Facility Consolidation and Other Cost Reduction Actions

6 Months Ended

Jun. 30, 2011

Facility Consolidation and Other Cost Reduction Actions

Facility Consolidation and Other Cost Reduction Actions

9.  Facility Consolidation and Other Cost Reduction Actions

During the second quarter of 2010, the Company announced plans to reduce costs, primarily by closing and transitioning work conducted at its Austin, Texas Phase I clinic and Kalamazoo, Michigan research products facility into other more efficient locations. These actions were completed during 2010. During the fourth quarter of 2010, the Company announced plans to further rationalize capacity, reduce the cost of overhead and support functions and to streamline processes. During the three and six months ended June 30, 2011, Covance incurred costs totaling $4.6 million and $10.4 million, respectively.  During the three months ended June 30, 2011, $4.2 million has been included in selling, general and administrative expenses and $0.4 million has been included in depreciation and amortization.  During the six months ended June 30, 2011, $9.6 million has been included in selling, general and administrative expenses and $0.8 million has been included in depreciation and amortization.  During both the three and six months ended June 30, 2010, Covance incurred costs totaling $7.7 million, of which $6.4 million was included in selling, general and administrative expenses and $1.3 million was included in depreciation and amortization.

The following table sets forth the costs incurred in connection with these restructuring activities during the three and six month periods ended June 30, 2011 and 2010:

	Three Months Ended June 30				Six Months Ended June 30
	2011		2010		2011		2010
Employee separation costs	$	2,191	$	3,208	$	5,581	$	3,208
Lease and facility exit costs	¾		2,922		¾		2,922
Accelerated depreciation	405		1,314		810		1,314
Other costs	1,968		290		4,041		290
Total	$	4,564	$	7,734	$	10,432	$	7,734

The following table sets forth the restructuring costs by segment during the three and six month periods ended June 30, 2011 and 2010:

	Three Months Ended June 30				Six Months Ended June 30
	2011		2010		2011		2010
Early Development	$	1,988	$	6,736	$	4,890	$	6,736
Late-Stage Development	731		194		1,666		194
Corporate expenses	1,845		804		3,876		804
Total	$	4,564	$	7,734	$	10,432	$	7,734

Total costs for these actions are expected to be $47 million, including $24 million in employee separation costs, $12 million in lease and facility exit costs, $4 million in accelerated depreciation and $7 million in other costs. Costs by segment are expected to total $22 million in our early development segment, $13 million in our late-stage development segment and $12 million in corporate expenses.

Cumulative costs for these actions through June 30, 2011 totaled $38.5 million, of which $34.8 million was included in selling, general and administrative expenses and $3.7 million was included in depreciation and amortization.  Cumulative costs incurred by category for these actions through June 30, 2011 totaled $23.6 million in employee separation costs, $4.8 million in lease and facility exit costs, $3.7 million in accelerated depreciation and $6.4 million in other costs. Cumulative costs incurred by segment through June 30, 2011 total $19.0 million in our early development segment, $9.0 million in our late-stage development segment and $10.5 million in corporate expenses.  All remaining costs are expected to be incurred during the remainder of 2011.

The following table sets forth the rollforward of the restructuring activity for the six months ended June 30, 2011:

	Balance,Dec 31, 2010		Total Charges		Cash Payments			Other			Balance,June 30, 2011
Employee separation costs	$	11,738	$	5,581	$	(9,775	)	$	(19	)	$	7,525
Lease and facility exit costs	3,747		¾		(731		)	54			3,070
Accelerated depreciation	¾		810		¾			(810		)	¾
Other costs	846		4,041		(4,090		)	(49		)	748
Total	$	16,331	$	10,432	$	(14,596	)	$	(824	)	$	11,343

Other costs include legal and professional fees, primarily associated with employee related matters and the outsourcing of certain functions, and other costs incurred in connection with transitioning services from sites being closed, including costs of transitioning information technology as well as loss on disposal of assets.  Other activity in the reserve rollforward primarily reflects accelerated depreciation, foreign exchange impacts as a result of the change in exchange rates between periods and the loss on disposal of assets.