $180 million or 8% of revenue in 2012.
Corporate expenses on a GAAP basis were $37 million in the quarter and on a pro-forma basis, were $34.2 million or 6.4% of revenue. Finally, we ended the quarter with 11,292 employees, an increase of 157 employees from the end of the third quarter.
Now I'll turn the call over to Joe for his comments.
Joseph L. Herring
Thank you, Bill, and good morning, everyone. We have a lot to cover today, so I'm going to start with a quick summary of our 2011 performance. For the full year, Covance delivered 8.8% revenue growth, 70 basis points of margin expansion and 26% EPS growth. We also performed well in the new business development front, as adjusted net orders grew 13% this year to $2.5 billion, producing an adjusted net book-to-bill of 1.21 for the full year.
I'd like to take a second to thank Covance employees around the world who delivered these strong results in 2011, as well as our clients who continue to trust Covance with their critical drug development projects.
Turning specifically to the fourth quarter, pro-forma earnings per share increased sequentially for the 6th consecutive quarter, despite a significant sequential FX headwind. We posted record adjusted net orders of $759 million and an adjusted book-to-bill for the quarter of 1.42:1, thanks to a strong sales performance by our clinical and our central laboratory teams. In addition, we also expanded our strategic alliance with Sanofi to include certain subsidiaries, such as Genzyme into the agreement. This gives Sanofi a broader pipeline to meet and exceed their minimum commitments with Covance, and it broadens Covance's relationship with Sanofi, including sole source Central Lab agreement for each of these new subsidiaries. We expect Sanofi to be a greater contributor to our revenue base in 2012, and the expansion of this agreement, combined with the planned ramp CMV revenues should lead to even greater growth of our alliance in 2013.
In our Early Development segment, fourth quarter revenues grew by 6% year-on-year, with growth in each major service offering, except Research Products and our Legacy Toxicology services, where in response to lower demand, we reduced European Toxicology headcount by 5% in the fourth quarter.
While we made very good progress on Early Development margin expansion throughout 2011, operating margins did not increase sequentially in the fourth quarter as we had previously forecasted. This was due to a significant drop in Research Product demand resulting in an operating loss for that division during the fourth quarter. The persistent toxicology market softness led us to assess our research product inventory levels and terminate a supply agreement, which was struck during a time of much more robust market demand, as well as take the fourth quarter charges that Bill just mentioned.
Global Toxicology which was weak in the fourth quarter is off to a slow start in January as well. January is customarily a soft order month, as clients' budgets are generally not yet finalized. So based on the softening market conditions in the fourth quarter, we are entering 2012 with a more cautious outlook for the segment than we had just 90 days ago, and we're evaluating additional cost and capacity actions should this market softness continue.
In Clinical Pharmacology, revenue and profit was up sharply year-on-year, but was down modestly sequentially. And in Discovery Support services, our revenue and operating income continue to grow strongly, both year-on-year and on a sequential basis.
Let's turn our attention to Late-Stage Development. Fourth quarter revenue grew 10% year-on-year. Although declining sequentially in reported dollars, revenue advanced on a constant currency basis. While we have forecasted decline in operating margin for the fourth quarter in Late-Stage, margins actually increased to 20%, driven primarily by higher than expected Central Lab volume and an increase in Clinical Development profitability. The margin expansion in Clinical continues despite the increased hiring and staff costs to support its robust revenue growth.
In Central Lab, we were pleased with our results in the fourth quarter. Revenues grew sequentially on a constant currency basis, and margins and orders increased for the second consecutive quarter. However, we are still hesitant to call a change in the trajectory of our Central Lab, as elevated levels of cancellations did continue in the fourth quarter. Even though Central Lab business performance has improved for 2 consecutive quarters, until cancellation levels abate a bit, we are continuing to forecast relatively flat results.
As you think about our 2012 margins in Central Labs, remember that the implementation of our Central Lab backbone IT system will add approximately $10 million or $0.13 a share in incremental cost, with more than half of that from depreciation and support, and the rest associated with running duplicate systems and the duplicate staffing that's required for training and implementation during 2012.
Turning now to Phase II-IV services. Our Clinical Development team delivered another very strong performance, with fourth quarter revenue growth in excess of 25%, and full year revenue growth of 20%. To support this growth, we added nearly 200 net new staff in the fourth quarter and expect to continue this hiring pace in 2012.
Across Clinical Development, our high level of client satisfaction, strong project management, service quality and repeat business continues to be exceptional. Clinical Development is an area of priority investment for Covance, as we look to extend the market share gains we've enjoyed over the last 5 years, as well as to further capitalize on expansion opportunities with several large clients who are directing more of their studies to Covance.
I'd now like to lay the foundation for the investments we announced last night. As we plan for the future, we have considered how to deploy our cash flows in ways that create the most value. As a part of that plan, we announced the $300 million share repurchase program and in addition, a series of investments in our IT architecture and go-to-market commercial activities.
Please turn to Slide 10, which shows a graph of public CRO revenue growth since 2007. I believe this graph demonstrates that our core strategies are working. The sustained revenue outperformance, as well as the results of the 3 independent market research surveys we shared last quarter suggest that clients value Covance services preferentially. So we continue to have a positive outlook on our future growth prospects. And if you look at what we do on the most fundamental level, Covance generates more drug development safety and efficacy data that is highly-regulated on validated systems than any other organization in the world.
Data is at the epicenter of our business, and we see increasing opportunities to enhance the systems we use to capture, manage and deliver critical drug development data to our clients. We are also adding capabilities that will allow us to further mine that data and apply unique analytics that expand our value proposition to clients.
In addition, over the past few years, new and better technology solutions have become available for us, which provide opportunities for value creating investments in our business model. We firmly believe that now is the right time to take these important steps. From the client's perspective, this investment strategy will make their Covance-generated drug development data even easier to access, combine and use in their drug development decision-making.
Before getting into the specifics, let's take a quick look at the IT investments that we've been making over the past 5 years. Over that timeframe, we've completed an enterprise-wide finance and HR system, a global pathology toxicology operating system, an enterprise service bus for integrating information, and added new reporting tools including a variety of clinical productivity and forecasting tools, which clients especially value.
Turning to Slide 11. You'll see that our historical IT operating expenses have been growing at an 11% rate, faster than our 5-year average revenue growth rate of approximately 9%. Once completed, the investments we are outlining today are expected to flip this trend resulting in IT growing slower than revenues, as well as improving the efficiency and margin expansion potential of our business model.
To implement our strategy, we're accelerating IT investments in 2012 and in 2013. These investments are expected to cause IT spending to grow faster than revenue growth by a little over $20 million in each of the next 2 years. However, beginning in 2014, these investments are expected to produce a marked drop in our IT expense growth rate, which we expect will deliver faster earnings growth. We expect a relatively fast payback on these investments once these projects go live. I'll now provide more specifics on the investments which are illustrated on Slide 12.
In addition to the full implementation of our Central Laboratory system, we are funding 3 additional strategic IT projects. In total, these 4 projects will increase our IT capital expenditures to approximately $90 million in 2012 versus $60 million in 2011, and will lead to a considerable increase in IT operating expenses over the next 2 years.
The first project relates to clinical tools. Developing new and enhanced tools to support and drive our Phase I-IV clinical businesses. Clinical Development is the largest market we serve and is increasingly converting to an outsourced model. Accessing this market is critical to our long-term growth. Our investments in clinical IT over the last several years produced new tools, like Accelerate, which we believe is a key reason for our increase in client satisfaction ratings, as well as the high marks we receive on industry surveys. The investments we are calling out today include a new clinical trial management system and a new electronic trial master file. These investments will facilitate further streamlining and standardization of our clinical processes. We will accomplish this by leveraging commercial, off-the-shelf technology, which is now readily available and more affordable than in the past. These clinical tools are intended to help our staff work in a faster and more productive fashion, and help us further differentiate Covance in the marketplace. We expect the first release of these clinical tools to be delivered in the third quarter of 2012.
The second area of investment is the substantial consolidation of our data centers and the enhancement of our network environment. We currently have 36 data centers spread across multiple countries and multiple locations. We are planning to consolidate down to 3 by leveraging infrastructure virtualization and cloud computing. This investment will significantly reduce our ready-to-serve IT cost, as well as enhance our data center redundancy and resiliency.
We have considered the consolidation of our data centers for several years, but the enabling technology to support this complex move was not fully available or it was cost prohibitive. The maturation of IT services and providers now better position us to capture the savings from this investment and move data much more quickly and efficiently around the world. This is quite a substantial investment, driving both higher capital expenditures and operating expenses for the next few years, however, it creates an opportunity for significant long-term cost savings versus running and maintaining our current IT footprint.
Operating expenses as a percentage of total spending for this project is unusually high, as it involves tremendous data migration and utilization of duplicate systems and support cost for a period of time. Neither of these activities can be capitalized. We expect this project to be completed in early 2014.
The third initiative relates to mobility tools and services for our employees. This will allow us to not only take advantage of the more efficient IT footprint we're building, but also to drive labor productivity and provide global access to Covance-generated data for our employees and our clients on a real-time basis. Successful implementation of these mobility initiatives will allow Covance employees to complete their work in much more flexible and collaborative working environments.
We will digitize many existing manual processes and speed our work for clients. We expect this project to be largely completed by the end of 2013. Closeout on IT, enhancing all of what we are doing with faster, more efficient and client-value-creating IT systems is an important move for Covance. Once completed, these investments position us to deliver higher top line growth, better margins and faster EPS growth. While there will continue to be a need for system refreshes and tools, this comprehensive IT architecture is a foundation that will serve our business for years to come.
Touching briefly on our commercial organization, we will continue investing in our global sales, marketing, client services and strategic partnering teams during 2012, in order to capture more of the new business opportunities we are seeing for Covance.
From a financial perspective, these investments represent full-year impact of our 2011 decisions, as well as some additional 2012 investments. These commercial investments are already beginning to generate results, as evidenced by our record Q4 orders and the very strong funnel of new opportunities we have entering 2012. I'd like to turn the call back over to Bill to review our outlook for 2012.
William E. Klitgaard
Thank you, Joe, and please refer to Slides 13 and 14 for this discussion. For the full year, we are forecasting mid single-digit year-on-year revenue growth, and that includes approximately 200 basis points of headwinds from the stronger U.S. dollar, and we are forecasting diluted earnings per share in the range of $2.50 to $2.80. This range reflects the incremental investments in IT and our commercial footprint Joe just mentioned, which totals approximately $25 million above the growth rate in revenue or $0.32 per share impact, and the estimated impact of share repurchases of approximately $0.15 to $0.20 per share. This range excludes potential new strategic alliances with clients and assumes foreign exchange rates remain at year-end 2011 levels.
In terms of the cycling of earnings in 2012. In the first quarter, we expect earnings per share in the low $0.60 range. This decline from Q4 is a result of further deterioration in the performance of Early Development expected from Q4 to Q1, due to lower tox demand and year-end client behavior -- buying behavior at the end of 2011, the impact of increased spending in IT and the foreign exchange headwinds just mentioned partially offset by growth in Late-Stage Development.
In terms of book ending the full year range, one possible way we could finish near the bottom end of the earnings range would be if Early Development results were to be flat from the first quarter level all year long, while we do not expect that to be the case, we cannot rule out the possibility of that happening, especially given the choppy nature of the demand for these services over last few years. On the other hand, we could finish near the top end of the range if Central Lab revenues were to grow and right now, we're assuming Central Lab revenues to be relatively flat from Q4 levels. Coupled with an even more robust growth in Early Clinical -- rather in Clinical Development or if Early Development results bounce back more meaningfully from their lower from Q1 levels.
In terms of incremental IT and commercial spending, the largest share of that falls into Late-Stage segment, with most of the balance in corporate. And therefore, we anticipate these investments will lead to lower margins in Late-Stage Development in 2012.
Now I'll turn it back over to Joe for his closing comments.
Joseph L. Herring
Thanks, Bill. Covance enjoys a number of distinct advantages in this dynamic market. Our broad service portfolio, our successful delivery of operational and service excellence on client projects, our ability to integrate services to speed development and our ability to build broad-based R&D collaboration, which are good for our clients and good for Covance. These advantages continue to be rewarded in the marketplace, giving us confidence to invest in our future and to generate the best long-term returns for our shareholders.
Operator, you now may open the line for questions.
Question-and-Answer Session
[Operator Instructions] We'll take our first question from Greg Bolan with Sterne Agee.
Gregory T. Bolan - Sterne Agee & Leach Inc., Research Division
So Joe, recognizing that the majority of Central Lab work comes from outside of your install base of clinical trials, how would you characterize the current state of Phase III enrollments?
Joseph L. Herring
Well, Greg, I think because we do touch such a large percentage of clinical trials around the world with our Central Lab, and Central Lab revenue is relatively flat, again, I guess, forecasting off of that proxy, I would say it's been relatively flattish. Our view is not only our portfolio, but we are a major Central Lab for our closer competitors, and we have an insight into trials that aren't outsourced, that are managed either within a Pharma company or a biotech company, or specialty Pharma. So that's how it feels right now and I think it's primarily driven by portfolio rationalizations that continue to occur in the business model of our clients. And I think it sort of manifests itself in good orders, but then delays and cancellations that have been plaguing the industry. At some point in time, you get to the end of that, sort of flattening out. And hopefully, were starting to see an improvement there based on 2 quarters of our Central Lab results.
Gregory T. Bolan - Sterne Agee & Leach Inc., Research Division
That makes sense. And then just lastly, Bill, obviously, understanding the investment in IT for Central Lab, but on a normalized basis, how would you characterize incremental operating margins on Central Lab revenues? I'm just kind of thinking $0.40 to $0.50 on the dollar. Is that done about right?
William E. Klitgaard
So your question is what is the impact of the investments we've made on operating margins in Central Lab, is that what you're trying to...
Gregory T. Bolan - Sterne Agee & Leach Inc., Research Division
No, on a normalized basis.
William E. Klitgaard
Okay. So in the short-term, obviously, in small volume increments, you have very high drop through because you just -- you run a few more tests using the same machine, you don't add to capacity on the ways. But as you get to larger levels of volume increases, the marginal contribution comes back closer to more of an average margin, if you will. So something in the 30% to 50% at small levels of -- maybe even higher at small levels of volume, and then higher -- lower margins that at, say, large levels of volume increases.
Joseph L. Herring
Yes, I guess I see that slightly differently. I think we have enough capacity for Central Lab revenue to grow substantially before we have to add IT or any other capital investments beyond, obviously, the investment that we called out today. So I think any additional Central Lab revenue for a very long time would have terrific drop.
We'll take our next question from Robert Jones with Goldman Sachs.
Robert P. Jones - Goldman Sachs Group Inc., Research Division
Just one for Joe, and then one for Bill. Just admittedly, we don't have a lot of visibility into the internal IT infrastructures across CROs. I was wondering just if you could give us a sense of how the current infrastructure compared to your competitors. And then with these systems that you're investing in maybe if you could just even from a qualitative level, give us a sense of the competitive advantage that, that gives you. And then Bill, the question is just around the investments as well. Maybe just from a high-level even, could you talk about internally, how the decisions get made around evaluating these different projects, maybe on an internal returns basis?
Joseph L. Herring
Yes, let me first take the competitive question, Bob. I think maybe the foundation is talking first about pharmaceutical IT systems. And as we meet with CIOs of large Pharma companies and when they talk about their IT investments and what they're doing, those investments are largely focused on support infrastructure, in terms of finance, HR systems and how they move that offshore and how they move it to a more virtual environment. And they made tremendous investments in commercial systems. So understanding their clients and prescriptions, and how their commercial organization is performing. They are less even conversant about R&D systems, because R&D systems, R&D is a bunch of little cottages in their franchise and for a chunk of R&D, there are no commercial off-the-shelf systems. And there hasn't been driving need to integrate data. And so they sort of think of it sort of as this blob, and as there's been increasing financial pressure on pharmaceutical companies, we don't even see it in -- they incur it with some of these systems investments that we've already made, for example, in Toxicology. And I'm not being critical. I'm just saying that's sort of the state of where it's at. And they're continuing to ask us more about what you have, could you take on some of the current IT that we have, or can we have your systems talk to our systems, or can we pull data from your systems to improve our systems. Those are some of the discussions that they're having. And on top of that, they're starting to talk about the pre-competitive space, and they say, is there a CRO out there that has a bunch of data that we had, say, 5 Pharma companies get together and hold hands and say, look, here before, we would never talk about an independent database for drug safety or efficacy data in a particular indication or therapeutic area. And when they look, they say, "Who is the company who could do that?" And Covance name continues to come up, whether it's preclinical safety data or whether it's pre-competitive space efficacy data or class of drug type of effects. And so there is a tremendous need for us to not only do what we're talking about now, but then add on to that, smaller investments and analytics forecasting simulation that will potentially be earthmoving for our clients and ultimately, for Covance. As you look at our competitors, obviously, we've had a number of competitors sort of fold up or fold in. And you have to think that they were looking -- a part of their decision is where they were with IT systems, where they were with automation, and those type of things as they make those decisions. We really aren't looking at our competitors as the driving force for these investments. We're looking more at what is our current business model? How do we make it more efficient? How do we make it a better place for our employees to work in terms of how fast and efficiently they can do their work? And how do we use to this as a competitive advantage, both with clients, but also, to make us more competitive from a cost standpoint in the marketplace as well? So I guess maybe it's a long answer to your question, Bob, but we're not really looking at competitors as we think about this. We're looking at what does market leadership require 1, 2, 3 and 5 years down the road. Bill?
William E. Klitgaard
And in terms of the capital expenditure evaluation. Generally speaking, we look at capital expenditures in 2 classes. One is sort of maintenance capital, which doesn't necessarily have to have the same kind of criteria applied to it. But then investment capital always go through a structure where we want to make sure we're making return higher than our cost of capital, that's true for these IT investments or any other investment we make to grow our business.
We'll take our next question from Ross Muken with Deutsche Bank.
Ross Muken - Deutsche Bank AG, Research Division
Joe, I think from a strategic perspective, I understand the sort of mantra has been last year, we were sort of restructuring the Early Development piece. This year, we're continuing to kind of push investments to gain share in Clinical, and we've seen that play out in the relevant bookings. I guess where I'm sort of struggling is when -- the sort of pathway to shareholder value creation. If you look at last year, or I guess it was a little over 12 months ago, you did a buyback. The average acquisition cost of that buyback I think is probably above the current stock price. We're seeing another buyback here. And so cumulatively, you're buying 15%, 20% of the float, and yet we're not seeing any improved stability, visibility in kind of the EBIT line. And so I'm trying to understand from sort of a capital allocation, a shareholder value creation perspective, how you're sort of thinking about the cash used and then finally generating some positive shareholders returns. Because it's obviously been a challenging few years post '08.
Joseph L. Herring
It's a good question, Ross. I guess we're looking at it from a slightly different point of view. So the IT opportunities that are available to us right now, we could look at this a couple of ways. We could say, well, let's just delay it. And then you delay the benefits. Or we could baloney slice it out and spread it out over, somehow, 3 years. And then you pushing the benefit out 5 years. I guess our goal is to be sitting here in roughly the 2 to 3-year timeframe, where margins are expansion -- expanding. We're using IT in addition to our other market benefits to take market share. We're helping our clients move from a fixed cost R&D infrastructure to a more variable cost structure. We're more competitive in the marketplace. And had stand with investors and looked back and say, "Boy, that was tough, and that was a hard decision, but it's behind us and we're reaping the benefits." And if we wait for sort of the perfect year where earnings growth is lining up and everything is breaking our way, I'm not sure that's the right way to think about it. And so we're getting after it, and we're going to swallow most of this overwhelmingly in the next 2 years, and arrest both the growth rate, as well as capture the benefits.
Ross Muken - Deutsche Bank AG, Research Division
Yes, I guess, I'm not questioning the strategic investments. I understand what you're doing. And I'm assuming, yes, you're doing what you need to accomplish, kind of the share growth potential you want. I'm more thinking about it about from the actual -- and maybe this is for Bill, the shareholder perspective from a value creation standpoint. Because you look at $500 million of cash that will be spent on equity that has not appreciated sustainably for 3, 4 years now. Your valuation as of today, based on the midpoint of your guidance is around 7, 7.5x EBIT to EBITDA. And so you've seen private assets go out at 10x. So there's clearly -- the market is not sort of appreciating the strategy from a valuation standpoint. Yet you're taking capital and you're playing arbitrage on that by buying your shares. I'm just not totally seeing, I guess, from a stock perspective, where you're trying to maximize your total return to your shareholders, I'm not sure I fully understand kind of the plan of how we're going to on a 2-year basis if you got these cost headwinds and you're using your cash to just buy back stock. How are we actually going to get to a higher value level to kind of bridge that gap based on some of the private assets have traded versus where you're trading? I guess, I'm not sure I understand why you're buying back stock in an environment where you don't have a ton of earnings visibility and you're investing. And so you're saying you're earnings stream is not going to be growing at a rate that's sort of normal?
William E. Klitgaard
Right. Well, I think the -- look at it this way, the investments we're making are for long-term value creation. Those include the IT investments in particular, that we're making our -- made with a longer-term mindset. In terms of share buyback, I would look at that more as a return of capital. We're generating excess cash and we're trying to put the investments that we make to good use to create value. To the extent we have excess cash beyond that, we're returning it to shareholders. And I look at that in a little bit different light than I do with the investments.
Joseph L. Herring
Yes, I think, Ross, if you say, well, don't do the share repurchase last year, that's $250 million. Don't do this sort of all in, call it $350 million plus the cash we got, we could be sitting here now or into this year with over $1 billion in cash, right? And we look at acquisitions a lot and don't feel like overpaying, which we think is what's been characterizing the market. And we think that even though it's a difficult period for 2 years, although we certainly aren't giving up on growing earnings, our strong motivation is to outperform the guidance that we're giving you, find a way to do IT that we're talking about doing faster and cheaper, and drive a faster rebound in preclinical and maybe continue to benefit from the positive things we're seeing in Central Lab. So investing in our business model is where we think we can generate the most return. And again, there is fundamental change going on in the pharmaceutical industry right now. We're about halfway through the outsourcing trend. We've established ourselves as the market leader in quality, speed, the ability to build R&D alliances. And IT is a major enabler helping us take a disproportionate part of that second half that's coming and do it more efficiently and more profitably than we did in the first half. So continuing to build up cash and not return some to shareholders doesn't feel like the right thing to do. And our belief is that both last year's repurchase and the one that we announced today are going to be doggone good investments for all shareholders, not the least of which, is the management team and employees of Covance.
We'll take our next question from Tycho Peterson with JPMorgan.
Tycho W. Peterson - JP Morgan Chase & Co, Research Division
Going back to the investments, to your comments earlier, it sounds like there's a little bit of poll from clients to bring on some of these additional services. Can you talk to the extent that, you think you can lock in future business around these additional investments now? And should we expect kind of more strategic type of arrangements as you're getting more involved in kind of the data analysis component, presumably kind of longer-term contracts if you're more inclined on handling a lot of their data?
Joseph L. Herring
Well, as you know, Tycho, I tend to like to talk about things that we've already done as opposed to what may be possibly might happen. And I think the most crystal clear is how we are using Accelerate and forecasting and planning clinical trials with our clients. And the rescue work that we won, we talked about a few of them, there's more and there's a couple more cooking right now, where our competitors go in with less facts and data, and the client -- and tells the client, you can do this with 20 countries and 2,000 patients. And we say, we think you need 25 countries, and these specific investigator sites and these number of patients. And it will cost you a little more upfront, but you're going to get the trial done faster and you're more likely to not suffer from delays because of enrollment or stream failure, miscalculations, all the other pieces that make a trial go wrong. And sometimes, a client goes, okay, I buy your logic and I'm going to pay you more and do it and that's fine. Others say, it's all about price, and we're going to go with the lower price. We stay in touch with those clients and say, here's what the enrollment curve is going to look like based on facts and data that we've mined. And we win in the marketplace because clients come back and go. You know what, as hard as that message was, knowing the truth upfront, telling our management upfront, why it was going to cost more, and then working with you collaboratively, using your tools to help mitigate that in some way is a much better deal than taking the low price spread. And that's why we've been gaining market share in our clinical business. And we see other tools and analytics that we're not prepared to talk about right now, that require our ability to mine our data better than we can on today's platforms.
Tycho W. Peterson - JP Morgan Chase & Co, Research Division
And you made the comment you're expecting relatively fast payback. And I know you had a question before about kind of the ROI hurdles. But -- I mean, we have to think about 2013 now, potentially earnings being maybe flat to up or down a little. I mean, how do we think about how you really are going to extract value on these investments over the next couple of years? Is this just a cost of doing business? Or are you bringing on additional revenue streams?
Joseph L. Herring
Well, let me give you a slightly reflective answer then I'll try to be a little bit more pointed. If you think about market leaders, there are shelves of business books written about times when they were harvesting smart decisions in investments and infrastructure and automation. But there's also volumes about how painful it is sometimes to make tough decisions and make a call of where you are and where you want to be and having both the courage and the fortitude and the financial ability to do it. If you look at the history of our company, I think about a couple of times when we faced this. A dozen years ago, we had to decide who we were going to be when we grow up. We made a decision to take the most difficult path, and that is to be a full-service R&D development partner for our clients. Our competitors were dying laughing. No one can do that. You have to be single shingle. You have to be best in class at what you do. Thank goodness we took the hard road. And it was hard to do, but we wouldn't be where we are today as a single shingle. From a Central Lab standpoint, we made tremendous automation and footprint investments over the last 5 years, when our earnings growth was not as great as we would like. But as we sit here today, half of the Central Lab testing that we do is done in an environment where when the kit is produced, 95% is in totally robotics lights out production. It goes to a client, and when they put that patient's tube in that Central Lab kit, that is the last time a human hand ever touches it. It goes to 1 of 4 global labs, those results are analytically derived, stored and reported, both back to the treating physician and to populate the clinical trial database in 24 hours and less. Even in a difficult market we've had in Central Labs over the couple of years with delays and cancellations, we have strong profitability and we are watching our competitors struggle to make any money in this marketplace. So thank goodness we made those investments in a time when it wasn't popular. In 2006, people were saying sell your Clinical business. It's not growing. It's not profitable. We came up with a way that we thought we could preferentially compete in the marketplace, and we invested. We went from 30 countries to 60 countries. We built Accelerate. We upgraded our management team. We added to our sales force. And thank goodness, we did. We've taken 5 market share points and we're at the top of the end in terms of value creation for our clients. We win preferentially and we have some of the highest margins in this space. The last one I think about is the Lilly Campus. Who will ever forget that day. The word on the street was Covance has now gone too far. Who can take an R&D campus from a large pharmaceutical company that's mostly empty and create value. Thank goodness we had the courage to make that investment. There's over 100 clients placing work there, employment has more than doubled, Lilly is thrilled and given us more business. It's outperformed our model. It led to a $2.2 billion deal with Sanofi and other market opportunities that we're talking to clients about right now. None of those decisions were popular. None of them were developed to drive a short-term pop in a stock price. It was developed. They were developed to allow us to be the R&D partner of choice for our clients. And as tough as this medicine is today, we know exactly what we're doing. We are on a timeframe that makes sense. And we are highly motivated to outperform, both in 2012, we are going to grow earnings in 2013. We have a line of sight to do that. And we have a pipeline full of opportunities with clients. And we want to be sitting here 2 years from now, winning preferentially, being more competitive and having a solution for our clients.
William E. Klitgaard
Let me just pile on with 2 other comments Tycho. I think we've given you a chart in there which shows the curve, the cost curve and how it flips from high levels of investment to then lower growth rates. That obviously, you can do the math on that and figure out what the payback is. I think more important is the value of that infrastructure in terms of the quality of services we provide and the ability to really help clients make better decisions. Also, I want to clear it up, since Joe mentioned the Central Lab automation, I want to clear up when I fumbled with Greg Bolan, that is the marginal profitability on incremental revenue, Central Labs. I want to clarify that. That's around 50%.
Tycho W. Peterson - JP Morgan Chase & Co, Research Division
One last quick one. The decline in Research Product revenues, they seem to be pretty precipitous. Are you projecting that to continue to drop off for this year? And then if you could also make some comments on European talks, obviously that was down. And what are you expecting for the remainder of the year for those 2 businesses?
Joseph L. Herring
Well, Tycho, the Research Products result was a real surprise. And the historical pattern is that clients generally buy in research product, at least the ones that we sell at the end of the year. That's the historical pattern. We don't usually forecast that. But that's usually what happens. It provides us a little bit of upside in the fourth quarter. This year, they were pushing orders out. And that is a hand to mouth business model, in terms of you get an order and you ship the model. And so when clients pushed orders out, it creates a precipitous drop. We do expect them to return to profitability in the first quarter and throughout next year. And in fact, the orders in the first quarter were back up to sort of an expected level. We're not making a full quarter call on that just yet. But we're encouraged by that. And then, obviously, we took some write-offs and write-downs. Within the biggest segment of Research Products, there is a conversion going on from sort of one model to a more preferred model. It's not, we think, an indicator as to what's going on with Toxicology or even Toxicology within sort of primary research that is a big change. It is a flip in the type of model that the client is using and we are reducing our investment in our inventories in that particular model. So that's just a little more color.
We'll go next to the line of John Kreger with William Blair.
John Kreger - William Blair & Company L.L.C., Research Division
Just to clarify your Slide 11 that talks about the IT spending, or just to make sure I'm thinking about this correctly. I think you indicated that the incremental IT spend step up in '12 will be in the range of $25 million. Is this chart telling us that '13 will have an additional step up in that same general zone, $20 million to $25 million? And then '14 would still grow off that larger base, but at a much slower rate? Are we thinking about that right?
William E. Klitgaard
You got it exactly. This is supposed to be the IT spending growth year-on-year. And I think what Joe mentioned is that over the last few years, the IT spending growth has been around 11%, while the revenue growth rate is around 9%. As we started to look at the budget for 2012 and think about future years, it's clear, we need to spend more in IT. We want to call out that spend over and above the growth rate and that's kind of the delta we did there.
John Kreger - William Blair & Company L.L.C., Research Division
Great. Totally unrelated question. If you think across your portfolio businesses with your different clients segments, your base strategic partners, Pola [ph], Sanofi, and Lilly versus just large pharma in general, versus mid and small. Are you seeing any interesting patterns there? Some of the businesses for example, that have kind of pulled back more recently and surprised you. Has that been showing up more in smaller clients or larger strategic partners?
Joseph L. Herring
Well, I guess, John, across our broad portfolio, we don't necessarily think of a smaller or large clients sort of in aggregate. You have to sort of go business unit by business unit. But I would say it's a little bit of both, biotech funding was a little better last quarter, but not dramatically better and certainly down from years ago. So the spread are there. And given that it continues to be sort of portfolio decision and strategic decisions in pharma clients. So I would say more or less across the patch.
John Kreger - William Blair & Company L.L.C., Research Division
Great. And Joe one last thing to clarify within your Central Lab business. The flattish business that you're seeing there, any other interesting patterns if you go one layer beneath, are you seeing fewer contract starts? Are you seeing overall cancellations pick up? Are you seeing maybe lower scope levels as maybe the therapeutic area shifts from cardiovascular to oncology? And any other interesting patterns that you're observing?
Joseph L. Herring
Well, clearly, delays and cancellations. We've said all along over the last 2 years, that gross orders have been at or near target and then sort of swamped with delays and cancellations. The last couple of quarters have been powering gross orders and higher levels of cancellations and the net-net is higher net orders, at target and growing nicely. Once we have the work, I guess the word is elongation of the trial. Slower to get started, slower to enroll and slower to produce kits. But again, if you net all that out, at least for the last 2 quarters, things have picked up. And they're very helpful in terms of earnings production.
We'll go next to Tim Evans with Wells Fargo.
Timothy C. Evans - Wells Fargo Securities, LLC, Research Division
My question as it concerns your decision on the stock buyback, is this -- as I look at your business, it seems that most of the growth is in the near future, it's going to be dependent on the clinical business. And I appreciate that you've taken some share there. And I also appreciate that a lot of that is dependent on your ability to leverage your Central Lab data. So I wonder, it seems like making an acquisition in the clinical business to move yourself up 2 or 3 spaces in the league table is not high on the priority list and I'm wondering why that is the case?
Joseph L. Herring
Well, if you're not on a public call, is the time to talk about acquisitions specifically. But generally speaking, I have 34 years in healthcare service businesses. And it's not manufacturing. It's highly, highly dependent on people, culture and a robust and sustained quality performance in a business model that's very predictable. And I just think you have to be really careful when you talk about merging companies that are in the service provider space in any business, because the assets really are your people. And if 30 of our top people don't get along with 40 of the top people of an acquired company, or we think ours are better and 20 of their people who have client relationships go away and client shifts into neutral, the value destruction can be enormous. And I think the other thing is in the service business, if you have superior systems so that when you acquire a company, you snap them into your finance system, your HR system, your COGS [ph] system, your this, your that, you're the other. You're much more likely to capture the upside synergy, cost synergy benefit and ameliorate any client concerns. That's a part of this investment. So I guess, all the acquisitions and private equity buyouts, all those things you've looked at, we've looked at each and every single one and feel like the path that we announced today is the better path for long-term value creation for Covance. At the top of the hour, when you take...
William E. Klitgaard
I think we should go on. There's a number of folks in the queue. So If we could continue to go on that'd be great. [Operator Instructions]
We'll take our next question from Steve Unger with Lazard.
Stephen S. Unger - Lazard Capital Markets LLC, Research Division
Quick question on Slide 11. Just to make sure that I'm on the right page here. So the delta on growth is 6%. So that means that you're expecting annualized IT expenses from 2011 to go from $400 million to $470 million in 2012. And how is that...
William E. Klitgaard
This is again, IT spending as a percent of growth right? Year-on-year. And it's been averaging around 11%, what we're saying is for 2012, we're going in kind of the upper teens and that compares to a revenue growth rate kind of in the mid single-digits, right? So that delta is not 6%, it's more like a 10% delta, at least. And then, so if you compare it to -- if you're comparing to the revenue growth rate, that Delta is wider. This Chart is looking at historical IT spend growth rate which has been slightly above revenue growth rate. As you look at 2012, that Delta is expanding significantly. We want to call that out. Is that clear now?
Stephen S. Unger - Lazard Capital Markets LLC, Research Division
Okay. So what is your annualized IT expense today?
William E. Klitgaard
Well, we're looking at 2012 to be somewhere in the $200 million range -- operating expense.
Stephen S. Unger - Lazard Capital Markets LLC, Research Division
Got it, okay. And then how is that expense is expected to ramp with incrementally growing, I guess, $25 million in 2012, and $45 million in 2013. How is that expected to ramp. Is that ratably?
William E. Klitgaard
It's sort of -- we're showing you the growth rate that -- we're showing you as a percent of revenue and we're talking about the growth rate here. So this should be something that you'll see grow from $200 million by 15% to 20%, somewhere in that range in 2013.
Stephen S. Unger - Lazard Capital Markets LLC, Research Division
I'm just talking on a quarterly basis, you're just expecting that to ramp up throughout the year and throughout 2013. That's correct, right?
William E. Klitgaard
Yes, yes.
We'll take our next question from Dave Windley with Jefferies.
David H. Windley - Jefferies & Company, Inc., Research Division
I'm going to change the subject for you. You mentioned, Joe, on the Sanofi deal you expanded the relationship. And in your comments, you made reference to the inclusion of the subsidiaries helping Sanofi to meet their minimums. I just hope that you could expand a little bit on whether kind of your dollar expectation from -- the revenue dollar expectation from Sanofi is still the same, but it's taking more of the organization to get there. Or if you're into that kind of optional $1 billion that was discussed when the deal was announced, is there something you could have flush out a little bit please?
Joseph L. Herring
Yes, I think, Dave, don't read quite so much into that. They have a long-term commitment. There are quite sharp increases in their contractual minimum volume commitments in 2012 and 2013. And obviously, a large distributed global company, it's taken awhile to get everybody sort of onboard and chugging along. And by adding these other entities, it just makes it a whole lot easier for them to make it in the short term. But I can tell you, the momentum in the partnership, both relation, governance structures, types of projects we're talking about, the number of business units where we're fully engaged and thinking about how we can make -- help them move to a more flexible cost structure is very positive. And so -- and then, I guess, maybe the specific thing is that there's 4 entities that were added. And they all flipped immediately to Central Lab sole-source. And we weren't doing a lot of volume with those 4 covered entities before they were added. So because it's Central Lab, it won't necessarily impact 2012. But just the Central Lab sole-source will help in 2013. And so it's just a color that the partnership is expanding and we're finding a lot of opportunities for both partners.
David H. Windley - Jefferies & Company, Inc., Research Division
Okay. And coming back to just more targeted question on this return, general return question. And that is, as you describe the difference in your pricing and willing to -- or ability to get business in Central Lab, you gave that example. Just as I heard you describe that, it didn't sound like, to me, you were necessarily able to increase price at the faster rate that your investments in technology would need to drive return. So the question then becomes, as you look forward, you're spending money in that certainty now. We know that. But as you look forward, how can you -- how are you confident as you forecast this out, that the client is going to pay you for this? Or is it just defense of share in a market that is continuing to squeeze for everybody else?
Joseph L. Herring
Well, Dave, let me try the best I can to answer the question that you're asking. First and foremost is volume increases drive strong margins in our Central Lab. And the net-net is there are portions of the market where, if we were more price competitive, we could gain market share. And so I think it opens up a broader share of the market for us, as well as find ways to add more value to the work that we are doing, with this one global footprint, one global platform for clients. And then once it's all done, there's labor productivity on the backside as well that will start -- that will produce higher earnings growth. So it has multiple impacts.
William E. Klitgaard
I know we're trying to sync in our answers but I just want to add on. If you use the kit production line in Indianapolis, as an example. That increase -- we increased our volume of production there by a factor of 2 at least, if maybe not 3, in terms of the number of kits that we put out the door. And yet the labor content there has gone down. And the quality of what we're doing is up at 5 Sigma plus in terms of quality of information that we're providing and how accurately the kits are. So we have better kits, higher fidelity in terms of what we produce at lower costs.
We'll take our next question from Ricky Goldwasser with Morgan Stanley.
Ricky Goldwasser - Morgan Stanley, Research Division
One just clarification and then a question. I think you said that the 2012 R&D base is going to be about $200 million, and that it's going to grow 17% in 2013. So is this another $0.50 in EPS headwind in 2013? I just want to make sure that I got my math right around that?
William E. Klitgaard
Yes, what we said and what I've -- let me be clear about it, the IT OpEx in 2012 is in the $200 million range. That would be roughly, what, 16% above our current spend level in 2011. And then we look forward to be at a similar level of increase year-on-year from there. Obviously, that'll enable us to have other benefits. And whether that impact on EPS is $0.20, $0.25, we'd have to calculate that, right? I don't have it in front of me.
Ricky Goldwasser - Morgan Stanley, Research Division
But again, when you say OpEx, that's operating that does flow through the income statement, correct?
William E. Klitgaard
That's correct. It's not capital expenditure. It's just operating income.
Ricky Goldwasser - Morgan Stanley, Research Division
Okay. And then, Joe, I think in the prepared remarks, you talked about potential changes to capacity. So are you waiting to see how demand will shape up in the next couple of quarters? Or is this something that you're working on now? And then when you think about the low end of the range versus the high end of the range, I think you mentioned low end of the range includes kind of like Early Development flat. So under that scenario, if that plays out, should we expect that you will take out additional capacity?
Joseph L. Herring
Well, Ricky, we have plans, and should Early Development be flat, which would be toward the lower end of the range, then we are prepared to make announcements and decisions, should that occur.
Joseph L. Herring
Sorry, Ricky, I'm just trying to get everyone in.
We will go next to the line of Douglas Tsao with Barclays Capital.
Douglas D. Tsao - Barclays Capital, Research Division
On the $300 million share repurchase, are you going to be borrowing the funds for that? And how much of your cash on the balance sheet currently is located in the U.S. versus ex-U.S.?
William E. Klitgaard
Well, the answer to the second question is most of our cash is ex-U.S., a little bit the U.S. We are -- our intent is to expand and replace our current revolving credit facility with the new credit facility.
Douglas D. Tsao - Barclays Capital, Research Division
Okay. And then just do you have free cash flow guidance for the year?
William E. Klitgaard
We've given capital expenditure guidance, I think, and free cash flow for next year is somewhere in the $110 million to $120 million range, I think, roughly.
We'll go next to the line of Todd Van Fleet.
Todd Van Fleet - First Analysis Securities Corporation, Research Division
I just want to understand a little bit, hopefully, it won't take too long, but the strategy behind the sequencing, I guess, of the IT projects because it seems like the 3 different projects, the CTMS, system data centers, and then the mobility aspect are all kind of somewhat interrelated. I'm just hoping maybe to help my understanding of kind of all of the projects, is there a strategy overall, that would suggest that we have to sequence CTMS first, data centers second, and then followed by mobility or vice versa?
Joseph L. Herring
No, the way they are laid out from a project management standpoint, we're largely going to run them simultaneously and we have a plan to do that. I think if you look at the financial system and the Tox system and a large part of the Central Lab system, all those were done simultaneously. And our goal is to get this done as fast as we can and largely over the next 2 years.
We'll go next to Garen Sarafian with Citigroup.
Garen Sarafian - Citigroup Inc, Research Division
Two questions, which basically, for 2012, gets you to the high end and low end. One is regarding Early Development. I may have missed this. But revenues declined but operating income declined more substantially. So I'm just wondering if you could elaborate a little bit more as to what happened there. I mean, one natural thing is typically, if you look at the numbers, was it something in pricing, but it could be numerous other factors as well. So could you just clarify that?
William E. Klitgaard
Well, in Q4, we have a number of events which happened and the weakening of the market, I think, towards the end of the quarter. And we see that continuing into the first quarter. What we're saying is that the low end of the range would be that Q1 performance, stays at that level for the full year. Our base plan though, the middle of the range would be gradual improvement and sort of very modest year-on-year growth in terms of revenue and sort of flattish to maybe slightly better margins for the full year. And then obviously, if the market improves, then that will help in terms of getting to the upper end of the range, along with Central Labs and Clinical.
Garen Sarafian - Citigroup Inc, Research Division
I got it. I was thinking more of the decline in 4Q and the operating income was more so, so that it will help us forecast the reasons behind that notable decline.
William E. Klitgaard
It's volume and with a high drop.
Garen Sarafian - Citigroup Inc, Research Division
Okay. And then on the Central Labs, the cancellation rate was -- continue to be -- you had mentioned above average and that seems to be a big swing factor to get to the high end. So -- I mean, is there any other clarity as to what may be the top 2 or 3 reasons are behind these cancellations? I'm just trying to get a better understanding of underlying trends there. And I'll stop there.
Joseph L. Herring
Yes, well, that's a longer answer. I think we've already talked about it quite a bit, but just the elongation of clinical trials and clients rationalizing their portfolio. But even though cancellations were sort of above the midpoint of the historical range, gross wins were so strong it swamped it. And so for the second consecutive quarter, we have a nice strong book-to-bill at Central Labs. And we expect that to start delivering, accelerating revenue and earnings at some point in the future. We are being cautious as we sit here today. But you would hope that the current momentum would continue and these new orders would pop up the back half of the year. But we're just making that call right now until we see a client base that is backing off of delaying and canceling trials.
We'll go next to Lauren Migliore with MorningStar.
Lauren Migliore - Morningstar Inc., Research Division
Really quickly, I'd like to hear a little bit more about your outlook for the preclinical services market. Tox has been down for a sustained period now, but we're seeing growth in Discovery Services and continued strong performance in Clinical Development. Any sense of how long this type of barbell effect in the industry can last?
Joseph L. Herring
Well, keep in mind, as painful as it is, ignore the fourth quarter for a second. We're coming off of 3 or 4 quarters of expanded revenue, expanded operating margin and EPS growth in Early Development. It's just that it slowed down in the fourth quarter. And then if you look back to the peak in 2008, we're approximately 30% smaller sort of marketplace. And so I think you have to sort of look at what's driving the client demand. What drove the peaks in 2006, '07 and '08 was a combination of high throughput screening, combinatorial chemistry and investments in genomics and it was more shots on goal or better, let's sort of overwhelm ourself with new candidates and if we hold our batting average, we're going to have a lot more drugs. And I think the reality is that didn't work. And a combination of that, and the seizure of the credit markets and the slowdown in biotech funding. We, as a company, as well as the entire industry has struggled to say, where is future demand? We all know that preclinical pipelines have been largely on hold for 3 years. That cannot sustain, if the industry is going to survive. And our clients are working now with academic centers, buying biotechs, government agencies to try to source compounds. And at some point in time, that Early Development volume has to come back or the industry collapses on itself. But calling exactly when that is, is difficult. Since 2008, we've had 2 very strong periods of revenue recovery, margin expansion, EPS accretion and followed by a quarter or 2 of slowdown. And that's where we are right now.
Your last question in queue comes from James Kumpel with BB&T Capital Markets.
James J. Kumpel - BB&T Capital Markets, Research Division
Can you talk a little bit about the mix between -- in IT spend between build versus buy? And how quickly you think it's reasonable to expect the stuff that you are developing on your own to actually make it to your employees and impact efficiency? And then sort of a derivative off of that, can you talk a little bit about what you think the Clinical Development growth rate, which has already been good, absent some of these tools, should be with the full implementation of these tools?
Joseph L. Herring
Well, Jim, overwhelmingly, we're talking about commercial off-the-shelf robust, proven, validated systems that we snap into place. And the reason why OpEx is so much larger than anything we've done in the past is the tremendous amount of data migration, training and running duplicate systems while we make the flip. The degree of technical difficulty in this compared to, for example, the massive amount of configuration and some customization of the Central Labs system because there is no commercial off-the-shelf. This is -- the degree of difficulty is much lower with this. So on a go forward basis, the amount of custom writing or even configuration is absolutely minimal. So that's the reason why we're confident as we look at the projects and the project plans and how to get this done. And then the second question...
James J. Kumpel - BB&T Capital Markets, Research Division
As it relates to the big bowl of spend. Obviously, you've been growing quite nicely in the Clinical Development side, absent some of the clinical tools that you've been talking about, say, for Accelerate. So what do you think ought to be the incremental additions to your growth prospect as a result of rolling these things out?
Joseph L. Herring
Well, that's a good question. But frankly, we want to be able to maintain a very strong growth rate and at the same time, deliver quality and accuracy that our clients not only expect, but absolutely demand. And so part of this is enabling investments to enable us to continue to grow at that rate. Are we trying to drive a superior growth rate on top of that? Not necessarily. But there is tremendous margin expansion opportunity when you move in staff from either manual systems or systems that they'll talk to each other or you have to get somewhere to sync and do your work to you could work anywhere, anytime, anyhow and collaborate with clients and other workers. All those drive, what I think, investors are looking at today is where is the EPS? And those are the kind of tools that will allow us to drive EPS growth through productivity of our staff. So it's less about accelerating top line revenue growth in Clinical, it's more about sustaining it and making it more productive.
And there are no further questions on queue at this time.
Paul Surdez
Thank you, everyone, for your time this morning. I am available all day to take your calls. Feel free to reach out to me and I'd be happy to take the time to walk you through any of your questions. This ends the call.
Again, thank you, ladies and gentlemen, for your participation. This will conclude today's conference call.
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Bus/Parent Pick-up
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text: It would be nice being able to show topics only with polls, images, video, bbcode or attachments in a particular forum. Also being able to show only closed or moved topics (especially good for admin/moderators) under Thread Display Options. You could of course combine those. Maybe you could limit the option to show closed threads and moved threads only to admin and moderators or per user group or everyone. I would suggest calling it "Show only threads with" or "Show only" and options: Polls, Images, Video (YouTube bbcode for example), Attachments, Threads with or without likes, threads with a particular bbcode (for example PHP which would be handy in a programmer forum or custom bbcode). This should be added to search as well. Also change to default setting would be nice under Thread Display Options, maybe a default button.


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Sony Ericsson has released a new utility to enable users to personalise their mobile phones. Available for free, the new app includes a full editing suite. In addition, according to the Softpedia website, the new program also arrives with Adobe Kuler built-in, allowing you to add a variety of colours.
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Click to read the Softpedia story and download utility


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text: IBM MAINFRAME: How to move null values to a field in cobol Portal | Manuals | References | Downloads | Info | Programs | JCLs | Master the Mainframes How to move null values to a field in cobol IBMMAINFRAMES.com Support Forums -> COBOL Programming IBM ManualsQuick References View previous topic :: :: View next topic Author Message dkalyan_cNew UserJoined: 06 Apr 2006Posts: 17 Posted: Fri Mar 09, 2012 6:09 pm Post subject: How to move null values to a field in cobol Can some one tell me how to move null values to a field, which is defined as Nullable. I want to do this in a Cobol program Back to top Robert SampleGlobal ModeratorJoined: 06 Jun 2008Posts: 8118Location: East Dubuque, Illinois, USA Posted: Fri Mar 09, 2012 6:44 pm Post subject: Quote: Can some one tell me how to move null values to a field, which is defined as Nullable. This cannot be done, period. There is no such thing as a "null value" on a mainframe (nor on a PC nor any other device). And this question has absolutely nothing to do with COBOL -- it is a general statement. If you are referring to a DB2 (or other database) field that is defined to allow null values, that is handled in the data base by having an indicator variable. If the indicator variable is some specific value (-1 for example), then the data base field is considered to be NULL. However, note that neither the data base field nor the indicator variable actually have a "null value" in them -- the indicator variable has a value that by convention indicates the associated data base field is NULL while the actual data base field may have anything from X'00' to X'FF' (in COBOL terms, anything from LOW-VALUES to HIGH-VALUES). Byut the data base field WILL have some value, since by definition every byte has a value and cannot be "null value". Back to top dkalyan_cNew UserJoined: 06 Apr 2006Posts: 17 Posted: Fri Mar 09, 2012 7:05 pm Post subject: THANKS FOR THE RESPONSE. My question here is the field has a default value of NULL and later updated to '01'. So, currently the field has a value '01' and i want to update it back to NULL thru a cobol program. Is thr a way it can be done Back to top Nic CloustonGlobal ModeratorJoined: 10 May 2007Posts: 1825Location: UK Posted: Fri Mar 09, 2012 7:22 pm Post subject: Yes - update the null indicator variable and update the table. Back to top dbzTHEdinosauerGlobal ModeratorJoined: 20 Oct 2006Posts: 6968Location: porcelain throne Posted: Fri Mar 09, 2012 7:24 pm Post subject: it is friday and you obviously do not want to refer to the manual, but i am going to provide a link which you can read (drop down towards the bottom a look at the syntax diagram and keywod explanations, paying particular attention to the assignment clause) Back to top Robert SampleGlobal ModeratorJoined: 06 Jun 2008Posts: 8118Location: East Dubuque, Illinois, USA Posted: Fri Mar 09, 2012 7:28 pm Post subject: You did not reply if you are using a data base or not. If you are using COBOL but not using a data base, then your statement Quote: the field has a default value of NULL is ABSOLUTELY, CATEGORICALLY WRONG! That field has a value, period. Files and COBOL varaibles cannot, under ANY circumstances, have NULL values in them. If you are using COBOL and using a data base, you need to find out from your data base documentation exactly how to set the value to NULL. For DB2, for example, there would be a pair of variables for the field -- the indicator varible (IIRC defined as PIC S9(04) COMP for DB2) and the data base variable. You would set the indicator variable to the appropriate value (-1 IIRC for DB2) and update the data base. The fact that the indicator variable is set to a paritcular value that means NULL indicates the value in the data base field would be ignored, no matter what it is. Back to top Phrzby PhilActive MemberJoined: 31 Oct 2006Posts: 964Location: Richmond, Virginia Posted: Fri Mar 09, 2012 8:12 pm Post subject: And since it is Friday, that would explain why (unbelievably) no one has mentioned that if the user is talking about a database, he should say "column" instead of "field." Time for the weekend for everyone! Back to top enrico-sorichettiGlobal ModeratorJoined: 14 Mar 2007Posts: 10274Location: italy Posted: Sat Mar 10, 2012 1:45 am Post subject: Reply to: how to move null values to a filed in cobol one of the reason for not remarking the field column whatsoever miswording is that we all are getting fed up of repeating over and over the same thing Back to top Phrzby PhilActive MemberJoined: 31 Oct 2006Posts: 964Location: Richmond, Virginia Posted: Sat Mar 10, 2012 10:18 am Post subject: I have been wondering just when this correction would finally poop out. Looked like it would be aleph null. Back to top View previous topic :: :: View next topic IBMMAINFRAMES.com Support Forums -> COBOL Programming All times are GMT + 6 Hours Page 1 of 1 Search our Forum: Similar Topics Topic Author Forum Replies Posted BI,TO=ZD Changing Values Tyler Dunbar DFSORT/ICETOOL 1 Tue Jul 25, 2017 12:12 am XML Parse for COBOL 5.2 Bhanu Praveen COBOL Programming 1 Sat Jul 08, 2017 8:58 pm Dynamic output file creation in cobol... smileheal COBOL Programming 7 Thu Jun 15, 2017 10:53 pm Search utility(3.14) using JCl and Cobol RKS3 COBOL Programming 12 Sat Jun 10, 2017 10:24 pm COBOL DB2 program - zIIP eligible vasanthz COBOL Programming 7 Wed May 31, 2017 5:12 am © 2003-2016 IBM MAINFRAME Software Support Division Mainframe Wiki | Forum Rules | Bookmarks | Subscriptions | FAQ | Tutorials | Contact Us


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Saber Marionette J - as Panther (voice)


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How To Fix The Annoying Ringtone Problem
Ringtones. The day of the fancy, polyphonic, clip-from-your-favorite-song-or-theme-tune ringtone is here. Especially in North Asia, it seems. And it's annoying. It's like hearing someone turning on a radio full-blast and then turning it off, and jabbering instead. Either you're just beginning to get into the music, or recognise it, and it's off. I thought I would never say this, but I miss the inane, twee, monophonic warbles of the old cellphone. At least you knew it was a phone, and what the tune was. Is there nothing better?
You could argue that everyone having their personalized call sign is good, because they know it's their phone. No longer do you have people grabbing at bags, pockets or private parts thinking the phone ringing is theirs. Unless, of course, everyone just loves the same song so much they all choose it as their ringtone.
But all this does is shift the problem from getting your peace and quiet shattered by inane monophonic warble to getting it shattered by two bars of inane pop tune. It doesn't seem to actually help any of us excise the intrusion that is the cellphone ringing in public. We're still looking, in my view, for a way for people to know their phone is ringing without everyone else hearing about it.
My solution is simple, and probably not very original. But I haven't read it anywhere else, so until someone points me there, I'll assume this is My Own Idea. When people buy their phone, they record their own voice saying 'hi, this is Joey. Leave a message' for the voicemail. Then Joey hands it over to his mother/father/foster parent or other significant elder in the family and has them call out "Joey!' at a reasonable volume. That recording becomes Joey's ringtone.
The point? Joey's always going to recognise his ma's voice, across the room, across town, across continents. Mothers' voices have that kind of quality. So he's going to hear his phone ringing. But everyone else on the train? Unless they're called Joey, it won't register. If they are called Joey, it's unlikely the voice is going to have quite the same impact. Simple. Joey will know his phone's ringing. No one else is disturbed, because people are calling other people's names all the time.
Ok, the business end of all this? Set up an online service that lets people record and store them saying their children's/spouses/relatives' names. Every time one of the folk involved buys a new phone, they can just synchronise it with the website and download the appropriate voice calling their name, even after Ma has passed onto that cellphone-free waiting room in the sky. Cellphone providers etc would jump at the advertising opportunities. Saymyname.com is taken, but yourmotherscalling.com doesn't seem to be yet. I'm onto it.
Comments (6)
Interesting Jeremy – my own ringtone? I recorded myself saying "Tom – your phone is ringing" last December when I bought my phone (Nokia 6230) as a bit of a joke. However, I liked at as a ringtone and haven't gone back to any of the tunes now being sold as ringtones!
It always gets my attention and isn't nearly as distracting to others as some ringtones I have heard (e.g Crazy Frog).
that is so cool… i should try that. however, i'm not too comfortable having my name called out in public… i guess its just me.
but what is a 'reasonable volume' ? an acquaintance of mine likes to talk loud, listen to loud music, and loud ring tones. he always uses a speakerphone when calling (letting everyone within earshot know of his business).
his idea of a reasonable volume and mine differ quite vastly….
sprint pcs has a whole library of people saying things thay you can (pay to) download. a whole bunch of first names (though not shamus)…
my favorite were the insults. stuff like "hey stupid, yeah, i'm talking to you…" i'd love to hear someone sporting that ringtone.
I have got a virus in my new nokia 6230 mobile fone. I have instaled file manager program. but, i do not know how to enable the option to view the files in the system directory.
could someone help me out with this?
What i found useful was
it lets you edit and save any part of a song you want as your ringtone, and upload via wap or other way (for free).
I have my kids saying "Mom.. Dad's calling" as the ringtone for my husbands cell and when they call from the house phone it's "Moooooooooom" like they do at home when they want something.
I used to have one for my husband that said over and over again. "Your husbands calling"
I've never actually paid for a ringtone though cuz I'm cheap


text:
- odorously
- adverb see odorous
New Collegiate Dictionary. 2001.
New Collegiate Dictionary. 2001.
Odorously — Odorous O dor*ous, a. [Written also {odourous}.] [L. odorus, fr. odor odor: cf. OF. odoros, odoreux.] Having or emitting an odor or scent, esp. a sweet odor; fragrant; sweet smelling. Odorous bloom. Keble. [1913 Webster] Such fragrant flowers do… … The Collaborative International Dictionary of English
odorously — See odorous. * * * … Universalium
odorously — əʊdÉ™rÉ™slɪ adv. while spreading a pleasant scent, in an aromatic way … English contemporary dictionary
odorously — odor·ous·ly … English syllables
odorously — adverb see odorous * * * oˈdorously adverb • • • Main Entry: ↑odour … Useful english dictionary
odorously challenged — smelly An ingenious extension of those before whom that traditional symbol, the gauntlet, is thrown down see challenged for other examples: The list of minority victim groups with special rights [in the United States] is growing longer… … How not to say what you mean: A dictionary of euphemisms
odorous — odorously, adv. odorousness, odorosity /oh deuh ros i tee/, n. /oh deuhr euhs/, adj. odoriferous. [1540 50; < L odorus fragrant. See ODOR, OUS] * * * … Universalium
odorous — adjective Date: 15th century having an odor: as a. fragrant b. malodorous • odorously adverb • odorousness noun Synonyms: odorous, fragrant, redolent, aromatic mean emitting and diffusing scent. odorous applies … New Collegiate Dictionary
Violin Concerto (Tchaikovsky) — The Violin Concerto in D major, Op. 35 by Peter Ilyich Tchaikovsky is one of the best known of all violin concertos. It is also considered to be among the most technically difficult works for violin.The concerto is scored for 2 flutes, 2 oboes, 2 … Wikipedia
odorousness — See odorously. * * * … Universalium