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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                           ---------------------------

                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2001

                         Commission File Number: 1-12213

                            -------------------------

                                  COVANCE INC.
             (Exact name of Registrant as specified in its Charter)

        Delaware                                         22-3265977
(State of Incorporation)                    (I.R.S. Employer Identification No.)

210 Carnegie Center, Princeton, New Jersey                               08540
 (Address of Principal Executive Offices)                             (Zip Code)

       Registrant's telephone number, including area code: (609) 452-4440

                             ----------------------

           Securities registered pursuant to Section 12(b) of the Act:

                                                          Name of Each Exchange
    Title of Each Class                                    on Which Registered
    -------------------                                    -------------------

Common Stock, $.01 Par Value                             New York Stock Exchange

        Securities registered pursuant to Section 12(g) of the Act: None

                              ---------------------

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

         As of February 11, 2002, the aggregate market value of the voting stock
held by non-affiliates of the Registrant was $1,046,361,375 (based on the
closing price of the Company's Common Stock on the New York Stock Exchange on
February 11, 2002 of $17.49).

         As of February 11, 2002, the Registrant had 60,186,368 shares of Common
Stock outstanding.
                       DOCUMENTS INCORPORATED BY REFERENCE

         The Company's definitive Proxy Statement is incorporated by reference
into Items 10, 11, 12 and 13 of Part III of this Form 10-K.

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                                     PART I


Item 1.  Business


General

         Covance Inc. is a leading contract research organization providing a
wide range of product development services on a worldwide basis primarily to the
pharmaceutical, biotechnology and medical device industries. We also provide
laboratory testing services to the chemical, agrochemical and food industries.
The services Covance provides constitute two segments for financial reporting
purposes: early development services which includes preclinical and Phase I
clinical service capabilities, and late-stage development services which
includes central laboratory, clinical development, commercialization and other
clinical support services. We believe Covance is one of the largest
biopharmaceutical contract research organizations, based on annual net revenues,
and one of a few that are capable of providing comprehensive global product
development services. Covance maintains offices in 16 countries.

         During 2001, Covance completed two divestitures. In February 2001,
Covance sold its pharmaceutical packaging business, which offered full-service
contract drug packaging services for clinical trials, for the aggregate amount
of $137.5 million. In June 2001, Covance sold its biomanufacturing unit, Covance
Biotechnology Services Inc., which manufactured recombinant proteins for
biotechnology and pharmaceutical clients, for the aggregate amount of
approximately $190 million, including the assumption of debt and other
liabilities. Primarily as a result of these divestitures, Covance substantially
reduced debt, improved its cash flow and is now focused on its core services.

Business Strategy

         Contract research organizations like Covance typically derive
substantially all of their revenue from the research, development and marketing
expenditures of the pharmaceutical, biotechnology and medical device industries.
Although many companies in these industries traditionally have performed most of
their product development services internally, we believe that outsourcing of
these services has increased in the past, and will increase in the future,
because of several factors. In our view, these factors include pressures to
contain costs, to overcome limitations on internal capacity, to speed the
process of evaluating and developing new drugs, to perform research relating to
new drugs in multiple countries simultaneously, to respond to increasingly
stringent government regulation in various countries, and to take advantage of
expertise that many potential customers lack internally. Moreover, we believe
the investment and amount of time required to develop new drugs has been
increasing, and that these trends create an opportunity for a company that can
help speed the drug development process or make the process of drug development
more efficient.

         Our strategy is to meet the needs for outsourcing and to speed and
improve the drug development process by developing and delivering innovative
services that apply science and technology to capture, manage and integrate a
vast array of data in near real time. We believe our broad knowledge base in
drug development, our distinctive core capabilities, and our access to a global
investigator network enable us to create unique value for our customers. By
building on these strengths, we believe we can improve decision-making, increase
success rates and reduce the time and cost of drug development by providing data
faster and more efficiently to clients.

         As an example of our efforts, in early development services we seek to
leverage our leading market position to capitalize on the growing need for
better screening, candidate selection and safety and efficacy evaluation.
Examples of this include expansion of our toxicology capacity and utilization of
our central laboratory logistics expertise to develop our new bioanalytical
services offering. We are globalizing processes and web-enabling client data
access to accelerate drug development timelines, reduce costs and improve
quality.

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<PAGE>

         In our market leading position in central laboratories, we plan to
augment our share of the central laboratory market by combining our strengths in
logistics and data management to provide sponsors with quality lab data in near
real time. We are also strengthening our offerings of central diagnostics and
interactive voice response services in support of clinical trials, utilizing our
common technology platforms and building new specialty services, such as
pharmacogenomics and imaging services, which leverage our core capabilities.

         Information Technology. An important part of our effort to provide
better data faster and more efficiently is our technology strategy. We intend to
capitalize on our investments in carefully selected hardware and software
products, high availability standardized global systems and networks and over
500 trained information systems professionals to provide processes and solutions
for both employees and clients to meet the changing demands of drug development.
We are pursuing the development and implementation of internet-based systems
that may reduce the time and cost of drug development. In 2001, we introduced
new internet based products including the following. Study Tracker (TM) is a
client access product which permits customers of toxicology services to review
study data and schedules on a near real time basis. LabLink(TM) is a client
access program that allows customers of central laboratory services to review
and query lab data on a near real time basis. Trial Tracker(R) is a newly
web-enabled clinical trial project management and tracking tool which is
intended to allow both employees and customers of our late-stage clinical
business to review and manage all aspects of clinical trial projects. We
continue to pursue new innovative systems and use those systems to improve the
provision of drug development data to our customers.

         Geographic Expansion. We believe that it is important to provide our
full range of drug research and development services on a global basis,
especially given industry trends to conduct clinical trials in multiple
countries simultaneously. We have offices, regional monitoring sites, and
laboratories in over 29 locations in 16 different countries and conduct field
work in many other countries. We believe we are a leader among contract research
organizations in our ability to deliver services globally. Currently,
approximately 34% of our employees are based outside of the United States. We
intend to continue our strategy of establishing new or enhancing existing
operations in significant pharmaceutical and biotechnology markets.

         Acquisitions. In addition to internal development, we seek to make
strategic acquisitions that are complementary to our existing services and that
expand our ability to serve our clients. We expect such acquisitions to enhance
our existing services either qualitatively or geographically or to add new
services that can be integrated with our existing services.

Services

         The services we provide constitute two segments for financial reporting
purposes: (1) early development services, which includes preclinical services
and Phase I clinical services, and (2) late-stage development, which includes
central laboratory, clinical development, commercialization services and other
support services.

Early Development

         Our early development services include preclinical services and Phase I
clinical services. Although these are separate services, they are frequently
combined in joint service products. Our preclinical group works closely with the
Phase I operations of early development services and clinical development
services to minimize product development time and provide clients with early
data on the safety and efficacy of new molecules. This data allows clients to
make an early decision about whether to continue, modify or cease their
development programs. Also, our Strategic Consultancy Group, operating in Europe
and the United States, has built an integrated process and team drawn from both
our preclinical and early clinical areas to successfully reduce the time from
preclinical testing to the first in human studies. The Strategic Consultancy
Group researches a compound from initial preclinical evaluation through its
first dosing in humans, including the filing and attainment of an
Investigational New Drug application.

Preclinical Services
--------------------

         Our preclinical services include toxicology services and pharmaceutical
and related chemistry services. Our preclinical area has been a source of
innovation by introducing new technologies for client access to data such as
Study Tracker, electronic animal identification, multimedia study reports, and
animal and test tube measures of induced cell

                                                                               2
<PAGE>

proliferation or reproduction. We have four major laboratories, located in
Madison, Wisconsin and Vienna, Virginia in the United States and Harrogate,
United Kingdom and Muenster, Germany in Europe, new bioanalytical laboratories
in the United States in Indianapolis, Indiana and Chantilly, Virginia, and an
administrative and sales office in Tokyo, Japan. In 2001, we commenced a
significant expansion of our Madison, Wisconsin facility. In 2002, we plan to
commence the expansion of our Harrogate, United Kingdom facility.

         Toxicology. Our preclinical toxicology services include in vivo
toxicology studies, which are studies of the effects of drugs in animals, and
genetic toxicology studies, which include studies of the effects of drugs on
chromosomes, as well as on genetically modified mice. We offer immunotoxicology
services in which we assess the impact of drugs or chemicals on the structure
and function of the immune system. Our immunotoxicology and cell culture
laboratory features online data capture capabilities and Good Laboratory
Practices compliant instrumentation monitoring systems.

         Research Products. We provide purpose-bred animals for biomedical
research. These research animals are required by pharmaceutical and
biotechnology companies, university research centers and contract research
organizations as part of their preclinical animal safety and efficacy testing.
Through a variety of processes, technology and specifically constructed
facilities, we provide purpose-bred, pre-acclimated and specific pathogen free
animals that meet our clients' rigorous quality control requirements.

         Our preclinical research facilities strive to maintain strong
procedures in accordance with applicable government regulations, various
accrediting bodies and our own internal policies for the quarantine and handling
of animals, including imported animals such as primates.

         Polyclonal and Monoclonal Antibodies. We provide custom polyclonal and
monoclonal antibody services for research purposes. Monoclonal antibodies
recognize only one type of virus or bacteria, while polyclonal antibodies are a
group of antibodies each of which recognize different parts of a virus or
bacteria. We also offer research services to the medical device industry and
provide preclinical evaluations and services in the area of applied immunology,
which is research relating to the immune process.

         Pharmaceutical Chemistry. In our pharmaceutical chemistry services, we
determine the metabolic profile and bioavailability of drug candidates. We also
provide laboratory testing services to the chemical, agricultural chemical and
food industries. We offer a complete range of services to agricultural chemical
manufacturers to determine the potential risk to humans, animals and the
environment from plant protection products such as pesticides. We also offer a
broad range of services to the food and neutraceutical industries, including
nutritional analysis and nutritional content fact labels.

         BioLink(R). In 2000, we introduced our BioLink service offering. This
bioanalytical testing service, which is focused in our new 35,000 square foot
bioanalytical laboratory in Indianapolis, Indiana and in our new facility in
Chantilly, Virginia, helps determine the appropriate dose and frequency of drug
application from late discovery evaluation through Phase III clinical testing.
Covance provides these services on a full-scale, globally integrated basis, and
operates many mass spectrometry instruments globally, providing sufficient
capacity to meet deadlines and turnaround times for large clinical sample sets.
In addition to state-of-the-art technology, equipment and processes, BioLink
operations are supported by an experienced staff of scientific and technical
experts who advise on method design, evaluation and regulatory issues, and
enhance timely and accurate communications with clients.

Phase I Clinical Services
-------------------------

         We provide Phase I clinical services, especially including
first-in-human trials of new pharmaceuticals, at our clinics in Madison,
Wisconsin, and Leeds, United Kingdom.

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<PAGE>

Late-Stage Development

Central Laboratory Services
---------------------------

         We believe that the ability to provide high quality and sophisticated
central laboratory services is a differentiating advantage for Covance. We have
three laboratories located in the United States, Switzerland and Singapore that
provide central laboratory services to biotechnology and pharmaceutical
customers. We provide central laboratory services on a global basis. In 2000, we
opened a new wholly owned laboratory in Singapore expanding our global reach and
complimenting our existing contractual arrangements; one with a leading South
African laboratory and the other with a leading Australian laboratory. Each of
these relationships allows us to combine the testing capabilities of the
laboratory with our own proprietary systems. These facilities provide clients
the flexibility to conduct studies on a multinational and simultaneous basis. We
believe that our ability to capture, manage and manipulate this data provides us
with a significant competitive advantage. The data we provide is combinable
because we use consistent laboratory methods, the same reagent manufacturers and
identical equipment calibration and clinical trial reference ranges. Combinable
data eliminates the cumbersome process of statistically correlating results
generated under different methods and different laboratories on different
equipment.


         We employ a proprietary clinical trials management system that enables
us to enter a sponsor's protocol requirements directly into our database. This
system coordinates many aspects of clinical trials including:

         o        constructing the drug kits that will go to the investigational
                  sites and the requisition forms for additional drug kits;

         o        facilitating proper laboratory specimen collection from the
                  investigational sites;

         o        sequencing of study participants visits and investigator
                  ordering of additional tests, ensuring that all demographic
                  data is complete and accurate; and

         o        producing the client reports that are customized to their
                  specifications.

         The laboratory data can be easily audited because all laboratory data
can be traced to source documents. In addition, the laboratories are capable of
delivering customized data electronically within 24 hours of test completion.

Clinical Development Services
-----------------------------

         We offer a comprehensive range of clinical trial services, including
Phase II through III clinical studies. We have extensive experience in a number
of therapeutic areas, including the following:

         o        oncology;

         o        infectious diseases including AIDS;

         o        diseases of the cardiovascular and central nervous system; and

         o        diseases of the endocrine and respiratory systems.

         We have extensive experience in managing small, medium and large trials
in the United States, Europe and in many other parts of the world. These trials
may be conducted separately or simultaneously as part of a multinational
development plan. We can manage every aspect of clinical trials from clinical
development plans and protocol design to New Drug Applications, among other
supporting services.

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<PAGE>

         We provide the following core services either on an individual or
aggregated basis to meet clients needs.

         o        Study Design and Modeling;

         o        Study Orchestration;

         o        Trial Logistics;

         o        Enablement of Study Site Performance;

         o        Clinical Data Management and Biostatistical Analysis; and

         o        Medical Writing and Regulatory Services.

Other Support Services
----------------------

         Central Diagnostics. Our ability to collect and centralize clinical
trial data is enhanced by our central diagnostics service offerings which
include the capture and interpretation of electrocardiograms. Electrocardiogram
analysis, one of the most frequently used tools in clinical trials, is included
in more than one-half of clinical trials as part of the study protocol. We
distribute a proprietary hand-held electrocardiogram device to clinical trial
sites. The device can be used anywhere in the world and collects the data,
performs a real-time quality check, and transmits the information by telephone
to a full-time central operations center where cardiologists read the results.
In 1999, Covance introduced ambulatory cardiac monitoring capabilities, often
referred to as Holter monitoring. Holter monitoring involves the ambulatory
monitoring of cardiac activity and permits long-term monitoring - often 24 to 48
hours as opposed to the ten seconds of data typically provided by stationary
ECGs, and therefore may reveal certain conditions which may not be discovered by
a stationary ECG.

         In June 2000, we opened a centralized imaging center to meet a growing
pharmaceutical industry need for imaging to document clinical efficacy and
safety. Centralized imaging is a series of processes and procedures used to
collect and analyze image-enabled data from clinical trials.

         Pharmacogenomic Testing Services. Covance offers pharmacogenomic
testing technologies in conjunction with our central laboratory services. These
technologies focus on the rapid identification of normal variance in human gene
sequences and testing for these variances in clinical trial populations. In
1999, Covance entered into a collaborative agreement with Variagenics, Inc.
relating to pharmacogenomic testing, and Variagenics has developed a number of
genotyping assays for incorporation into clinical drug designs pursuant to this
agreement. We anticipate that the use of genetic variation during drug
development will facilitate the adjustment of treatment regimens and improve
disease definition.

         Interactive Voice Response Services. To expedite the drug development
process and to help reduce costs, we created a proprietary interactive trial
management system. This system uses touch-tone telephone technology for data
entry purposes and assists our clients in managing clinical trials on a real
time basis and in reducing product waste with just-in-time inventory processing.
This system is multi-lingual and is available world-wide through toll-free
numbers 24 hours per day, seven days per week. The most frequently used
functions include patient screening, patient enrollment, patient randomization,
drug assignments, drug inventory management, unblinding, discontinuations and
patient diaries. Clients can realize substantial cost savings through this
information technology, by reducing and better managing clinical supply
requirements and controlling waste. In addition, real time data access expedites
the clinical trial process by offering clients precise and accurate information
for quick analysis. We offer this system both in conjunction with clinical
trials we conduct and as a stand-alone service.

                                                                               5
<PAGE>

Commercialization Services
--------------------------

         Periapproval Services. Periapproval trials are studies conducted
"around approval", generally after a drug has successfully undergone clinical
efficacy and safety testing and the New Drug Application has been submitted to
the Food and Drug Administration ("FDA"). We offer a range of periapproval
services, including:

         o        Treatment Investigational New Drug applications;

         o        Phase IIIb clinical studies, which involve studies conducted
                  after New Drug Application submission, but before regulatory
                  approval is obtained;

         o        Phase IV clinical studies which are studies conducted after
                  initial approval of the drug; and

         o        other types of periapproval studies such as post-marketing
                  surveillance studies, product withdrawal support services, and
                  prescription to over-the-counter switch studies.

         We also field and process telephone calls and inquiries relating to
adverse experiences with a drug while we perform the safety services in the
context of periapproval studies. We have also increased our focus on offering
these services on a stand alone basis.

         Health Economics and Outcomes Services. We offer a wide range of health
economics services, including outcomes and pharmacoeconomic studies,
reimbursement planning and reimbursement advocacy programs. Pharmaceutical,
biotechnology and medical device manufacturers purchase these services from us
to help optimize their return on research and development investments. These
services provide our clients with information as to the economic impact of drugs
for the purpose of enhancing the economic performance of providers' medical
practices.

Customers and Marketing

         We provide product development services on a global basis to, among
others, the pharmaceutical and biotechnology industries. In 2001, we served in
excess of 300 biopharmaceutical companies, including the world's largest
pharmaceutical companies and biotechnology companies.

         While no single customer accounts for more than ten percent of our
aggregate net revenues, we have two customers accounting for more than five but
less than ten percent of our revenues, and our top five customers account for
approximately 23 percent of our net revenues. Our late-stage development segment
has one customer which accounts for approximately 11 percent of the aggregate
net revenues of that segment and has two customers which each account for more
than five but less than ten percent of the aggregate net revenues of that
segment. Our early development segment has no customer accounting for more than
five percent of its aggregate net revenues.

         For net revenues from external customers and assets attributable to
each of our business segments for the last three fiscal years, please review
Note 12 to the audited consolidated financial statements included elsewhere in
this Annual Report.

         For net revenues from external customers and long-lived assets
attributable to operations in the United States, United Kingdom, Switzerland and
other countries for each of the last three fiscal years, please review Note 13
to the audited consolidated financial statements included elsewhere in this
Annual Report.

         Our global sales activities are conducted by sales personnel based in
our operations in the United States, Canada, Europe, Australia, Japan and
Singapore. Most of our business development personnel have technical or
scientific backgrounds. Our sales force consists primarily of account executives
and account managers who are each responsible for optimizing business
opportunities for specific clients and fostering long-term relationships.

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<PAGE>

Contractual Arrangements

         Most of our contracts with our clients are either fixed price, or
fee-for-service with a cap. To a lesser extent, some of our contracts are
fee-for-service without a cap. In cases where the contracts are fixed price, we
generally bear the cost of overruns, but we benefit if the costs are lower than
we anticipated. In cases where our contracts are fee-for-service with a cap, the
contracts contain an overall budget for the trial based on time and cost
estimates. If our costs are lower than anticipated, the customer keeps the
savings, but if our costs are higher than estimated, we are responsible for the
overrun unless the increased cost is a result of a change requested by the
customer, such as an increase in the number of patients to be enrolled or the
type or amount of data to be collected. Contracts may range from a few months to
several years depending on the nature of the work performed. In some cases for
multi-year contracts, a portion of the contract fee is paid at the time the
study or trial is started with the balance of the contract fee payable in
installments upon the achievement of milestones over the study or trial
duration. For example, in clinical and periapproval trials, installment payments
may be related to investigator recruitment, patient enrollment or delivery of a
database.

         Most of our contracts may be terminated by the customer either
immediately or upon notice. These contracts typically require payment to Covance
of expenses to wind down a study, payment to Covance of fees earned to date,
and, in some cases, a termination fee or payment to Covance of some portion of
the fees or profit that could have been earned under the contract if it had not
been terminated early. Contracts may be terminated for a variety of reasons,
including the failure of a product to satisfy safety requirements, unexpected or
undesired results of the product, the customer's decision to forego or terminate
a particular study, insufficient enrollment or investigator recruitment, or our
failure to properly discharge our obligations.

Backlog

         Some of our studies and projects are performed over an extended period
of time, which may be as long as several years. We maintain an order backlog to
track anticipated net revenues for work that has yet to be earned. However, we
do not maintain an order backlog for other services that are performed within a
short period of time or where it is not otherwise practical or feasible to
maintain an order backlog.

         Backlog usually includes work to be performed under signed agreements
(i.e., contracts and letters of intent). Once work under a signed agreement
begins, net revenues are recognized over the life of the project. However, in
some cases we will begin work on a project once we have a legally binding
agreement, but before executing a signed agreement, and backlog may include the
net revenues expected from that project. Some of our studies and projects are
performed over an extended period of time, which may be as long as several
years.

         We cannot provide any assurance that we will be able to realize all or
most of the net revenues included in backlog. Although backlog can provide
meaningful information to our management with respect to a particular study
where study-specific information is known, such as study duration, performance
clauses and other study-specific contract terms, we believe that our aggregate
backlog as of any date is not necessarily a meaningful indicator of our future
results for a variety of reasons, including the following. First, studies vary
in duration. For instance, some studies that are included in 2001 year end
backlog may be completed in 2002, while others may be completed in later years.
Second, the scope of studies may change, which may either increase or decrease
their value. Third, studies included in backlog may be subject to bonus or
penalty payments. Fourth, studies may be terminated, reduced in scope or delayed
at any time by the client or regulatory authorities. Terminations or delays can
result from a number of reasons. Delayed contracts remain in our backlog until a
determination of whether to continue, modify or cancel the study has been made.
Based upon the foregoing, our aggregate backlog at December 31, 2001 and
December 31, 2000 was $1,013 million and $996 million, respectively (of which $
101 million on December 31, 2000, related to our biomanufacturing operations
which have since been divested).

Competition

         The contract research organization industry has many participants
ranging from hundreds of small, limited-service providers to a few full service
contract research organizations with global capabilities. We primarily compete
against in-house departments of pharmaceutical companies, full-service and
limited service contract research organizations and, to a lesser extent,
universities and teaching hospitals.

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<PAGE>

         There is competition among the larger contract research organizations
for customers on the basis of many factors, including the following:

         o        reputation for on-time quality performance;

         o        expertise and experience in specific areas;

         o        scope of service offerings;

         o        strengths in various geographic markets;

         o        price;

         o        technological expertise and efficient drug development
                  processes;

         o        ability to acquire, process, analyze and report data in a
                  time-saving and accurate manner;

         o        ability to manage large-scale clinical trials both
                  domestically and internationally;

         o        expertise and experience in health economics and outcomes
                  services; and

         o        size.

         We believe that we compete favorably in these areas.

Government Regulation

         Our laboratory services are subject to various regulatory requirements
designed to ensure the quality and integrity of the testing and manufacturing
processes. The industry standards for conducting preclinical laboratory testing
are embodied in the Good Laboratory Practice (GLP) and Good Manufacturing
Practice (GMP) regulations and for central laboratory operations in the Clinical
Laboratory Improvement Amendments of 1988. Our central laboratories in
Indianapolis and Switzerland have also been certified by the College of American
Pathologists. The standards of GLP and GMP are required by the FDA, by the
Department of Health in the United Kingdom and by similar regulatory authorities
in other parts of the world. GLP and GMP stipulate requirements for facilities,
equipment and professional staff. The regulations require standardized
procedures for conducting studies including procedures for recording and
reporting data and for retaining appropriate records. To help satisfy its
compliance obligations, Covance has established quality assurance controls at
its laboratory facilities which monitor ongoing compliance with GLP and GMP
regulations and the Clinical Laboratory Improvement Amendments, as applicable,
by auditing test data and conducting inspections of testing procedures.

         Our clinical services are subject to industry standards for the conduct
of clinical research and development studies that are embodied in the
regulations for Good Clinical Practice (GCP). The FDA and other regulatory
authorities require that test results submitted to such authorities be based on
studies conducted in accordance with GCP. These regulations require, but are not
limited to, the following:

         o        complying with specific requirements governing the selection
                  of qualified investigators;

         o        obtaining specific written commitments from the investigators;

         o        verifying that appropriate patient informed consent is
                  obtained;

         o        ensuring adverse drug reactions are medically evaluated and
                  reported;

         o        monitoring the validity and accuracy of data;

                                                                               8
<PAGE>

         o        verifying drug or device accountability;

         o        review by independent review boards;

         o        instructing investigators and studies staff to maintain
                  records and reports; and

         o        permitting appropriate governmental authorities access to data
                  for their review.

         We must also maintain reports for each study for specified periods for
auditing by the study sponsor and by the FDA or similar regulatory authorities
in other parts of the world. As with GLP and GMP, noncompliance with GCP can
result in the disqualification of data collection during the clinical trial.

         Covance's standard operating procedures are written in accordance with
regulations and guidelines appropriate to the region and the nation where they
will be used. We strive to perform all clinical research in accordance with the
International Conference on Harmonization-Good Clinical Practice Guidelines, and
the requirements of the applicable country. Although the U.S. is a signatory to
these guidelines, the FDA has not adopted all of these guidelines as statutory
regulations, but has currently adopted them only as guidelines. From an
international perspective, when applicable, we have implemented common standard
operating procedures across regions to assure consistency whenever it is
feasible and appropriate to do so.

         Our animal import and breeding facilities are also subject to a variety
of federal and state laws and regulations, including The Animal Welfare Act and
the rules and regulations promulgated thereunder by the United States Department
of Agriculture ("USDA"). These regulations establish the standards for the
humane treatment, care and handling of animals by dealers and research
facilities. Our breeding and animal import facilities maintain detailed standard
operating procedures and the documentation necessary to comply with applicable
regulations for the humane treatment of the animals in its custody. Besides
being licensed by the USDA as both a dealer and research facility, this business
is also accredited by the Association for Assessment and Accreditation of
Laboratory Animal Care International and has registered assurance with the
United States National Institutes of Health Office of Protection for Research
Risks.

         The use of controlled substances in testing for drugs with a potential
for abuse is regulated in the United States by the U.S. Drug Enforcement
Administration. All Covance laboratories using controlled substances for testing
purposes are licensed by the U.S. Drug Enforcement Administration.

         Our United States laboratories are subject to licensing and regulation
under federal, state and local laws relating to hazard communication and
employee right-to-know regulations, the handling and disposal of medical
specimens and hazardous waste and radioactive materials, as well as the safety
and health of laboratory employees. All of our laboratories are subject to
applicable federal and state laws and regulations relating to the storage and
disposal of all laboratory specimens including the regulations of the
Environmental Protection Agency, the Nuclear Regulatory Commission, the
Department of Transportation, the National Fire Protection Agency and the
Resource Conservation and Recovery Act. Although we believe that Covance is
currently in compliance in all material respects with such federal, state and
local laws, failure to comply could subject Covance to denial of the right to
conduct business, fines, criminal penalties and other enforcement actions.

         In addition to its comprehensive regulation of safety in the workplace,
the Occupational Safety and Health Administration has established extensive
requirements relating to workplace safety for health care employers, whose
workers may be exposed to blood-borne pathogens such as HIV and the hepatitis B
virus. These regulations, among other things, require work practice controls,
protective clothing and equipment, training, medical follow-up, vaccinations and
other measures designed to minimize exposure to chemicals, and transmission of
blood-borne and airborne pathogens. Furthermore, relevant Covance employees
receive initial and periodic training focusing on compliance with applicable
hazardous materials regulations and health and safety guidelines.

         The regulations of the U.S. Department of Transportation, the U.S.
Public Health Service and the U.S. Postal Service apply to the surface and air
transportation of laboratory specimens. Covance's laboratories also comply with
the International Air Transport Association regulations, which govern
international shipments of laboratory specimens. Furthermore, when materials are
sent to a foreign country, the transportation of such materials becomes subject
to the laws, rules and regulations of such foreign country.

                                                                               9
<PAGE>

Intellectual Property

         We have developed certain computer software and technically derived
procedures and products related to certain procedures that provide separate
services and are intended to maximize the quality and effectiveness of our
services. Although our intellectual property rights are important to our results
of operations, we believe that such factors as the technical expertise,
knowledge, ability and experience of our professionals are more important, and
that, overall, these technological capabilities provide significant benefits to
our clients.

Employees

         At December 31, 2001, we had approximately 7,200 employees,
approximately 34% of whom are employed outside of the United States.
Approximately 6,600 of our employees are full time employees, 25 of our
employees hold M.D. degrees, 144 hold Ph.D. degrees, and 287 hold masters or
other postgraduate degrees. We believe that Covance's relations with its
employees are good.

Item 2.  Properties

         Covance both owns and leases its facilities. Covance owns substantial
facilities in Madison, Wisconsin, in Vienna, Virginia, in the United Kingdom in
Harrogate and Leeds, and in Muenster, Germany for its early development
services. Covance leases substantial facilities in Indianapolis, Indiana and in
Geneva, Switzerland for its central laboratory services and leases facilities in
Indianapolis, Indiana and Chantilly, Virginia for its bioanalytical services.
Covance leases substantial facilities for its clinical development services in
the United States in Princeton, New Jersey, and in the United Kingdom in
Maidenhead and Horsham. Covance also owns or leases other facilities in the
United States, Canada, Europe, Asia and Latin America. Covance believes that its
facilities are adequate for its operations and that suitable additional space
will be available when needed.

         For additional information, please see Note 10 to the audited
consolidated financial statements included elsewhere in this Annual Report.

Item 3.  Legal Proceedings

         Covance is party to lawsuits and administrative proceedings incidental
to the normal course of its business. Covance does not believe that any
liabilities related to such lawsuits or proceedings will have a material effect
on its financial condition or results of operations.

Item 4.  Submission of Matters to a Vote of Security Holders

         None.


                                                                              10
<PAGE>

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

         Covance's common stock is traded on the New York Stock Exchange
(symbol: CVD). The following table shows the high and low sales prices on the
New York Stock Exchange for each of the most recent eight fiscal quarters.

         Quarter                                               High        Low
         -------                                               ----        ---

         First Quarter 2000...............................    $16.375    $ 9.813
         Second Quarter 2000..............................    $11.750    $ 6.500
         Third Quarter 2000...............................    $14.000    $ 7.500
         Fourth Quarter 2000..............................    $11.875    $ 6.625
         First Quarter 2001...............................    $15.500    $10.375
         Second Quarter 2001..............................    $22.750    $11.600
         Third Quarter 2001...............................    $25.500    $15.290
         Fourth Quarter 2001..............................    $23.490    $14.800

         As of February 11, 2002, there were 6,652 holders of record of
Covance's common stock.

         Covance has not paid any dividends during 2001 or 2000. Covance does
not currently intend to pay dividends in the foreseeable future, but rather,
intends to reinvest earnings in its business. Covance is also subject to certain
restrictions on its ability to pay dividends on its common stock by certain
covenants contained in a credit agreement to which Covance is a party.

                                                                              11
<PAGE>

Item 6.  Selected Financial Data

         The following table presents selected historical consolidated financial
data of Covance as of and for each of the years ended December 31, 2001, 2000,
1999, 1998 and 1997. This data has been derived from the audited consolidated
financial statements of Covance. You should read this selected historical
consolidated financial data in conjunction with Covance's audited consolidated
financial statements and accompanying notes included elsewhere in this Annual
Report. Historical consolidated financial data may not be indicative of
Covance's future performance. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

         The information provided below is on an "as reported" basis and has not
been restated to exclude the results of our biomanufacturing and packaging
operations, which were divested on June 15, 2001 and February 14, 2001,
respectively. The information below also includes special charges recorded
during all periods presented, as well as the net gain on sale of businesses
recorded during 2001. Certain of the information below has been presented on a
pro forma basis (excluding the results of Biomanufacturing and Packaging, the
gain/(loss) reported in connection with these divestitures, and special charges)
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Quarterly Results" and in Note 14 to the consolidated financial
statements included elsewhere in this Annual Report.

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                      ---------------------------------------------------------------------
                                                         2001            2000            1999           1998         1997
                                                      ---------       ---------       ---------      ---------    ---------
                                                                  (Dollars in thousands, except per share data)

<S>                                                   <C>             <C>             <C>            <C>          <C>
Income Statement Data:
Net revenues ......................................   $ 855,877(a)    $ 868,087(a)    $ 828,980      $ 731,574    $ 590,651
Costs and expenses:
  Cost of revenue .................................     618,119         625,595         553,283        484,128      389,785
  Selling, general and administrative .............     127,211         131,158         128,003        117,844       92,329
  Depreciation and amortization ...................      47,719          54,200          48,147         37,723       30,877
  Special charges(b) ..............................       8,178(b)       12,514(b)       12,968(b)          --           --
                                                      ---------       ---------       ---------      ---------    ---------
    Total .........................................     801,227         823,467         742,401        639,695      512,991
                                                      ---------       ---------       ---------      ---------    ---------
Income from operations ............................      54,650(a)       44,620(a)       86,579         91,879       77,660
                                                      ---------       ---------       ---------      ---------    ---------
Other (income) expense, net:
  Interest expense, net ...........................       6,848          19,051          10,062          7,361        8,314
  Foreign exchange transaction losses .............         263             598              57            373          167
  Net gain on sale of businesses ..................     (30,803)(c)          --              --             --           --
                                                      ---------       ---------       ---------      ---------    ---------
    Other (income) expense, net ...................     (23,692)         19,649          10,119          7,734        8,481
                                                      ---------       ---------       ---------      ---------    ---------
Income before taxes and equity investee results ...      78,342          24,971          76,460         84,145       69,179
Taxes on income ...................................      30,442           9,735          30,642         35,099       29,367
Equity investee loss ..............................          --              --              --            438           58
                                                      ---------       ---------       ---------      ---------    ---------
Net income ........................................   $  47,900(a)    $  15,236(a)    $  45,818      $  48,608    $  39,754
                                                      =========       =========       =========      =========    =========
Basic earnings per share ..........................   $    0.81       $    0.27       $    0.78      $    0.84    $    0.69
Diluted earnings per share ........................   $    0.79(a)    $    0.27(a)    $    0.78      $    0.83    $    0.69

Balance Sheet Data:
Working capital ...................................   $  97,710       $ (98,710)      $ 102,247      $  81,488    $  59,488
Total assets ......................................   $ 612,028       $ 771,091       $ 689,721      $ 589,333    $ 483,128
Long-term debt ....................................   $  15,000       $  17,224       $ 208,724      $ 149,909    $ 132,423
Stockholders' equity ..............................   $ 344,945       $ 265,751       $ 252,059      $ 220,933    $ 156,171

Other Financial Data:
Gross margin ......................................        27.8%           27.9%           33.3%          33.8%        34.0%
Operating margin ..................................         6.4%            5.1%           10.4%          12.6%        13.1%
Net income margin .................................         5.6%            1.8%            5.5%           6.6%         6.7%

Current ratio .....................................        1.43            0.78            1.51           1.42         1.35
Debt to capital ...................................        0.04            0.49            0.48           0.42         0.48
Book value per share ..............................        5.77            4.60            4.42           3.81         2.71
Net days sales outstanding ........................          41              54              52             55           48
</TABLE>
------------
(a)  Excluding 1) the results of our packaging and biomanufacturing operations,
     2) reduced interest expense from the applications of the net proceeds from
     these divestitures to reduce outstanding indebtedness, 3) the net gain
     recorded in connection with these divestitures, and 4) special charges, net
     revenues, income from operations, net income and diluted earnings per share
     would have been $800,265, $60,511, $35,169 and $0.58, respectively in 2001,
     and $737,276, $48,360, $25,960 and $0.45, respectively in 2000. See
     "Management's Discussion and Analysis of Financial Condition and Results of
     Operations - Quarterly Results" and Note 14 to the consolidated financial
     statements included elsewhere in this Annual Report.
(b)  Special charges in 2001 and 2000 consist of restructuring charges totaling
     $8,178 and $12,514, respectively, and in 1999 consist of merger-related
     costs totaling $5,249 and a restructuring charge totaling $7,719.
(c)  Amount represents the net gain reported on the divestitures of our
     biomanufacturing and packaging businesses.

                                                                              12
<PAGE>

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Overview

         Covance is a leading contract research organization providing a wide
range of product development services on a worldwide basis primarily to the
pharmaceutical, biotechnology and medical device industries. Covance also
provides services such as laboratory testing to the chemical, agrochemical and
food industries. The foregoing services comprise two segments for financial
reporting purposes: early development services (includes preclinical and Phase I
clinical); and late-stage development services (includes central laboratory,
clinical development, biomanufacturing - through June 15, 2001,
commercialization and other clinical support services - including our packaging
operations through February 14, 2001). Covance believes it is one of the largest
biopharmaceutical contract research organizations, based on 2001 annual net
revenues, and one of a few that is capable of providing comprehensive global
product development services. Covance offers its clients high quality services
designed to reduce product development time. This enables Covance's customers to
introduce their products into the marketplace faster and as a result, maximize
the period of market exclusivity and monetary return on their research and
development investments. Additionally, Covance's comprehensive services and
broad experience provide its customers with a variable cost alternative to fixed
cost internal development capabilities.

         On June 15, 2001, Covance sold its biomanufacturing business
("Biomanufacturing") to Akzo Nobel's pharma business unit, Diosynth, for gross
proceeds of $113.6 million, subject to post-closing adjustments, including
finalization of the closing balance sheet and earnout provision, in accordance
with the Stock Purchase Agreement between Covance and Akzo Nobel, which remains
to be resolved between the parties. Covance recognized a loss of $7.5 million
($4.5 million after tax) from this transaction. On February 14, 2001, Covance
sold its pharmaceutical packaging business ("Packaging") to Fisher Scientific
International Inc. for gross proceeds of $137.5 million. Covance recognized a
pre-tax gain of $38.4 million ($24.3 million after tax) from this transaction.

         Historically, a majority of Covance's net revenues have been earned
under contracts. These contracts generally range in duration from a few months
to two years, but can extend in duration up to five years. Revenue from these
contracts is generally recognized under either the percentage of completion
method of accounting or as services are rendered or products are delivered,
depending upon the nature of the work contracted. Where the percentage of
completion method is used, Covance generally measures progress toward completion
in terms of units-of-work performed as compared to the total units-of-work
contracted. The contracts may contain provisions for renegotiation for cost
overruns arising from changes in the scope of work. Renegotiated amounts are
included in net revenues when earned and realization is assured. In some cases,
for multi-year contracts a portion of the contract fee is paid at the time the
trial is initiated. These amounts are deferred and recognized as revenue as
services are performed. Additional payments are made based upon the achievement
of performance-based milestones over the contract duration. Covance routinely
subcontracts with independent physician investigators in connection with either
single or multi-site clinical trials. Investigator fees are not reflected in net
revenues or expenses since these investigator fees are paid by the customers to
Covance on a "pass-through basis" (i.e., without risk or reward to Covance).
Most contracts are terminable either immediately or upon notice by the client.
These contracts typically require payment to Covance of expenses to wind down a
study, payment to Covance of fees earned to date, and, in some cases, a
termination fee or a payment to Covance of some portion of the fees or profit
that could have been earned by Covance under the contract if it had not been
terminated early.

         Covance segregates its recurring operating expenses among three
categories: cost of revenue; selling, general and administrative expenses; and
depreciation and amortization. Cost of revenue consists of appropriate amounts
necessary to complete the revenue and earnings process, and includes direct
labor and related benefit charges, other direct costs, and an allocation of
facility charges and information technology costs, and excludes depreciation and
amortization. Cost of revenue, as a percentage of net revenues, tends and is
expected to fluctuate from one period to another, as a result of changes in
labor utilization and the mix of service offerings involving hundreds of studies
conducted during any period of time. Selling, general and administrative
expenses consist primarily of administrative payroll and related benefit
charges, advertising and promotional expenses, administrative travel and an
allocation of facility charges and information technology costs, and excludes
depreciation and amortization.

                                                                              13
<PAGE>

Results of Operations

         Variances explained below are on an "as reported" basis, but also
include certain pro forma variances (where so noted) - that is, variances
between the years ended December 31, 2001 and 2000, after giving effect to 1)
the divestiture of Packaging and Biomanufacturing as if these transactions had
occurred on January 1, 2000, and 2) the exclusion of the impact of restructuring
charges totaling $8.2 million ($5.0 million net of tax) and $12.5 million ($7.6
million net of tax) recorded in 2001 and 2000, respectively.

         Year Ended December 31, 2001 Compared with Year Ended December 31,
2000. Net revenues decreased 1.4% to $855.9 million for 2001 from $868.1 million
for 2000, as the 2000 period includes revenues from Covance's biomanufacturing
and packaging operations for the full year, whereas 2001 only includes these
revenues through the respective dates of divestiture. Pro forma net revenues
increased 8.5% to $800.3 million for 2001 from $737.3 million for 2000.
Excluding the impact of foreign exchange rate variances between both periods,
pro forma net revenues increased 9.6% as compared to 2000. Net revenues from
Covance's early development segment grew 8.3%, or 10.0% excluding the impact of
foreign exchange rate variances between both periods, driven primarily by growth
in our toxicology service offering. Pro forma net revenues from Covance's
late-stage development segment increased 8.7%, or 9.3% excluding the impact of
foreign exchange rate variances between both periods. Late-stage development
revenue growth is primarily attributable to our European central laboratory and
our Phase IV services.

         Cost of revenue decreased 1.2% to $618.1 million or 72.2% of net
revenues for the year ended December 31, 2001 from $625.6 million or 72.1% of
net revenues for the corresponding 2000 period. Gross margins were 27.8% for the
year ended December 31, 2001 and 27.9% for the corresponding 2000 period.

         Overall, selling, general and administrative expenses decreased 3.0% to
$127.2 million for 2001 from $131.2 million for 2000. As a percentage of net
revenues, selling, general and administrative expenses decreased to 14.9% for
2001 from 15.1% for 2000.

         Depreciation and amortization decreased 12.0% to $47.7 million or 5.6%
of net revenues for 2001 from $54.2 million or 6.2% of net revenues for 2000,
due primarily to the divestiture of our capital intensive biomanufacturing and
packaging businesses in the first half of 2001.

         In June 2001, Covance announced plans to reorganize its internet
initiatives subsidiary, Nexigent, integrating Nexigent's newly developed
clinical trials service offerings into Covance's core business and reducing
Nexigent's infrastructure. Under the plan, Nexigent's service offerings - site
activation, study feasibility, electronic data capture, and web-based central
laboratory data access - continue to be marketed by Covance's core business
units, and Nexigent narrowed its focus, maintaining a small group of technology
and business experts to review new drug development technologies and explore
licensing opportunities and alliances in this area. Covance recorded a pre-tax
restructuring charge in the second quarter of 2001, totaling approximately $8.2
million ($5.0 million net of tax). The charge consisted of approximately $6.5
million in asset write-offs in June 2001, and approximately $1.6 million in
severance and related benefits in connection with the elimination of
approximately 30 redundant Nexigent positions. Severance payments began in
August 2001 and will continue through 2002. Approximately $0.7 million of the
severance liability remains accrued at December 31, 2001.

         Income from operations increased 22.5% to $54.7 million for the year
ended December 31, 2001 from $44.6 million for the corresponding 2000 period.
Income from operations from Covance's early development segment increased $1.6
million or 3.5% to $48.0 million or 15.4% of net revenues for the year ended
December 31, 2001 from $46.3 million or 16.1% of net revenues for the
corresponding 2000 period. Income from operations from Covance's late-stage
development segment increased $7.6 million or 29.8% to $33.2 million or 6.1% of
net revenues for the year ended December 31, 2001 from $25.6 million or 4.4% of
net revenues for the corresponding 2000 period.

         Pro forma income from operations increased 25.1% to $60.5 million for
the year ended December 31, 2001 from $48.4 million for 2000. As a percentage of
pro forma net revenues, pro forma income from operations increased to 7.6% for
the year ended December 31, 2001 from 6.6% for 2000. Pro forma income from
operations from Covance's early development segment totaled $48.6 million and
$47.0 million, for the years ended December 31, 2001 and 2000, respectively.
Excluding the impact of our bioanalytical service offering, early development
operating

                                                                              14
<PAGE>

income growth is 11.6%. Pro forma income from operations from Covance's
late-stage development segment totaled $38.4 million and $27.6 million for the
years ended December 31, 2001 and 2000, respectively. The increase in late-stage
development pro forma operating income was due to the return to profitability
experienced in Phase II/III clinical, margin growth in Phase IV services and
stronger European central laboratory margins and volume experienced during 2001,
which offset lower margins and volume in our North American central laboratory
during 2001.

         Other expense, net includes a $30.8 million net pre-tax gain on the
sales of Packaging and Biomanufacturing in 2001. Excluding this gain, other
expense, net decreased $12.5 million to $7.1 million for 2001 from $19.6 million
for 2000, primarily due to a decrease in interest expense of $12.1 million
resulting from a decrease in the weighted average borrowings under our long-term
credit facility resulting from the divestitures as previously mentioned, as well
as positive cash flows in 2001.

         Covance's effective tax rate decreased to 38.9% for 2001 from 39.0% for
2000.

         Net income was $47.9 million for the year ended December 31, 2001
versus $15.2 million for 2000. Pro forma net income increased 35.5% to $35.2
million for the year ended December 31, 2001 from $26.0 million for the
corresponding 2000 period.

         Year Ended December 31, 2000 Compared with Year Ended December 31,
1999. Net revenues increased 4.7% to $868.1 million for 2000 from $829.0 million
for 1999. Excluding the impact of foreign exchange rate variances between both
periods, net revenues increased 7.9% in 2000. Net revenues from Covance's
late-stage development segment grew 7.9% in 2000 as compared to 12.2% in 1999,
excluding the impact of foreign exchange rate variances between both periods.
The weakness in late-stage development net revenues was primarily attributable
to softness in our clinical development services, resulting from weak new order
generation and greater than normal cancellations of development programs by
pharmaceutical companies. Net revenues from Covance's more mature early
development segment grew 7.9% in 2000 as compared to 14.1% in 1999, excluding
the impact of foreign exchange rate variances between both periods. The
reduction in growth in early development was primarily a result of softness in
certain of our chemistry service offerings. Covance's toxicology business, which
accounts for approximately half of all early development revenues, experienced
strong demand during 2000.

         Cost of revenue increased 13.1% to $625.6 million or 72.1% of net
revenues for the year ended December 31, 2000 from $553.3 million or 66.7% of
net revenues for the corresponding 1999 period. Gross margins declined to 27.9%
for the year ended December 31, 2000 from 33.3% for the corresponding 1999
period. The reduction in gross margins was attributable to a number of factors.
One factor was our clinical development services, which experienced weak new
business generation, cancellations and price competition. Another factor was
direct costs in our biomanufacturing services. While the increase in
biomanufacturing direct costs was planned to meet demand, net revenues, although
increasing considerably over the corresponding 1999 period, fell short of budget
due to a combination of factors, including facility shutdowns in the first
quarter of 2000, subsequent production complications, and efforts directed
toward preparing the facility for commercial scale production (resulting in
lower utilization of equipment and people in revenue generating activities
during 2000). A third factor was increased investment spending on internet
initiatives and bioanalytical services. Fourth, we also experienced an increased
mix of lower margin studies and increased program cancellations in our central
laboratory services during the second half of 2000.

         Overall, selling, general and administrative expenses increased 2.5% to
$131.2 million for 2000 from $128.0 million for 1999. As a percentage of net
revenues, selling, general and administrative expenses decreased to 15.1% for
2000 from 15.4% for 1999.

         Depreciation and amortization increased 12.6% to $54.2 million or 6.2%
of net revenues for 2000 from $48.1 million or 5.8% of net revenues for 1999 due
primarily to increased depreciation expense associated with capital spending in
1999 and 2000.

         In the second quarter of 2000, in order to restructure its Phase III
clinical trials unit to align its cost base with revenue projections, Covance
announced a plan to close certain satellite offices, consolidate other
facilities and eliminate approximately 200 positions globally. In connection
with these actions, Covance recorded a pre-tax restructuring charge

                                                                              15
<PAGE>

of $14.7 million ($8.9 million net of tax) in the second quarter of 2000,
consisting primarily of $7.6 million in lease termination and other facility
related costs and $6.3 million for severance and related benefits. This
restructuring initiative delivered cost savings of approximately $7 million in
2000 and is expected to deliver cost savings of approximately $16 million in
2001. As of December 31, 2000, 79% of these positions have been eliminated.
Severance payments began in June 2000 and will continue through 2001. In the
third and fourth quarters of 2000, Covance reversed on a net basis $2.2 million
of the restructuring reserve established in the second quarter. This reversal
consisted of $2.5 million in favorable lease terminations offset by $0.4 million
in additional restructuring provisions. As of December 31, 2000, $6.5 million of
the $12.5 million net restructuring charge has been paid, while the remaining
$6.0 million has been accrued.

         Inclusive of the $12.5 million net restructuring charge recorded in
2000, a $5.2 million one-time merger-related charge incurred in the second
quarter of 1999 in connection with the termination of the proposed merger with
Parexel International Corporation, and a $7.7 million restructuring charge
recorded in the third quarter of 1999, income from operations decreased 48.5% to
$44.6 million for the year ended December 31, 2000 from $86.6 million for the
corresponding 1999 period. Excluding the impact of these special charges, income
from operations decreased 42.6% to $57.1 million, or 6.6% of net revenues, from
$99.5 million or 12.0% of net revenues for the corresponding 1999 period.
Excluding the impact of these special charges, income from operations from
Covance's early development segment decreased $4.7 million or 11.0% to $38.1
million or 13.3% of net revenues for the year ended December 31, 2000 from $42.8
million or 15.7% of net revenues for the corresponding 1999 period, while income
from operations from Covance's late-stage development segment decreased $37.7
million or 66.4% to $19.0 million or 3.3% of net revenues for the year ended
December 31, 2000 from $56.7 million or 10.2% of net revenues for the
corresponding 1999 period. The reduction in late-stage development operating
income was due primarily to the earnings shortfalls in clinical development and
biomanufacturing services, a shift in central laboratories business mix and
program cancellations and increased investment spending on internet initiatives
previously discussed. The reduction in early development was primarily due to
softness experienced in certain of our chemistry service offerings, and
increased investment spending on our bioanalytical service offering.

         Other expense, net increased $9.5 million to $19.6 million for 2000
from $10.1 million for 1999, primarily due to a $9.0 million increase in net
interest expense. Net interest increased primarily as a result of the fact that
average borrowing levels and the weighted average cost of such borrowings under
Covance's revolving credit facilities were considerably higher in 2000 as
compared to the corresponding 1999 period. In addition, Covance completed
construction of its new North American packaging facility in mid-1999 and
accordingly incurred only approximately six months interest on the funds
borrowed to finance this expenditure in 1999 versus a full year of financing
costs in 2000.

         Covance's effective tax rate decreased to 39.0% for 2000 from 40.1% for
1999. Since Covance operates on a global basis, its effective tax rate is
subject to variation from year to year due to the changes in the geographic
distribution of its pre-tax earnings.

         Inclusive of the $7.6 million after tax impact of the 2000
restructuring charge, the $3.1 million after tax impact of the one-time
merger-related charge recorded in the second quarter of 1999, and the $4.6
million after tax impact of the restructuring charge recorded in the third
quarter of 1999, net income decreased 66.7% to $15.2 million for the year ended
December 31, 2000 from $45.8 million for the corresponding 1999 period.
Excluding the after tax impact of these special charges, net income decreased
57.3% or $30.7 million to $22.9 million from $53.6 million for the corresponding
1999 period.

Quarterly Results

         Covance's quarterly operating results are subject to variation, and are
expected to continue to be subject to variation, as a result of factors such as
(1) delays in initiating or completing significant drug development trials, (2)
termination or reduction in size of drug development trials, (3) acquisitions
and divestitures, and (4) exchange rate fluctuations. Delays and terminations of
trials are often the result of actions taken by Covance's customers or
regulatory authorities and are not typically controllable by Covance. Since a
large amount of Covance's operating costs are relatively fixed while revenue is
subject to fluctuation, moderate variations in the commencement, progress or
completion of drug development trials may cause significant variations in
quarterly results.

                                                                              16
<PAGE>

         The following tables present unaudited quarterly operating results of
Covance for each of the eight most recent fiscal quarters during the period
ended December 31, 2001. The quarterly information provided in the first table
below is on an "as reported" basis and has not been restated to exclude the
results of our biomanufacturing and packaging operations, which were divested on
June 15, 2001 and February 14, 2001, respectively. The information in the second
table below has been presented on a pro forma basis.

         In the opinion of Covance, the information in the first table has been
prepared on the same basis as the audited consolidated financial statements
included elsewhere in this Annual Report and reflects all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of results of operations for those periods. This quarterly
financial data should be read in conjunction with the audited consolidated
financial statements included elsewhere in this Annual Report. Operating results
for any quarter are not necessarily indicative of the results that may be
reported in any future period.

<TABLE>
<CAPTION>
                                                                           Quarter Ended
                               -----------------------------------------------------------------------------------------------------
                                Dec. 31,   Sept. 30,    June 30,       Mar. 31,    Dec. 31,     Sept. 30,      June 30,     Mar. 31,
                                  2001        2001        2001           2001        2000          2000          2000         2000
                               ---------   ---------   ---------      ---------   ---------     ---------     ---------    ---------
                                                           (Dollars in thousands, except per share data)

<S>                            <C>         <C>         <C>            <C>         <C>           <C>           <C>          <C>
Net revenues ................  $ 204,404   $ 196,394   $ 226,421      $ 228,658   $ 231,396     $ 214,946     $ 212,118    $ 209,627
Costs and expenses:
  Cost of revenue ...........    144,443     141,664     165,496        166,516     166,989       160,149       152,533      145,924
  Selling, general and
     administrative .........     32,502      29,241      33,171         32,297      33,668        33,192        33,875       30,423
  Depreciation and
     amortization ...........     11,104      10,419      12,577         13,619      13,602        13,744        13,498       13,356
  Special charges (a) .......         --          --       8,178(a)          --      (1,275)(a)      (876)(a)    14,665(a)        --
                               ---------   ---------   ---------      ---------   ---------     ---------     ---------    ---------
     Total ..................    188,049     181,324     219,422        212,432     212,984       206,209       214,571      189,703
                               ---------   ---------   ---------      ---------   ---------     ---------     ---------    ---------
Income (loss) from
  operations ................     16,355      15,070       6,999         16,226      18,412         8,737        (2,453)      19,924
Other expense (income), net .        326         133      10,873        (35,024)      6,499         5,819         4,365        2,966
                               ---------   ---------   ---------      ---------   ---------     ---------     ---------    ---------
Income (loss) before taxes ..     16,029      14,937      (3,874)        51,250      11,913         2,918        (6,818)      16,958
Taxes on income .............      6,254       5,878      (1,115)        19,425       4,688         1,135        (2,685)       6,597
                               ---------   ---------   ---------      ---------   ---------     ---------     ---------    ---------
Net income (loss) ...........  $   9,775   $   9,059   $  (2,759)     $  31,825   $   7,225     $   1,783     $  (4,133)   $  10,361
                               =========   =========   =========      =========   =========     =========     =========    =========
Basic earnings (loss) per
  share .....................  $    0.16   $    0.15   $   (0.05)     $    0.55   $    0.13     $    0.03     $   (0.07)   $    0.18
Diluted earnings (loss) per
  share .....................  $    0.16   $    0.15   $   (0.05)     $    0.54   $    0.12     $    0.03     $   (0.07)   $    0.18
</TABLE>
-----------
(a)  Special charges in 2001 and 2000 consist of restructuring charges
     (reversals).

         The quarterly information below is presented on a pro forma basis, and
reflects (1) the exclusion of the results of Packaging and Biomanufacturing for
all periods presented, (2) reduced interest expense from the application of the
net proceeds from the sales of these businesses to outstanding debt, (3) the
exclusion of the gain (loss) on sale of businesses recorded in the first and
second quarters of 2001, and (4) the exclusion of restructuring charges
(reversals) in all applicable periods. Information for the quarters ended
September 30, 2001 and December 31, 2001 is shown on an "as reported" basis as
they already exclude the results of Packaging and Biomanufacturing which were
divested prior to the beginning of the third quarter 2001. See Note 14 to the
consolidated financial statements included elsewhere in this Annual Report.

<TABLE>
<CAPTION>
                                                                    Quarter Ended (Pro Forma)
                               ----------------------------------------------------------------------------------------------------
                                Dec. 31,    Sept. 30,     June 30,     Mar. 31,     Dec. 31,    Sept. 30,     June 30,     Mar. 31,
                                  2001         2001         2001         2001         2000         2000         2000         2000
                               ---------    ---------    ---------    ---------    ---------    ---------    ---------    ---------
                             (as reported) (as reported)

                                                          (Dollars in thousands, except per share data)
<S>                            <C>          <C>          <C>          <C>          <C>          <C>          <C>          <C>
Net revenues:
  Early Development ........   $  78,666    $  79,705    $  78,727    $  74,045    $  72,442    $  71,414    $  71,180    $  72,169
  Late-stage Development ...   $ 125,738    $ 116,689    $ 125,131    $ 121,564    $ 115,930    $ 108,323    $ 113,244    $ 112,574
  Total ....................   $ 204,404    $ 196,394    $ 203,858    $ 195,609    $ 188,372    $ 179,737    $ 184,424    $ 184,743

Income from operations:
  Early Development ........   $  12,979    $  12,524    $  11,710    $  11,336    $   9,973    $  11,417    $  12,506    $  13,110
  Late-stage Development ...   $  10,634    $   8,972    $  10,264    $   8,570    $   5,273    $   2,824    $   5,412    $  14,120
  Corporate ................   $  (7,258)   $  (6,426)   $  (7,025)   $  (5,769)   $  (6,250)   $  (7,157)   $  (7,320)   $  (5,548)
  Total ....................   $  16,355    $  15,070    $  14,949    $  14,137    $   8,996    $   7,084    $  10,598    $  21,682

Operating income % .........         8.0%         7.7%         7.3%         7.2%         4.8%         3.9%         5.7%        11.7%
Other expense, net .........   $     326    $     133    $     947    $     997    $   1,949    $   1,536    $     366    $     (30)
Income before taxes ........   $  16,029    $  14,937    $  14,002    $  13,140    $   7,047    $   5,548    $  10,232    $  21,712
Taxes on income ............   $   6,254    $   5,878    $   5,571    $   5,236    $   3,382    $   2,369    $   4,098    $   8,730
Net income .................   $   9,775    $   9,059    $   8,431    $   7,904    $   3,665    $   3,179    $   6,134    $  12,982
Diluted earnings per share .   $    0.16    $    0.15    $    0.14    $    0.13    $    0.06    $    0.06    $    0.11    $    0.23
</TABLE>

                                                                              17
<PAGE>

Liquidity and Capital Resources

         Covance has a centralized domestic cash management function whereby
cash received from operations is generally swept daily to a centrally managed
concentration account. Cash disbursements for operations are funded as needed
from the concentration account. From time to time excess cash balances are
maintained at Covance, generally for specific cash requirements.

         On June 28, 2001, Covance replaced its credit facility with a new
$150.0 million senior revolving credit facility (the "Credit Facility") which
expires in June 2004. Covance's expected primary cash needs on both a short and
long-term basis are for capital expenditures, expansion of services, possible
future acquisitions, geographic expansion, working capital and other general
corporate purposes. Covance believes cash from operations and available
borrowings under the Credit Facility will provide sufficient liquidity for the
foreseeable future. At December 31, 2001, there was $15.0 million of outstanding
borrowings and $0.9 million of outstanding letters of credit under the Credit
Facility. At December 31, 2001, Covance has a remaining availability under the
Credit Facility of $134.1 million of which $24.1 million remains available for
letters of credit. Interest on all outstanding borrowings under the Credit
Facility is based upon the London Interbank Offered Rate ("LIBOR") plus a margin
and approximated 7.21% per annum for the year ended December 31, 2001. Costs
associated with replacing the senior revolving credit facility, consisting
primarily of bank fees totaling $1.7 million, are being amortized over the three
year facility term. The Credit Facility contains various covenants, which among
other things, restrict certain uses of cash such as certain restrictions on its
ability to pay cash dividends on the Covance common stock. At December 31, 2001,
Covance was in compliance with the terms of its Credit Facility. Commitment fees
paid during 2001, which under the prior senior revolving credit facility were
0.5 percent of the revolving committed amount, and under the new Credit Facility
were 0.5 percent of the unused line of credit, approximated $1.0 million for the
year ended December 31, 2001. The Credit Facility is collateralized by domestic
guarantees of certain subsidiaries and a pledge of 65 percent of the capital
stock of certain of Covance's foreign subsidiaries.

         Covance used the net proceeds from the 2001 sales of Packaging and
Biomanufacturing of approximately $180.0 million to reduce borrowings under its
senior revolving credit facility. In addition, the $18.5 million mortgage debt
associated with the North American packaging facility and the Biomanufacturing
$10.0 million short-term revolving credit facility were repaid at the time of
the divestitures.

         As discussed in Note 10 to the audited consolidated financial
statements included elsewhere in this Annual Report, and as set forth in the
table below, in addition to its senior revolving credit facility, Covance is
obligated under non-cancelable operating leases, primarily for its offices and
laboratory facilities, as follows:

                                         Senior Revolving   Operating
         Year Ending December 31,         Credit Facility     Leases      Total
         -----------------------------   ----------------   ---------   --------
         (dollars in thousands)

         2002.........................             --       $ 23,736    $ 23,736
         2003.........................             --       $ 21,128    $ 21,128
         2004.........................       $ 15,000       $ 19,120    $ 34,120
         2005.........................             --       $ 16,550    $ 16,550
         2006.........................             --       $ 13,877    $ 13,877
         2007 and beyond..............             --       $ 44,203    $ 44,203

         During the year ended December 31, 2001, Covance's operations provided
net cash of $66.8 million, an increase of $18.0 million from the corresponding
2000 amount. Cash flows from net earnings adjusted for non-cash activity
provided $87.2 million during 2001, up $20.5 million or 30.7% from the
corresponding 2000 amount of $66.7 million. The change in net operating assets
used $20.4 million in cash during 2001, primarily due to an increase in
inventory and a decrease in accounts payable and accrued expenses, while this
net change used $18.0 million in cash during 2000, primarily due to an increase
in accounts receivable and unbilled services in excess of the increase in
unearned revenue. Covance's ratio of current assets to current liabilities was
1.43 at December 31, 2001 and 0.78 at December 31, 2000 (1.55 had Covance's
borrowings under senior revolving credit facilities been classified as a
long-term liability at December 31, 2000).

                                                                              18
<PAGE>

         Net days sales outstanding ("DSOs") at December 31, 2001 were 41 days,
down from 45 days at December 31, 2000 (on a pro forma basis excluding divested
businesses). DSOs are currently near historic lows, and accordingly Covance does
not expect to experience significant additional improvement in DSOs in 2002.
DSOs have historically followed a seasonal pattern whereby they are generally at
their lowest levels at year end and increase during the first six to nine months
of the year, before returning to their seasonally lower levels at year end. The
impact upon liquidity from a one day change in DSO is approximately $2 million
in cash flow.

         Excluding the $251.1 million in proceeds from the sales of Packaging
and Biomanufacturing, investing activities for the year ended December 31, 2001
used $78.1 million compared to $95.5 million for the corresponding 2000 period.
Capital spending for 2001 totaled $78.1 million, compared to $95.8 million for
the corresponding 2000 period, and included $19.3 million for the purchase of
land at Covance's Vienna, Virginia facility which had previously been under
lease. The remainder of capital spending during 2001 was primarily for
outfitting of new facilities, purchase of new equipment, upgrade of existing
equipment and computer equipment and software for newly hired employees.

         Planned capital expenditures in 2002 include spending associated with
the $27 million expansion of Covance's toxicology capacity in Madison, Wisconsin
and the $13 million expansion and enhancement of our Harrogate, England
facility.

Foreign Currency

         Since Covance operates on a global basis, it is exposed to various
foreign currency risks. Two specific risks arise from the nature of the
contracts Covance executes with its customers since from time to time contracts
are denominated in a currency different than the particular Covance subsidiary's
local currency. These risks are generally applicable only to a portion of the
contracts executed by Covance's foreign subsidiaries providing clinical
services. The first risk occurs as revenue recognized for services rendered is
denominated in a currency different from the currency in which the subsidiary's
expenses are incurred. As a result, the subsidiary's net revenues and resultant
earnings can be affected by fluctuations in exchange rates. Historically,
fluctuations in exchange rates from those in effect at the time contracts were
executed have not had a material effect upon Covance's consolidated financial
results. See "Risk Factors".

         The second risk results from the passage of time between the invoicing
of customers under these contracts and the ultimate collection of customer
payments against such invoices. Because the contract is denominated in a
currency other than the subsidiary's local currency, Covance recognizes a
receivable at the time of invoicing for the local currency equivalent of the
foreign currency invoice amount. Changes in exchange rates from the time the
invoice is prepared and payment from the customer is received will result in
Covance receiving either more or less in local currency than the local currency
equivalent of the invoice amount at the time the invoice was prepared and the
receivable established. This difference is recognized by Covance as a foreign
currency transaction gain or loss, as applicable, and is reported in other
expense (income) in Covance's Consolidated Statements of Income.

         Finally, Covance's consolidated financial statements are denominated in
U.S. dollars. Accordingly, changes in exchange rates between the applicable
foreign currency and the U.S. dollar will affect the translation of each foreign
subsidiary's financial results into U.S. dollars for purposes of reporting
Covance's consolidated financial results. The process by which each foreign
subsidiary's financial results are translated into U.S. dollars is as follows:
income statement accounts are translated at average exchange rates for the
period; balance sheet asset and liability accounts are translated at end of
period exchange rates; and equity accounts are translated at historical exchange
rates. Translation of the balance sheet in this manner affects the stockholders'
equity account, referred to as the cumulative translation adjustment account.
This account exists only in the foreign subsidiary's U.S. dollar balance sheet
and is necessary to keep the foreign balance sheet stated in U.S. dollars in
balance. To date such cumulative translation adjustments have not been material
to Covance's consolidated financial position.

                                                                              19
<PAGE>

Taxes

         Since Covance conducts operations on a global basis, Covance's
effective tax rate has and will continue to depend upon the geographic
distribution of its pre-tax earnings among locations with varying tax rates.
Covance's profits are further impacted by changes in the tax rates of the
various jurisdictions. In particular, as the geographic mix of Covance's pre-tax
earnings among various tax jurisdictions changes, Covance's effective tax rate
may vary from period to period. See Note 6 to the audited consolidated financial
statements included elsewhere in this Annual Report.

Inflation

         While most of Covance's net revenues are earned under contracts,
long-term contracts (those in excess of one year) generally include an inflation
or cost of living adjustment for the portion of the services to be performed
beyond one year from the contract date. As a result, Covance believes that the
effects of inflation generally do not have a material adverse effect on its
operations or financial condition.

New Accounting Pronouncements

         In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 142, Goodwill and Other Intangible Assets. This statement requires
that goodwill no longer be amortized to earnings, but instead be reviewed for
impairment. The amortization of goodwill ceases upon adoption of this statement,
which for Covance will be January 1, 2002. Covance does not believe that
adoption of this statement will have a material impact on Covance's financial
position or cash flows, and the quarterly impact on diluted earnings per share
is expected to approximate $0.01 per share.

         In October 2001, the FASB issued Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This statement is effective for
fiscal years beginning after December 15, 2001 and interim periods within those
fiscal years. These new rules on asset impairment supersede FASB Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of and portions of APB Opinion 30, Reporting the Results
of Operations. This statement provides a single accounting model for long-lived
assets to be disposed of and significantly changes the criteria that would have
to be met to classify an asset as held-for-sale. Classification as held-for-sale
is an important distinction since such assets are not depreciated and are stated
at the lower of fair value or carrying amount. This statement also requires
expected future operating losses from discontinued operations to be displayed in
the period(s) in which the losses are incurred, rather than as of the
measurement date as presently required. Covance does not believe that adoption
of this statement will have a material impact on Covance's results of
operations, financial position or cash flows.

Forward Looking Statements. Statements in this Management's Discussion and
Analysis of Financial Condition and Results of Operations, as well as in certain
other parts of this Annual Report on Form 10-K that look forward in time, are
forward looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance, expectations, predictions, and assumptions and other
statements which are other than statements of historical facts. All such forward
looking statements are based on the current expectations of management and are
subject to, and qualified by, risks and uncertainties that could cause actual
results to differ materially from those expressed or implied by those
statements. These risks and uncertainties include, but are not limited to, price
competition in the clinical development services industry, success of the
Nexigent reorganization and the realization of savings therefrom, the Company's
ability to increase order volume in central laboratory services, and risks and
uncertainties set forth in Covance's filings with the Securities and Exchange
Commission including without limitation this Annual Report on Form 10-K.

                                                                              20
<PAGE>

Risk Factors

         This section discusses various risk factors that are attendant with our
business and the provision of our services. If the events outlined below were to
occur individually or in the aggregate, our business, results of operations and
financial condition could be materially adversely affected.

Changes in government regulation could decrease the need for the services we
provide.

         Governmental agencies throughout the world, but particularly in the
United States, strictly regulate the drug development process. Our business
involves helping pharmaceutical and biotechnology companies navigate the
regulatory drug approval process. Changes in regulation, such as a relaxation in
regulatory requirements or the introduction of simplified drug approval
procedures or an increase in regulatory requirements that we have difficulty
satisfying, could eliminate or substantially reduce the need for our services.
Also, if government efforts to contain drug costs and pharmaceutical and
biotechnology company profits from new drugs, our customers may spend less, or
reduce their growth in spending, on research and development.

Failure to comply with existing regulations could result in a loss of revenue or
earnings.

         Any failure on our part to comply with applicable regulations could
result in the termination of on-going research or sales and marketing projects
or the disqualification of data for submission to regulatory authorities. For
example, if we were to fail to verify that patient participants were fully
informed and have fully consented to a particular clinical trial, the data
collected from that trial could be disqualified. If this were to happen, we
could be contractually required to repeat the trial at no further cost to our
customer, but at substantial cost to us.

We may bear financial losses because most of our contracts are of a fixed price
nature and may be delayed or terminated or reduced in scope for reasons beyond
our control.

         As described in our discussion of contractual arrangements in the
description of our business, most of our contracts provide for services on a
fixed price or fee-for-service with a cap basis and they may be terminated or
reduced in scope either immediately or upon notice. Since our contracts are
predominantly structured as fixed price or fee-for-service with a cap, we bear
the risk of a financial loss if we initially under price our contracts or
otherwise overrun our cost estimates. Such under pricing or significant cost
overruns could have a material adverse effect on our business, results of
operations or financial condition. Cancellations may occur for a variety of
reasons, including:

         o        the failure of products to satisfy safety requirements;

         o        unexpected or undesired results of the products;

         o        insufficient patient enrollment;

         o        insufficient investigator recruitment;

         o        the client's decision to terminate the development of a
                  product or to end a particular study; and

         o        our failure to perform properly our duties under the contract.


The loss, reduction in scope or delay of a large contract or the loss or delay
of multiple contracts could materially adversely affect our business, although
our contracts frequently entitle us to receive the costs of winding down the
terminated projects, as well as all fees earned by us up to the time of
termination. Some contracts also entitle us to a termination fee, usually in the
form of a pre-set penalty or a percentage of the revenue expected to be earned
for completion of the project.

                                                                              21
<PAGE>

We may not be able to successfully develop and market new services.

         An important element of our strategy is the successful development and
marketing of new services that complement or expand our existing business. If we
are unable to (1) develop new services and (2) create demand for those newly
developed services, we will not be able to implement this element of our
strategy, and our future business, results of operations and financial condition
could be adversely affected. For example, we have recently introduced our
bioanalytical service offerings. If demand for these services does not develop
as anticipated, our business, financial condition, or results of operations may
be materially adversely affected. We cannot assure you that we will be able to
develop or market this type of service successfully.

Our quarterly operating results may vary.

         Our operating results may vary significantly from quarter to quarter
and are influenced by such factors as:

         o        the commencement, completion or cancellation of large
                  contracts;

         o        the progress of ongoing contracts;

         o        the timing of and charges associated with completed
                  acquisitions or other events;

         o        changes in the mix of our services; and

         o        exchange rate fluctuations.

         We believe that operating results for any particular quarter are not
necessarily a meaningful indication of future results. While fluctuations in our
quarterly operating results could negatively affect the market price of our
common stock, these fluctuations may not be related to our future overall
operating performance.

We depend on the pharmaceutical and biotechnology industries.

         Our revenues depend greatly on the expenditures made by the
pharmaceutical and biotechnology industries in research and development.
Accordingly, economic factors and industry trends that affect our clients in
these industries also affect our business. For example, the practice of many
companies in these industries has been to hire outside organizations such as
ourselves to conduct large clinical research and development projects. This
practice has grown significantly in the last decade, and we have benefited from
this trend. However, if this trend were to change and companies in these
industries were to reduce the number of research and development projects they
outsource, our business could be materially adversely affected.

We operate in a highly competitive industry.

         Competitors in the contract research organization industry range from
small, limited-service providers to full service global contract research
organizations. Our main competition consists of in-house departments of
pharmaceutical companies, full-service contract research organizations, and
universities and teaching hospitals, although to a lesser degree. We compete on
a variety of factors, including:

         o        reputation for on-time quality performance;

         o        expertise and experience in specific areas;

         o        scope of service offerings;

         o        strengths in various geographic markets;

         o        price;

                                                                              22
<PAGE>

         o        technological expertise and efficient drug development
                  processes;

         o        ability to acquire, process, analyze and report data in a
                  time-saving and accurate manner;

         o        ability to manage large-scale clinical trials both
                  domestically and internationally;

         o        expertise and experience in health economics and outcomes
                  services; and

         o        size.

         For instance, our clinical development services have from time to time
experienced periods of increased price competition which had a material adverse
effect on Covance's late-stage development profitability and consolidated net
revenues and net income. Covance took actions in 2000 to mitigate the effects of
this price competition; however, if market conditions were to deteriorate,
additional actions might be required in the future.

         There is competition among the larger contract research organizations
for both clients and potential acquisition candidates. Additionally, small,
limited-service entities considering entering the contract research organization
industry will find few barriers to entry, thus further increasing possible
competition.

         Finally, an increase in investment community interest in our industry
could result in an increased availability of financial resources for contract
research organizations. Such availability of resources could lead to increased
competition. We cannot assure you that competing pressures we face will not have
a material effect on us.

We may expand our business through acquisitions.

         We review many acquisition candidates and, in addition to acquisitions
which we have already made, we are continually evaluating new acquisition
opportunities. Factors which may affect our ability to grow successfully through
acquisitions include:

         o        difficulties and expenses in connection with integrating the
                  acquired company and achieving the expected benefits;

         o        diversion of management's attention from current operations;

         o        the possibility that we may be adversely affected by risk
                  factors facing the acquired companies;

         o        acquisitions could be dilutive to earnings, or in the event of
                  acquisitions made through the issuance of our common stock to
                  the shareholders of the acquired company, dilutive to the
                  percentage of ownership of our existing stockholders;

         o        potential losses resulting from undiscovered liabilities of
                  acquired companies not covered by the indemnification we may
                  obtain from the seller;

         o        risks of not being able to overcome differences in foreign
                  business practices, language and other cultural barriers in
                  connection with the acquisition of foreign companies; and

         o        loss of key employees of the acquired company.

We may be affected by potential health care reform.

         In recent years the United States Congress and state legislatures have
considered various types of health care reform in order to control growing
health care costs. Health care reform may again be addressed by the United
States Congress and state legislatures. We are unable to predict what
legislative proposals will be adopted in the future, if any. Similar reform
movements have occurred in Europe and Asia.

                                                                              23
<PAGE>

         Implementation of health care reform legislation that contain costs
could limit the profits that can be made from the development of new drugs. This
could adversely affect research and development expenditures by pharmaceutical
and biotechnology companies which could in turn decrease the business
opportunities available to us both in the United States and abroad. In addition,
new laws or regulations may create a risk of liability, increase our costs or
limit our service offerings. We cannot predict the likelihood of any of these
events.

Our revenues and earnings are exposed to exchange rate fluctuations.

         We derive a large portion of our net revenues from international
operations. In 2001, we derived approximately 32% of our net revenues from
outside the United States. Our financial statements are denominated in U.S.
dollars. As a result, factors associated with international operations,
including changes in foreign currency exchange rates, could significantly affect
our results of operations and financial condition.

The loss of our key personnel could adversely affect our business.

         Our success depends to a significant extent upon the efforts of our
senior management team and other key personnel. We do not maintain insurance on
the life of any of our employees. The loss of the services of such personnel
could adversely affect our business. Because of the nature of our business, our
success is dependent upon our ability to attract and retain technologically
qualified personnel. There is substantial competition for qualified personnel,
and we cannot assure you that we will be successful in recruiting or retaining
qualified personnel to enable us to conduct our business and compete effectively
in our industry.

Our contract research services create a risk of liability.

         In connection with many clinical trials, we contract with physicians,
also referred to as investigators, to conduct the clinical trials to test new
drugs on human volunteers. These tests can create a risk of liability for
personal injury or death to volunteers, resulting from negative reactions to the
drugs administered or from professional malpractice by third party
investigators, particularly to volunteers with life-threatening illnesses. We do
not believe we are legally accountable for the medical care rendered by
third-party investigators and we seek to limit our liability with trial
sponsors, third party investigators and others. However, it is possible that we
could be exposed to liability. For example, we could be held liable for the
following:

         o        our errors or omissions that create harm during a trial to
                  study volunteers or after a trial to consumers of the drug
                  after regulatory approval of the drug;

         o        general risks associated with our Phase I facilities,
                  including negative consequences from the administration of
                  drugs to clinical trial participants or the professional
                  malpractice of Phase I medical care providers;

         o        errors or omissions by our preclinical or central laboratories
                  that cause harm to study volunteers or consumers of an
                  approved drug;

         o        errors or omissions by our preclinical laboratories arising
                  from our tests conducted for the agrochemical and food
                  industries; and

         o        risks that animals in our breeding facilities may be infected
                  with diseases that may be harmful and even lethal to
                  themselves and humans despite preventive measures contained in
                  our company policies for the quarantine and handling of
                  imported animals.

         We believe that our risks are generally reduced by the following:

         o        contracts with our clients and, where applicable,
                  investigators containing provisions entitling us to be
                  indemnified by them;

         o        insurance maintained by our clients, investigators, where
                  applicable, and by us; and

         o        various regulatory requirements we must follow in connection
                  with our business.

                                                                              24
<PAGE>

         Contractual indemnifications generally do not protect us against
liability arising from certain of our own actions, such as negligence. We could
be materially and adversely affected if we were required to pay damages or bear
the costs of defending any claim (1) which is not covered by a contractual
indemnification provision, (2) in the event that a party who must indemnify us
does not fulfill its indemnification obligations or (3) which is beyond the
level of our insurance coverage. There can be no assurance that we will be able
to maintain such insurance coverage on terms acceptable to us.

Reliance on air transportation.

         Our central laboratories and, to a lesser extent, our other businesses,
are heavily reliant on air travel for transport of clinical trial kits and other
material and people, and disruption to the air travel system could have a
material adverse effect on our business. While we have developed contingency
plans for a variety of events that could disrupt or limit available air
transportation, there are no assurances that such plans will be effective or
sufficient to avert such a material adverse effect.

Actions of animal rights extremists may affect our business.

         Our early development services utilize animals (predominantly rodents)
in preclinical testing of the safety and efficacy of drugs and also breeds and
sell animals for biomedical research. Acts of vandalism and other acts by animal
rights extremists who object to the use of animals in drug development could
have a material adverse effect on our business.

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

         Our $150.0 million credit facility is U.S. Dollar denominated and is
not subject to transaction or translation exposure. Interest on all outstanding
borrowings under this credit facility ($15.0 million at December 31, 2001) is
based upon LIBOR plus a margin and approximated 7.21% per annum for the year
ended December 31, 2001. We believe that our outstanding debt as of December 31,
2001 approximates fair value primarily as a result of the floating interest rate
and therefore we believe that we have no significant market risk.

         For the year ended December 31, 2001, approximately 32% of our net
revenues were from outside the United States. We do not engage in derivative or
hedging activities related to our potential foreign exchange exposures. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Foreign Currency" for a more detailed discussion of our foreign
currency risks and exposures.

                                                                              25
<PAGE>

Item 8.  Financial Statements and Supplementary Data

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

Report of Ernst & Young LLP -- Independent Auditors.......................   27

Report of PricewaterhouseCoopers LLP -- Independent Accountants...........   28

Consolidated Balance Sheets -- December 31, 2001 and 2000.................   29

Consolidated Statements of Income -- Years ended December 31, 2001,
   2000 and 1999..........................................................   30

Consolidated Statements of Cash Flows -- Years ended December 31, 2001,
   2000 and 1999..........................................................   31

Consolidated Statements of Stockholders' Equity -- Years ended
   December 31, 2001, 2000 and 1999.......................................   32

Notes to Consolidated Financial Statements................................   33



                                                                              26
<PAGE>

                         Report of Independent Auditors

The Board of Directors and Stockholders
Covance Inc.


         We have audited the accompanying consolidated balance sheet of Covance
Inc. and subsidiaries as of December 31, 2001, and the related consolidated
statements of income, stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

         We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Covance
Inc. and subsidiaries at December 31, 2001, and the consolidated results of
their operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States.

                                       /s/ ERNST & YOUNG LLP
                                       --------------------------


MetroPark, New Jersey
January 18, 2002

                                                                              27
<PAGE>

                        Report of Independent Accountants

To the Board of Directors and Stockholders of Covance Inc.

         In our opinion, the consolidated balance sheet as of December 31, 2000
and the related consolidated statements of income, stockholders' equity, and of
cash flows included in this Annual Report on Form 10-K present fairly, in all
material respects, the financial position of Covance Inc. and its subsidiaries
at December 31, 2000, and the consolidated results of their operations and their
cash flows for each of the two years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of Covance's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. We have not
audited the consolidated financial statements of Covance Inc. for any period
subsequent to December 31, 2000.



/s/ PRICEWATERHOUSECOOPERS LLP
-----------------------------------

PricewaterhouseCoopers LLP
Florham Park, NJ

January 30, 2001

                                                                              28
<PAGE>

<TABLE>
<CAPTION>
                                        COVANCE INC. AND SUBSIDIARIES
                                         CONSOLIDATED BALANCE SHEETS
                                         DECEMBER 31, 2001 AND 2000


(Dollars in thousands)                                                                     2001         2000
                                                                                        ---------    ---------
<S>                                                                                     <C>          <C>
Assets
Current Assets:
  Cash and cash equivalents .........................................................   $  35,404    $   7,191
  Accounts receivable ...............................................................     167,840      168,006
  Unbilled services .................................................................      40,895       66,135
  Inventory .........................................................................      36,131       30,963
  Deferred income taxes .............................................................      13,445       32,696
  Prepaid expenses and other current assets .........................................      30,778       48,021
                                                                                        ---------    ---------
     Total Current Assets ...........................................................     324,493      353,012
Property and equipment, net .........................................................     228,092      331,689
Goodwill, net .......................................................................      54,038       81,327
Other assets ........................................................................       5,405        5,063
                                                                                        ---------    ---------
     Total Assets ...................................................................   $ 612,028    $ 771,091
                                                                                        =========    =========

Liabilities and Stockholders' Equity
Current Liabilities:
  Accounts payable ..................................................................   $  21,134    $  28,312
  Accrued payroll and benefits ......................................................      45,902       44,167
  Accrued expenses and other current liabilities ....................................      40,296       45,720
  Unearned revenue ..................................................................     116,712       96,085
  Short-term debt and current portion of long-term debt .............................          --      235,499
  Income taxes payable ..............................................................       2,739        1,939
                                                                                        ---------    ---------
     Total Current Liabilities ......................................................     226,783      451,722
Long-term debt ......................................................................      15,000       17,224
Deferred income taxes ...............................................................      11,613       20,943
Other liabilities ...................................................................      13,687       15,451
                                                                                        ---------    ---------
     Total Liabilities ..............................................................     267,083      505,340
                                                                                        ---------    ---------
Commitments and Contingent Liabilities
Stockholders' Equity:
  Preferred stock--Par value $1.00 per share; 10,000,000 shares authorized; no shares
     issued and outstanding at December 31, 2001 and 2000 ...........................          --           --
  Common stock--Par value $0.01 per share; 140,000,000 shares authorized;
     61,882,084 and 59,820,253 shares issued and outstanding, including those held
     in treasury, at December 31, 2001 and 2000, respectively .......................         619          598
  Paid-in capital ...................................................................     122,217       92,572
  Retained earnings .................................................................     255,326      207,426
  Accumulated other comprehensive income (loss)--
     Cumulative translation adjustment ..............................................     (12,310)     (14,938)
  Treasury stock at cost (2,073,772 and 2,025,589 shares at December 31, 2001 and
     2000, respectively) ............................................................     (20,907)     (19,907)
                                                                                        ---------    ---------
     Total Stockholders' Equity .....................................................     344,945      265,751
                                                                                        ---------    ---------
     Total Liabilities and Stockholders' Equity .....................................   $ 612,028    $ 771,091
                                                                                        =========    =========



           The accompanying notes are an integral part of these consolidated financial statements.

                                                                                                            29
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                                 COVANCE INC. AND SUBSIDIARIES
                               CONSOLIDATED STATEMENTS OF INCOME
                     FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


(Dollars in thousands, except per share data)           2001            2000            1999
                                                    ------------    ------------    ------------

<S>                                                 <C>             <C>             <C>
Net revenues ....................................   $    855,877    $    868,087    $    828,980
Costs and expenses:
  Cost of revenue ...............................        618,119         625,595         553,283
  Selling, general and administrative ...........        127,211         131,158         128,003
  Depreciation and amortization .................         47,719          54,200          48,147
  Special charges ...............................          8,178          12,514          12,968
                                                    ------------    ------------    ------------
     Total ......................................        801,227         823,467         742,401
                                                    ------------    ------------    ------------
Income from operations ..........................         54,650          44,620          86,579
                                                    ------------    ------------    ------------
Other (income) expense, net:
  Interest expense ..............................          8,173          20,283          12,005
  Interest income ...............................         (1,325)         (1,232)         (1,943)
  Foreign exchange transaction losses ...........            263             598              57
  Net gain on sale of businesses ................        (30,803)             --              --
                                                    ------------    ------------    ------------
     Other (income) expense, net ................        (23,692)         19,649          10,119
                                                    ------------    ------------    ------------
Income before taxes .............................         78,342          24,971          76,460
Taxes on income .................................         30,442           9,735          30,642
                                                    ------------    ------------    ------------
Net income ......................................   $     47,900    $     15,236    $     45,818
                                                    ============    ============    ============

Basic earnings per share ........................   $       0.81    $       0.27    $       0.78
Weighted average shares outstanding--basic ......     58,903,095      57,424,403      58,477,199

Diluted earnings per share ......................   $       0.79    $       0.27    $       0.78
Weighted average shares outstanding--diluted ....     60,430,060      57,492,384      58,680,794



     The accompanying notes are an integral part of these consolidated financial statements.

                                                                                              30
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                                     COVANCE INC. AND SUBSIDIARIES
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                         FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


(Dollars in thousands)                                                  2001         2000         1999
                                                                     ---------    ---------    ---------

<S>                                                                  <C>          <C>          <C>
Cash flows from operating activities:
Net income .......................................................   $  47,900    $  15,236    $  45,818
Adjustments to reconcile net income to net cash provided by
    operating activities:
  Net gain on sale of businesses .................................     (30,803)          --           --
  Depreciation and amortization ..................................      47,719       54,200       48,147
  Restructuring charge, net of cash paid .........................       7,287        2,351        4,146
  Stock issued under employee benefit and stock compensation
    plans ........................................................      12,509        3,291        6,859
  Deferred income tax (benefit) provision ........................       1,164       (9,443)      (5,055)
  Other ..........................................................       1,399        1,087          320
Changes in operating assets and liabilities, net of business sold:
  Accounts receivable ............................................     (25,798)     (28,326)        (535)
  Unbilled services ..............................................         746      (13,488)     (11,058)
  Inventory ......................................................      (8,542)      (4,489)         252
  Accounts payable ...............................................      (4,020)       2,597       (7,666)
  Accrued liabilities ............................................      (9,555)      13,080      (10,312)
  Unearned revenue ...............................................      25,627       20,554       15,305
  Income taxes payable ...........................................       2,334       (2,449)      (1,384)
  Other assets and liabilities, net ..............................      (1,184)      (5,448)      (5,808)
                                                                     ---------    ---------    ---------
Net cash provided by operating activities ........................      66,783       48,753       79,029
                                                                     ---------    ---------    ---------
Cash flows from investing activities:
  Proceeds from sale of businesses ...............................     251,059           --           --
  Capital expenditures ...........................................     (78,136)     (95,833)    (111,153)
  Contingent purchase price paid in connection with prior
    acquisitions .................................................          --         (909)     (16,830)
  Other, net .....................................................          73        1,208          975
                                                                     ---------    ---------    ---------
Net cash provided by (used in) investing activities ..............     172,996      (95,534)    (127,008)
                                                                     ---------    ---------    ---------
Cash flows from financing activities:
  Net borrowings (repayments) under revolving credit facility ....    (209,000)      34,000       50,000
  Proceeds from long-term borrowings .............................          --           --       20,000
  Repayments of debt .............................................     (18,723)      (9,071)      (3,000)
  Purchase of treasury stock .....................................        (146)        (329)     (19,578)
  Stock issued under employee stock purchase and option plans ....      16,303        3,928        6,738
                                                                     ---------    ---------    ---------
Net cash provided by (used in) financing activities ..............    (211,566)      28,528       54,160
                                                                     ---------    ---------    ---------
Net change in cash and cash equivalents ..........................      28,213      (18,253)       6,181
Cash and cash equivalents, beginning of year .....................       7,191       25,444       19,263
                                                                     ---------    ---------    ---------
Cash and cash equivalents, end of year ...........................   $  35,404    $   7,191    $  25,444
                                                                     =========    =========    =========



        The accompanying notes are an integral part of these consolidated financial statements.

                                                                                                      31
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                                                  COVANCE INC. AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                      FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

                                                                            Accumulated
                                                                               Other                                      Total
                                        Common      Paid-in     Retained   Comprehensive   Comprehensive   Treasury   Stockholders'
(Dollars in thousands)                   Stock      Capital     Earnings   Income (Loss)      Income         Stock       Equity
                                       ---------   ---------   ---------     ---------       ---------     ---------    ---------

<S>                                    <C>         <C>         <C>           <C>             <C>           <C>          <C>
Balance, December 31, 1998 .........   $     584   $  71,771   $ 146,372     $   2,206                            --    $ 220,933

Comprehensive income:
  Net income .......................          --          --      45,818            --       $  45,818            --       45,818
  Currency translation adjustment ..          --          --          --        (8,710)         (8,710)           --       (8,710)
                                                                                             ---------
    Total comprehensive income .....          --          --          --            --       $  37,108            --           --
                                                                                             =========
Shares issued under various
    employee benefit and stock
    compensation plans .............           5      11,378          --            --                            --       11,383
Stock option exercises .............           1       2,212          --            --                            --        2,213
Treasury stock, at cost ............          --          --          --            --                     $ (19,578)     (19,578)
                                       ---------   ---------   ---------     ---------                     ---------    ---------

Balance, December 31, 1999 .........         590      85,361     192,190        (6,504)                      (19,578)     252,059

Comprehensive income:
  Net income .......................          --          --      15,236            --       $  15,236            --       15,236
  Currency translation adjustment ..          --          --          --        (8,434)         (8,434)           --       (8,434)
                                                                                             ---------
    Total comprehensive income .....          --          --          --            --       $   6,802            --           --
                                                                                             =========
Shares issued under various
    employee benefit and stock
    compensation plans .............           8       7,211          --            --                            --        7,219
Treasury stock, at cost ............          --          --          --            --                          (329)        (329)
                                       ---------   ---------   ---------     ---------                     ---------    ---------

Balance, December 31, 2000 .........         598      92,572     207,426       (14,938)                      (19,907)     265,751

Comprehensive income:
  Net income .......................          --          --      47,900            --       $  47,900            --       47,900
  Currency translation adjustment ..          --          --          --         2,628           2,628            --        2,628
                                                                                             ---------
    Total comprehensive income .....          --          --          --            --       $  50,528            --           --
                                                                                             =========
Shares issued under various
    employee benefit and stock
    compensation plans .............          11      15,643          --            --                            --       15,654
Stock option exercises .............          10      14,002          --            --                            --       14,012
Treasury stock, at cost ............          --          --          --            --                        (1,000)      (1,000)
                                       ---------   ---------   ---------     ---------                     ---------    ---------

Balance, December 31, 2001 .........   $     619   $ 122,217   $ 255,326     $ (12,310)                    $ (20,907)   $ 344,945
                                       =========   =========   =========     =========                     =========    =========



                     The accompanying notes are an integral part of these consolidated financial statements.

                                                                                                                               32
</TABLE>
<PAGE>

                          COVANCE INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999
               (Dollars in thousands, unless otherwise indicated)

1.   Organization

         Covance Inc. and its subsidiaries ("Covance") is a leading contract
research organization providing a wide range of product development services on
a worldwide basis primarily to the pharmaceutical, biotechnology and medical
device industries. Covance also provides services such as laboratory testing to
the chemical, agrochemical and food industries. Covance's operations constitute
two segments for financial reporting purposes. The first segment, early
development services, includes preclinical and Phase I clinical service
offerings. The second segment, late-stage development services, includes central
laboratory, clinical development, biomanufacturing (through June 15, 2001),
commercialization and other clinical support services (including our packaging
operations through February 14, 2001). At the present time, operations are
principally focused in the United States and Europe.

2.   Summary of Significant Accounting Policies

         Principles of Consolidation

         The consolidated financial statements include the accounts of all
entities controlled by Covance, including through June 15, 2001, Covance
Biotechnology Services Inc. ("Biomanufacturing"), a majority owned business. All
significant intercompany accounts and transactions are eliminated.

         Use of Estimates

         These consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States,
which requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates.

         Reclassifications

         Certain prior period balances have been reclassified to conform with
the current year presentation.

         Foreign Currencies

         For subsidiaries outside of the United States that operate in a local
currency environment, income and expense items are translated to United States
dollars at the monthly average rates of exchange prevailing during the year,
assets and liabilities are translated at year-end exchange rates and equity
accounts are translated at historical exchange rates. Translation adjustments
are accumulated in a separate component of stockholders' equity in the
Consolidated Balance Sheets and are included in the determination of
comprehensive income in the Consolidated Statements of Stockholders' Equity.
Transaction gains and losses are included in the determination of net income in
the Consolidated Statements of Income.

         Cash and Cash Equivalents

         Cash and cash equivalents include all highly liquid investments with an
original maturity of three months or less at date of purchase and consist
principally of amounts temporarily invested in money market funds.

         Financial Instruments

         The fair value of cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses and long and short-term debt are not
materially different than their carrying amounts as reported at December 31,
2001 and 2000.

                                                                              33
<PAGE>

                          COVANCE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                        DECEMBER 31, 2001, 2000 AND 1999
               (Dollars in thousands, unless otherwise indicated)

2.   Summary of Significant Accounting Policies (Continued)

         Accounts receivable and unbilled services represent amounts due from
Covance customers who are concentrated primarily in the pharmaceutical and
biotechnology industries. Covance monitors the creditworthiness of its customers
to which it grants credit terms in the ordinary course of business. Although
Covance customers are concentrated primarily within these two industries,
management considers the likelihood of material credit risk as remote. In
addition, in some cases Covance requires advance payment for a portion of the
contract price from its customers upon the signing of a contract for services.
These amounts are deferred and recognized as revenue as services are performed.
Historically, bad debts have been minimal.

         Inventory

         Inventories, which consist principally of supplies, are valued at the
lower of cost (first-in, first-out method) or market.

         Property and Equipment

         Property and equipment are recorded at cost. Depreciation and
amortization are provided on the straight-line method at rates adequate to
allocate the cost of the applicable assets over their estimated useful lives,
which range in term from three to thirty years. The cost of computer software
developed or obtained for internal use is accounted for in accordance with the
Accounting Standards Executive Committee's Statement of Position 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use. Repairs and maintenance are charged to expense as incurred.

         Goodwill

         Goodwill (investment costs in excess of the fair value of net tangible
and identifiable intangible assets acquired) is capitalized and amortized on a
straight-line basis over the period expected to be benefited, which is generally
twenty years or less, except for acquisitions prior to 1996 which are being
amortized over forty years. See Note 2 "Recently Issued Accounting Standards".

         Impairment of Long-Lived Assets and Goodwill

         Assessments of the recoverability of long-lived assets and goodwill are
conducted when events or changes in circumstances occur that indicate that the
carrying value of the asset may not be recoverable. The assessment of possible
impairment is based upon the ability to recover the asset from the expected
future undiscounted cash flows of related operations. See Note 2 "Recently
Issued Accounting Standards".

         Revenue Recognition

         Historically, a majority of Covance's net revenues have been earned
under contracts which generally range in duration from a few months to two
years, but can extend in duration up to five years. Revenue from these contracts
is generally recognized under either the percentage of completion method of
accounting or as services are rendered or products are delivered, depending upon
the nature of the work contracted. Where the percentage of completion method is
used, Covance generally measures progress toward completion in terms of
units-of-work performed as compared to the total units-of-work contracted.
Contracts may contain provisions for renegotiation in the event of cost overruns
due to changes in the level of work scope. Renegotiated amounts are included in
revenue when earned and realization is assured. Provisions for losses to be
incurred on contracts are recognized in full in the period in which it is
determined that a loss will result from performance of the contractual
arrangement. Most service contracts may be terminated for a variety of reasons
by Covance's customers either immediately or upon notice. The contracts often
require payments to Covance to recover costs incurred, including costs to wind
down the study, and payment of fees earned to date, and in some cases to provide
Covance with a portion of the fees or profits that would have been earned under
the contract had the contract not been terminated early.

                                                                              34
<PAGE>

                          COVANCE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                        DECEMBER 31, 2001, 2000 AND 1999
               (Dollars in thousands, unless otherwise indicated)

2.   Summary of Significant Accounting Policies (Continued)

         Unbilled services are recorded for revenue recognized to date that is
currently unbillable to the customer pursuant to contractual terms. In general,
amounts become billable upon the achievement of milestones or in accordance with
predetermined payment schedules. Unbilled services are billable to customers
within one year from the respective balance sheet date. Unearned revenue is
recorded for cash received from customers for which revenue has not been
recognized at the balance sheet date.

         Covance routinely subcontracts with independent physician investigators
in connection with multi-site clinical trials. Investigator fees are not
reflected in revenue or expense since such fees are granted by customers on a
"pass-through basis" without risk or reward to Covance. Amounts receivable from
customers in connection with billed and unbilled investigator fees and
out-of-pocket pass-through costs are included in prepaid expenses and other
current assets in the accompanying Consolidated Balance Sheets and totaled $17.2
million and $32.9 million at December 31, 2001 and 2000, respectively.

         Costs and Expenses

         Cost of revenue generally includes appropriate amounts necessary to
complete the revenue earning process and encompasses direct labor and related
benefit charges, other direct costs and allocable expenses (including facility
charges, indirect labor and information technology costs). Selling, general and
administrative expenses primarily consist of administrative payroll and related
benefit charges, advertising and promotional expenses, administrative travel and
allocable expenses (facility charges and information technology costs).
Advertising expense is recognized as incurred.

         Taxes on Income

         Covance uses the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are recognized for
the expected future tax consequences of differences between the carrying amounts
of assets and liabilities and their respective tax bases using enacted tax rates
in effect for the year in which the temporary differences are expected to
reverse. The effect on deferred taxes of a change in enacted tax rates is
recognized in income in the period when the change is effective. See Note 6.

         Comprehensive Income

         Comprehensive income has been calculated in accordance with Financial
Accounting Standards Board ("FASB") Statement No. 130, Reporting Comprehensive
Income. Covance's total comprehensive income represents net income plus the
change in the cumulative translation adjustment equity account for the periods
presented.

         Segment Reporting

         Covance reports information about its operating segments and related
disclosures about products, services, geographic areas and major customers in
accordance with FASB Statement No. 131, Disclosures About Segments of an
Enterprise and Related Information. See Note 12 for segment disclosure.

         Stock Based Compensation

         Covance grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. Covance accounts for stock option grants in accordance with APB Opinion
No. 25, Accounting for Stock Issued to Employees ("APB 25") and related
Interpretations because the Company believes the alternative fair value
accounting provided for under FASB Statement No. 123, Accounting for Stock Based
Compensation ("SFAS 123") requires the use of option valuation models that were
not developed for use in valuing employee stock options. Under APB 25, because
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.

                                                                              35
<PAGE>

                          COVANCE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                        DECEMBER 31, 2001, 2000 AND 1999
               (Dollars in thousands, unless otherwise indicated)

2.   Summary of Significant Accounting Policies (Continued)

         Earnings Per Share

         Earnings per share is computed in accordance with FASB Statement No.
128, Earnings Per Share. Basic EPS is computed by dividing net income available
to common stockholders by the weighted average number of shares outstanding
during the period. The computation of diluted EPS is similar to the computation
of basic EPS, except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the dilutive
potential common shares had been issued.

         In computing diluted earnings per share for the years ended December
31, 2001, 2000 and 1999, the denominator was increased by 1,526,965 shares,
67,981 shares and 203,595 shares, respectively, representing the dilutive effect
of stock options outstanding at December 31, 2001, 2000 and 1999, with exercise
prices less than the average market price of Covance's common stock during each
respective period. Excluded from the computation of diluted earnings per share
for the year ended December 31, 2001 were options to purchase 3,242,366 shares
of common stock at prices ranging from $17.78 to $29.13 per share because the
exercise prices of such options were greater than the average market price of
Covance's common stock during 2001. Excluded from the computation of diluted
earnings per share for the year ended December 31, 2000 were options to purchase
6,966,550 shares of common stock at prices ranging from $10.75 to $29.13 per
share because the exercise prices of such options were greater than the average
market price of Covance's common stock during 2000. Excluded from the
computation of diluted earnings per share for the year ended December 31, 1999
were options to purchase 3,676,178 shares of common stock at prices ranging from
$19.57 to $29.13 per share because the exercise prices of such options were
greater than the average market price of Covance's common stock during 1999.

         Supplemental Cash Flow Information

         Cash paid for interest for the years ended December 31, 2001, 2000 and
1999 totaled $9.0 million, $19.9 million and $13.2 million, respectively. Cash
paid for income taxes for the years ended December 31, 2001, 2000 and 1999
totaled $24.0 million, $21.4 million and $30.9 million, respectively.

         Recently Issued Accounting Standards

         In July 2001, the FASB issued Statement No. 142, Goodwill and Other
Intangible Assets. This statement requires that goodwill no longer be amortized
to earnings, but instead be reviewed for impairment. The amortization of
goodwill ceases upon adoption of this statement, which for Covance will be
January 1, 2002. Covance does not believe that adoption of this statement will
have a material impact on Covance's financial position or cash flows, and the
quarterly impact on diluted earnings per share is expected to approximate $0.01
per share.

         In October 2001, the FASB issued Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This statement is effective for
fiscal years beginning after December 15, 2001 and interim periods within those
fiscal years. These new rules on asset impairment supersede FASB Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of and portions of APB Opinion 30, Reporting the Results
of Operations. This statement provides a single accounting model for long-lived
assets to be disposed of and significantly changes the criteria that would have
to be met to classify an asset as held-for-sale. Classification as held-for-sale
is an important distinction since such assets are not depreciated and are stated
at the lower of fair value or carrying amount. This statement also requires
expected future operating losses from discontinued operations to be displayed in
the period(s) in which the losses are incurred, rather than as of the
measurement date as presently required. Covance does not believe that adoption
of this statement will have a material impact on Covance's results of
operations, financial position or cash flows.

                                                                              36
<PAGE>

                          COVANCE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                        DECEMBER 31, 2001, 2000 AND 1999
               (Dollars in thousands, unless otherwise indicated)

3.   Property and Equipment

         Property and equipment at December 31, 2001 and 2000 consist of the
following:

<TABLE>
<CAPTION>
                                                                   2001         2000
                                                                ---------    ---------
<S>                                                             <C>          <C>
         Property and equipment at cost:
           Land .............................................   $   3,711    $   9,321
           Buildings and improvements .......................     116,214      151,373
           Equipment and vehicles ...........................     127,149      168,584
           Computer hardware and software ...................     105,720      103,473
           Furniture, fixtures & leasehold improvements .....      71,936       98,392
           Construction-in-progress .........................      64,827       55,558
                                                                ---------    ---------
                                                                  489,557      586,701
         Less: Accumulated depreciation and amortization ....    (261,465)    (255,012)
                                                                ---------    ---------
         Property and equipment, net ........................   $ 228,092    $ 331,689
                                                                =========    =========
</TABLE>

         Depreciation and amortization expense aggregated $44.0 million, $49.5
million and $43.5 million for 2001, 2000 and 1999, respectively.

4.   Goodwill

         Goodwill aggregated $54.0 million and $81.3 million, net of accumulated
amortization of $17.7 million and $18.7 million at December 31, 2001 and 2000,
respectively. Amortization expense aggregated $3.7 million, $4.5 million and
$4.2 million for 2001, 2000 and 1999, respectively.

5.   Divestitures

         On June 15, 2001, Covance sold its biomanufacturing business
("Biomanufacturing") to Akzo Nobel's pharma business unit, Diosynth, for gross
proceeds of $113.6 million, subject to post-closing adjustments, including
finalization of the closing balance sheet and earnout provision, in accordance
with the Stock Purchase Agreement between Covance and Akzo Nobel, which remains
to be resolved between the parties. Covance recognized a loss of $7.5 million
($4.5 million after tax) from this transaction. Covance used the net proceeds
from the sale of approximately $95 million to reduce borrowings under its senior
revolving credit facility. See Note 14.

         On February 14, 2001, Covance sold its pharmaceutical packaging
business ("Packaging") to Fisher Scientific International Inc. for gross
proceeds of $137.5 million. Covance recognized a pre-tax gain of $38.4 million
($24.3 million after tax) from this transaction. Covance used the net proceeds
from the sale to repay the $18.5 million balance outstanding on the mortgage on
its North American packaging facility and the remaining net proceeds of
approximately $95 million were used to reduce borrowings under its senior
revolving credit facility. See Note 14.

                                                                              37
<PAGE>

                          COVANCE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                        DECEMBER 31, 2001, 2000 AND 1999
               (Dollars in thousands, unless otherwise indicated)

6.   Taxes on Income

         The components of income before taxes and the related provision
(benefit) for taxes on income for 2001, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                              2001       2000        1999
                                                            --------   --------    --------
<S>                                                         <C>        <C>         <C>
         Income before taxes and equity investee results:
           Domestic .....................................   $ 17,090   $    921    $ 57,644
           International ................................     61,252     24,050      18,816
                                                            --------   --------    --------
             Total ......................................   $ 78,342   $ 24,971    $ 76,460
                                                            ========   ========    ========
         Federal income taxes:
           Current provision ............................   $  8,839   $  9,151    $ 24,393
           Deferred provision (benefit) .................      1,549     (8,459)     (3,404)
         International income taxes:
           Current provision ............................     15,835      7,246       6,489
           Deferred (benefit) provision .................        409        223      (1,165)
         State and other income taxes:
           Current provision ............................      3,589      2,781       4,815
           Deferred provision (benefit) .................        221     (1,207)       (486)
                                                            --------   --------    --------
             Net income tax provision ...................   $ 30,442   $  9,735    $ 30,642
                                                            ========   ========    ========
</TABLE>

         The differences between the provision for income taxes and income taxes
computed using the Federal statutory income tax rate for 2001, 2000 and 1999 are
as follows:

<TABLE>
<CAPTION>
                                                              2001       2000        1999
                                                            --------   --------    --------
<S>                                                           <C>        <C>         <C>
         Taxes at statutory rate.........................     35.0%      35.0%       35.0%
         State and local taxes, net of Federal benefit...      3.2        4.1         3.7
         Goodwill amortization...........................      1.0        3.6         0.9
         Impact of international operations..............     (2.4)      (3.8)       (1.7)
         Other, net......................................      2.1        0.1         2.2
                                                            --------   --------    --------
             Total.......................................     38.9%      39.0%       40.1%
                                                            ========   ========    ========
</TABLE>

         The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 2001 and
2000 are as follows:

                                                            2001        2000
                                                          --------    --------
         Current deferred tax assets:
           Liabilities not currently deductible ........  $ 11,536    $ 11,042
           Net operating loss carryforwards ............       964      21,132
           Other .......................................       945         522
                                                          --------    --------
           Current deferred tax assets .................  $ 13,445    $ 32,696
                                                          ========    ========
         Noncurrent deferred tax assets:
           Liabilities not currently deductible ........  $  4,420    $  4,828
           Less: Valuation allowance ...................    (1,212)     (1,212)
                                                          --------    --------
           Net noncurrent deferred tax assets ..........     3,208       3,616
         Noncurrent deferred tax liabilities:
           Property and equipment ......................   (14,821)    (24,559)
                                                          --------    --------
           Net noncurrent deferred tax liabilities .....  $(11,613)   $(20,943)
                                                          ========    ========

         The reduction in the non-current deferred tax liability is primarily
attributable to the deferred tax attributes of Biomanufacturing and Packaging
which were divested in 2001.

                                                                              38
<PAGE>

                          COVANCE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                        DECEMBER 31, 2001, 2000 AND 1999
               (Dollars in thousands, unless otherwise indicated)

6.   Taxes on Income (Continued)

         At December 31, 2001 and 2000, Covance has net operating loss
carryforwards of approximately $2.4 million and $52.8 million, respectively,
which expire in the years 2008 through 2020 and are available to offset future
Federal taxable income. The decrease in the net operating loss carryforwards
from December 31, 2000 to December 31, 2001 was principally attributable to the
divestiture of Biomanufacturing in 2001, which had a net operating loss
carryforward of $49.5 million at December 31, 2000.

         Covance currently provides income taxes on the earnings of foreign
subsidiaries to the extent those earnings are taxable or are expected to be
remitted. In 2001, Covance remitted earnings of approximately $40 million
relating to the divestiture of Packaging. Taxes have not been provided on the
remaining $70.9 million of accumulated foreign unremitted earnings because those
earnings are expected to remain invested indefinitely. It is not practical to
estimate the amount of additional tax that might be payable if such accumulated
earnings were remitted. Additionally, if such accumulated earnings were
remitted, certain countries impose withholding taxes that, subject to certain
limitations, are available for use as a tax credit against any Federal income
tax liability arising from such remittance.

7.   Short and Long-Term Debt

         On June 28, 2001, Covance replaced its credit facility with a new
$150.0 million senior revolving credit facility (the "Credit Facility") which
expires in June 2004. At December 31, 2001 and 2000, there was $15.0 million and
$224.0 million, respectively, of outstanding borrowings and $0.9 million and
$0.8 million, respectively, of outstanding letters of credit, under the credit
facilities. At December 31, 2001, Covance has a remaining availability under the
Credit Facility of $134.1 million of which $24.1 million remains available for
letters of credit. Interest on all outstanding borrowings under Covance's senior
revolving credit facility is based upon the London Interbank Offered Rate
("LIBOR") plus a margin and approximated 7.21% and 7.5% per annum for the years
ended December 31, 2001 and 2000, respectively. Costs associated with replacing
the senior revolving credit facility, consisting primarily of bank fees totaling
$1.7 million, are being amortized over the three year facility term. The Credit
Facility contains various covenants, which among other things, restrict certain
uses of cash such as certain restrictions on Covance's ability to pay cash
dividends on the Covance common stock. At December 31, 2001, Covance was in
compliance with the terms of its Credit Facility. Commitment fees paid during
2001, which under the prior senior revolving credit facility were 0.5 percent of
the revolving committed amount, and under the new Credit Facility were 0.5
percent of the unused line of credit, approximated $1.0 million for the year
ended December 31, 2001. Commitment fees for each of the years ended December
31, 2000 and 1999 totaled $0.3 million. The Credit Facility is collateralized by
domestic guarantees of certain subsidiaries and a pledge of 65 percent of the
capital stock of certain of Covance's foreign subsidiaries.

         Covance used the net proceeds from the 2001 sales of Packaging and
Biomanufacturing of approximately $180.0 million to reduce borrowings under its
senior revolving credit facility. In addition, the $18.5 million mortgage debt
associated with the North American packaging facility and the Biomanufacturing
$10.0 million short-term revolving credit facility were repaid at the time of
the divestitures.

         In 1999, Biomanufacturing repaid $3.0 million in short-term debt with
the North Carolina Biotechnology Center which matured in December 1999.

         In 1997, a foreign subsidiary of Covance borrowed 13.5 million Swiss
Francs from a bank. This loan carried interest at a fixed rate of 2.9% per annum
and was paid in full upon maturity in October 2000.

8.   Employee Benefit Plans

         Covance has several defined contribution plans covering substantially
all of its full-time employees. Contributions to these plans aggregated $12.4
million, $13.3 million and $12.1 million for 2001, 2000 and 1999, respectively.

                                                                              39
<PAGE>

                          COVANCE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                        DECEMBER 31, 2001, 2000 AND 1999
               (Dollars in thousands, unless otherwise indicated)

9.   Stockholders' Equity

         Preferred Stock

         Covance is authorized to issue up to 10.0 million shares of Series
Preferred Stock, par value $1.00 per share (the "Covance Series Preferred
Stock"). The Covance Board of Directors has the authority to issue such shares
from time to time, without stockholder approval, and to determine the
designations, preferences, rights, including voting rights, and restrictions of
such shares, subject to the Delaware General Corporate Laws. Pursuant to this
authority, the Covance Board of Directors has designated 1.0 million shares of
the Covance Series Preferred Stock as Covance Series A Preferred Stock. No other
class of Covance Series Preferred Stock has been designated by the Board. As of
December 31, 2001 no Covance Series Preferred Stock has been issued or is
outstanding.

         Dividends - Common Stock

         Covance's Board of Directors may declare dividends on the shares of
Covance common stock out of legally available funds (subject to any preferential
rights of any outstanding Covance Series Preferred Stock). However, Covance has
no present intention to declare dividends for the foreseeable future, but
instead intends to retain earnings to provide funds for the operation and
expansion of its business. In addition, the Credit Facility restricts certain
uses of cash such as certain restrictions on paying cash dividends on the
Covance common stock.

         Treasury Stock

         During 1999, Covance purchased into treasury 1,995,000 shares of its
common stock for the aggregate cost of $19.6 million pursuant to a Board of
Directors authorized 3,000,000 share buyback program. At the current time,
Covance has no plans to repurchase additional shares under this buyback program.
In addition, Covance acquired approximately 41,000 shares of its common stock
into treasury in connection with re-load stock option exercises and a total of
approximately 37,000 shares of its common stock to satisfy income tax
withholding associated with the vesting of stock awards during 2001 and 2000.
The fair value of common stock obtained for re-load stock option exercises was
approximately $0.9 million.

         Stock Compensation Plans

         In April 2000, Covance's shareholders approved the 2000 Employee Equity
Participation Plan (the "2000 EEPP") in replacement of the Employee Equity
Participation Plan (the "EEPP"). The 2000 EEPP became effective on April 25,
2000 and expires on April 24, 2010. The 2000 EEPP authorizes the Covance
Compensation and Organization Committee of the Board of Directors (the
"Compensation Committee") to grant stock options, stock appreciation rights and
stock awards singly, or in combination, as the Compensation Committee may
determine. Options granted, which may be in the form of non-qualified or
incentive stock options, to purchase shares must be at a price not less than the
fair market value of the shares of Covance common stock on the date of grant.
The exercise period for stock options granted will be determined by the
Compensation Committee at the time of grant, but will not be longer than ten
years from the date of grant. Generally, options vest ratably on the anniversary
of the date of grant over either a two or three year period. Shares of stock
subject to awards are shares of Covance common stock. The number of shares of
Covance common stock initially available for grant under the 2000 EEPP,
including 400,000 shares remaining available for grant under the EEPP at the
time the 2000 EEPP was approved, totaled approximately 4.0 million. Covance
records compensation expense related to awards of stock ratably over the three
year vesting period, which totaled $1.5 million, $0.9 million and $0.1 million,
during 2001, 2000 and 1999, respectively.

         Covance also has a noncompensatory employee stock purchase plan (the
"ESPP") pursuant to which Covance may make available for sale to employees
shares of its common stock at a price equal to 85% of the lower of the market
value on the first or last day of each calendar quarter. The ESPP, administered
by the Compensation Committee, is intended to give Covance employees the
opportunity to purchase shares of Covance common stock through payroll
deductions. A maximum of 3.0 million shares may be purchased by Covance
employees under the ESPP. During 2001, 2000 and 1999, a total of 329,513 shares,
490,034 shares and 277,876 shares of common stock, respectively, were issued
under the ESPP.

                                                                              40
<PAGE>

                          COVANCE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                        DECEMBER 31, 2001, 2000 AND 1999
               (Dollars in thousands, unless otherwise indicated)

9.   Stockholders' Equity (Continued)

         Covance has adopted the disclosure-only provisions of FASB Statement
No. 123 ("SFAS 123"), Accounting for Stock-Based Compensation, and accordingly,
applies Accounting Principles Board Opinion No. 25 and related interpretations
in accounting for its plans. Had Covance elected to recognize compensation
expense in accordance with the provisions of SFAS 123 for the stock option
awards and for the stock purchased by Covance employees under the ESPP, its net
income in 2001, 2000 and 1999 would have been $42.2 million, $8.6 million and
$35.6 million, respectively; its basic and diluted earnings per share would have
been $0.72 and $0.70, respectively, in 2001; its basic and diluted earnings per
share would both have been $0.15 in 2000; and its basic and diluted earnings per
share would both have been $0.61 in 1999. The fair value of the Covance stock
options used to compute the net income and earnings per share disclosures
required under SFAS 123 is the estimated present value at grant date using the
Black-Scholes option-pricing model with the following weighted average
assumptions for 2001, 2000 and 1999, respectively: expected volatility of 47.7%,
45.0% and 49.0%; risk free interest rate of 4.74%, 6.00% and 5.45%; and an
expected holding period of seven years.

         The following table sets forth Covance's stock option activity during
2001, 2000 and 1999:

                                                           Number       Weighted
                                                         of Shares      Average
                                                       (in thousands)    Price
                                                       --------------   --------

     Options outstanding, December 31, 1998.........       3,975.5      $ 19.42
       Granted......................................       1,328.6      $ 26.19
       Exercised....................................        (113.4)     $ 18.73
       Forfeited....................................        (440.4)     $ 21.96
                                                           -------
     Options outstanding, December 31, 1999.........       4,750.3      $ 21.17
       Granted......................................       3,473.6      $  9.85
       Exercised....................................            --           --
       Forfeited....................................        (453.0)     $ 23.91
                                                           -------
     Options outstanding, December 31, 2000.........       7,770.9      $ 15.97
       Granted......................................         284.3      $ 19.16
       Exercised....................................      (1,023.0)     $ 13.68
       Forfeited....................................        (424.3)     $ 14.66
                                                           -------
     Options outstanding, December 31, 2001.........       6,607.9      $ 16.53
                                                           =======

         The weighted average fair value of the stock options granted during
2001, calculated using the Black-Scholes option-pricing model with the
assumptions as set forth above, is $10.66 per share.

         The following table sets forth the status of all options outstanding at
December 31, 2001:

<TABLE>
<CAPTION>
                            Stock Options Outstanding            Stock Options Exercisable
                  --------------------------------------------   -------------------------
                                      Weighted
                      Number           Average        Weighted       Number       Weighted
 Option Price        of Shares        Remaining        Average      of Shares      Average
    Range         (in thousands)   Contractual Life     Price    (in thousands)     Price
---------------   --------------   ----------------   --------   --------------   --------
<S>                    <C>             <C>             <C>            <C>          <C>
$ 8.10 - $11.22        2,788           8.6 years       $ 9.76         1,066        $ 9.89
$12.81 - $18.80          686           4.8 years       $16.37           544        $16.21
$19.57 - $29.13        3,134           6.3 years       $22.60         2,973        $22.56
</TABLE>

         At December 31, 2001, 2000 and 1999, respectively, there were stock
options exercisable of 4,583,343 shares (weighted average price of $18.86),
3,724,574 shares (weighted average price of $20.20), and 2,637,639 shares
(weighted average price of $19.05).

                                                                              41
<PAGE>

                          COVANCE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                        DECEMBER 31, 2001, 2000 AND 1999
               (Dollars in thousands, unless otherwise indicated)

10.  Commitments and Contingent Liabilities

         Minimum annual rental commitments under non-cancelable operating
leases, primarily office and laboratory facilities in effect at December 31,
2001 are as follows:

         Year ending December 31,
         ------------------------

         2002.......................................................     $23,736
         2003.......................................................     $21,128
         2004.......................................................     $19,120
         2005.......................................................     $16,550
         2006.......................................................     $13,877
         2007 and beyond............................................     $44,203

         Operating lease rental expense aggregated $31.3 million, $33.7 million
and $31.9 million for 2001, 2000 and 1999, respectively.

11.  Restructuring

         In June 2001, Covance announced plans to reorganize its Nexigent
subsidiary, integrating Nexigent's newly developed clinical trials service
offerings into Covance's core business and reducing Nexigent's infrastructure.
Under the plan, Nexigent's service offerings - site activation, study
feasibility, electronic data capture, and web-based central laboratory data
access - continue to be marketed by Covance's core business units, and Nexigent
narrowed its focus, maintaining a small group of technology and business experts
to review new drug development technologies and explore licensing opportunities
and alliances in this area. Covance recorded a pre-tax restructuring charge in
the second quarter of 2001, totaling approximately $8.2 million ($5.0 million
net of tax). The charge consisted of approximately $6.5 million in asset
write-offs in June 2001, and approximately $1.6 million in severance and related
benefits in connection with the elimination of approximately 30 redundant
Nexigent positions. Severance payments began in August 2001 and will continue
through 2002. The remaining $0.7 million accrued restructuring balance is
included in accrued expenses and other current liabilities in the December 31,
2001 Consolidated Balance Sheet.

         During 2000, primarily in order to restructure its Phase III clinical
trials unit to align its cost base with revenue projections, Covance announced
plans to close certain satellite offices, consolidate other facilities and
eliminate approximately 200 positions globally. In connection with these
actions, Covance recorded a net pre-tax restructuring charge of $12.5 million
($7.6 million net of tax) in 2000, consisting primarily of $5.1 million in lease
termination and other facility related costs and $6.7 million for severance and
related benefits. As of December 31, 2001, these positions have been eliminated.
Severance payments began in June 2000 and will continue into 2002. As of
December 31, 2001, a total of $10.8 million in costs has been paid, and $1.7
million and $6.0 million is included in accrued expenses and other liabilities
in the Consolidated Balance Sheet, as of December 31, 2001 and 2000,
respectively.

         In order to improve its global competitiveness, better optimize
capacity utilization and enhance quality and service worldwide, during 1999
Covance consolidated its regionally based Phase II and III clinical services
under one global management structure. Primarily in connection with these
actions, Covance recorded a pre-tax restructuring charge of $7.7 million ($4.6
million net of tax) consisting primarily of $6.5 million in severance and
related benefits arising from the elimination of approximately 165 managerial
and staff positions. As of December 31, 2000, all of these employees had been
terminated. Severance payments began in September 1999 and continued into 2000.
As of December 31, 2001, all of these costs have been paid. At December 31,
2000, $0.5 million was included in accrued expenses and other liabilities in the
Consolidated Balance Sheet.

                                                                              42
<PAGE>

                          COVANCE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                        DECEMBER 31, 2001, 2000 AND 1999
               (Dollars in thousands, unless otherwise indicated)

12.  Segment Information

         Covance has two reportable segments: early development and late-stage
development. Early development services, which includes Covance's preclinical
and Phase I clinical service capabilities, involve evaluating a new compound for
safety and early effectiveness as well as evaluating the absorption,
distribution, metabolism and excretion of the compound in the human body. It is
at this stage that a pharmaceutical company, based on available data, will
generally decide whether to continue further development of a drug. Late-stage
development services, which include Covance's central laboratory, clinical
development, biomanufacturing (through June 15, 2001), commercialization and
other clinical support capabilities (including our packaging operations through
February 14, 2001), are geared toward demonstrating the clinical effectiveness
of a compound in treating certain diseases or conditions, obtaining regulatory
approval and maximizing the drug's commercial potential.

         The information provided below is on an "as reported" basis and has not
been restated to exclude the results of Biomanufacturing and Packaging, which
were divested during 2001. The information below includes special charges
recorded during all periods presented. Certain of the information below has been
presented on a pro forma basis in Note 14.

         The accounting policies of the reportable segments are the same as
those described in Note 2.

<TABLE>
<CAPTION>
                                           Early      Late-Stage            Other
                                        Development   Development   Reconciling Items (a)     Total
                                        -----------   -----------   ---------------------   --------
<S>                                      <C>           <C>                <C>               <C>
Net revenues from external customers:
  2001 ..............................    $311,143      $544,734                 --          $855,877
  2000 ..............................    $287,205      $580,882                 --          $868,087
  1999 ..............................    $273,315      $555,665                 --          $828,980

Depreciation and amortization:
  2001 ..............................    $ 18,044      $ 27,164           $  2,511          $ 47,719
  2000 ..............................    $ 17,314      $ 35,217           $  1,669          $ 54,200
  1999 ..............................    $ 15,897      $ 30,950           $  1,300          $ 48,147

Operating income:
  2001 ..............................    $ 47,963      $ 33,166           $(26,479)         $ 54,650
  2000 ..............................    $ 46,339      $ 25,556           $(27,275)         $ 44,620
  1999 ..............................    $ 51,752      $ 69,504           $(34,677)         $ 86,579

Segment assets:
  2001 ..............................    $280,769      $311,061           $ 20,198          $612,028
  2000 ..............................    $232,946      $496,568           $ 41,577          $771,091
  1999 ..............................    $224,801      $422,653           $ 42,267          $689,721

Capital expenditures:
  2001 ..............................    $ 46,401      $ 29,394           $  2,341          $ 78,136
  2000 ..............................    $ 17,130      $ 73,734           $  4,969          $ 95,833
  1999 ..............................    $ 24,977      $ 83,131           $  3,045          $111,153
</TABLE>
--------

(a)      Represents depreciation and amortization on corporate fixed assets,
         corporate expenses (primarily information technology, marketing,
         communications, human resources, finance and legal), corporate assets
         and corporate capital expenditures.

                                                                              43
<PAGE>

                          COVANCE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                        DECEMBER 31, 2001, 2000 AND 1999
               (Dollars in thousands, unless otherwise indicated)

13.  Geographic Information

<TABLE>
<CAPTION>
                                           United       United
                                           States       Kingdom   Switzerland     Other        Total
                                          --------     --------   -----------    --------     --------
<S>                                       <C>          <C>          <C>          <C>          <C>
Net revenues from external customers(1)
   2001 ...............................   $579,760     $122,608     $ 95,140     $ 58,369     $855,877
   2000 ...............................   $605,146     $129,586     $ 78,174     $ 55,181     $868,087
   1999 ...............................   $572,326     $131,904     $ 80,345     $ 44,405     $828,980

                                           United       United
                                           States       Kingdom      Other        Total
                                          --------     --------     --------     --------
Long-lived assets(2)
   2001 ...............................   $162,208     $ 46,497     $ 19,387     $228,092
   2000 ...............................   $238,718     $ 66,970     $ 26,001     $331,689
   1999 ...............................   $190,830     $ 77,747     $ 28,366     $296,943
</TABLE>

-----------
(1)      Net revenues are attributable to geographic locations based on the
         physical location where the services are performed.
(2)      Long-lived assets represents the net book value of property and
         equipment.


14.  Unaudited Pro Forma Financial Information

         The following is a reconciliation between amounts on an "as reported"
basis and amounts on a pro forma basis. The pro forma results reflect (1) the
exclusion of the results of Packaging and Biomanufacturing, (2) reduced interest
expense from the application of the net proceeds from the sales of these
businesses to outstanding debt, (3) the exclusion of the net gain recognized on
the sales of these businesses, and (4) the exclusion of restructuring charges.

<TABLE>
<CAPTION>
                                                Pro Forma Adjustments to Remove
                                          --------------------------------------------
                                  As                  Biomanu-    Net Gain    Restruct-  Pro Forma
                               Reported  Packaging   facturing    on Sales     uring     Results
                               --------   --------    --------    ---------   --------   --------
<S>                            <C>        <C>         <C>         <C>         <C>        <C>
Year Ended December 31, 2001
----------------------------

Net revenues ...............   $855,877   $(11,439)   $(44,173)   $      --   $     --   $800,265
Income from operations .....   $ 54,650   $ (3,806)   $  1,489    $      --   $  8,178   $ 60,511
Income before taxes ........   $ 78,342   $ (2,579)   $  4,970    $ (30,803)  $  8,178   $ 58,108
Taxes on income ............   $ 30,442   $   (762)   $  1,954    $ (11,888)  $  3,193   $ 22,939
Net income .................   $ 47,900   $ (1,817)   $  3,016    $ (18,915)  $  4,985   $ 35,169
Diluted earnings per share .   $   0.79   $  (0.03)   $   0.05    $   (0.31)  $   0.08   $   0.58

Year Ended December 31, 2000
----------------------------

Net revenues ...............   $868,087   $(67,841)   $(62,970)       n/a     $     --   $737,276
Income from operations .....   $ 44,620   $(19,292)   $ 10,518        n/a     $ 12,514   $ 48,360
Income before taxes ........   $ 24,971   $(10,947)   $ 18,001        n/a     $ 12,514   $ 44,539
Taxes on income ............   $  9,735   $ (2,482)   $  6,445        n/a     $  4,881   $ 18,578
Net income .................   $ 15,236   $ (8,465)   $ 11,556        n/a     $  7,633   $ 25,960
Diluted earnings per share .   $   0.27   $  (0.15)   $   0.20        n/a     $   0.13   $   0.45
</TABLE>

                                                                              44
<PAGE>

                          COVANCE INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                        DECEMBER 31, 2001, 2000 AND 1999
               (Dollars in thousands, unless otherwise indicated)

15.  Merger Costs

         Covance entered into an Agreement and Plan of Merger as of April 28,
1999 (the "Proposed Merger") with Parexel International Corporation ("Parexel").
On June 25, 1999, Covance and Parexel mutually agreed to terminate the Proposed
Merger. In connection with the termination, Covance and Parexel entered into a
termination agreement whereby, among other things, each party agreed to release
the other from any claims relating to the Proposed Merger and each party agreed
to bear its own expenses incurred in connection with the Proposed Merger. During
the year ended December 31, 1999, Covance incurred one-time, out-of-pocket
transaction and integration related costs (primarily professional fees for
investment banking, attorneys, accountants and consultants) of $5.2 million
($3.1 million, net of tax) in connection with the Proposed Merger.

                                                                              45
<PAGE>

Item 9.  Auditors

         Ernst & Young LLP was approved by the Audit and Finance Committee in
March, 2001 to replace PricewaterhouseCoopers LLP ("PwC") which had served as
the Company's independent auditors since the Company's inception as a public
company.

         PwC's reports on financial statements for 2000 and 1999 did not contain
an adverse opinion or a disclaimer of opinion, and were not modified as to
uncertainty, audit scope or accounting principles. During these two fiscal years
and through March 6, 2001, there were no disagreements between the Comapny and
PwC on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of PwC would have caused them to make reference thereto in
their report on the financial statements for 2000 or 1999.

                                                                              46
<PAGE>

                                    PART III


Item 10. Directors and Executive Officers of the Registrant

     (a) Identification of Directors.

         Incorporated by reference to the Company's definitive Proxy Statement
in connection with its 2002 Annual Meeting of Shareholders to be held on May 7,
2002, which Proxy Statement has been filed pursuant to Regulation 14A under the
Securities and Exchange Act of 1934, as amended.

     (b) Identification of Officers.

         Christopher A. Kuebler, 48, has been Covance's Chairman and Chief
Executive Officer since November 1994. From November 1994 to November 2001, Mr.
Kuebler was also President of Covance. From March 1993 through November 1994, he
was the Corporate Vice President, European Operations for Abbott Laboratories
Inc. ("ALI"), a diversified health care company. From January 1991 until March
1993, Mr. Kuebler was the Vice President, Sales and Marketing for ALI's
Pharmaceutical Division. Mr. Kuebler has been a member of the Covance Board
since November 1994, and was elected Chairman in November 1996. Mr. Kuebler is a
director of Inhale Therapeutic Systems, Inc., a biotechnology company.

         William E. Klitgaard, 48, has been Covance's Corporate Senior Vice
President, Chief Financial Officer and Treasurer since September 2000. From
September 1999 to September 2000, Mr. Klitgaard had been Covance's Corporate
Vice President, Strategy and Corporate Development and Treasurer. From October
1996 to September 1999, Mr. Klitgaard was Covance's Corporate Vice President and
Treasurer. Prior to that, Mr. Klitgaard was Treasurer at Kenetech Corporation in
San Francisco, and prior to that Mr. Klitgaard spent eleven years in positions
of increasing responsibility with Consolidated Freightways Inc.

         Michael Giannetto, 39, has been Covance's Controller since July 1996
and a Corporate Vice President since February 1998. From November 1996 to
February 1998, Mr. Giannetto was a Vice President of Covance. From March 1995 to
July 1996, Mr. Giannetto was the Business Controller for Covance. From December
1992 to March 1995, Mr. Giannetto was the Manager of Financial Reporting and
Technical Accounting for Corning Life Sciences Inc., an affiliate of the Company
prior to December 31, 1996. Prior to December 1992, Mr. Giannetto was a Senior
Audit Manager for Deloitte & Touche.

         Joseph L. Herring, 46, has been Covance's President and Chief Operating
Officer since November 2001. Mr. Herring was Corporate Senior Vice President and
President-Early Development Services from September 1999 to November 2001. From
September 1996 to September 1999, Mr. Herring was Corporate Vice President and
General Manager of Covance Laboratories North America. Prior to joining Covance,
Mr. Herring was Vice President of Caremark International, a provider of home
care and physician practice management services.

         Alan Horgan, 45, has been Covance's Corporate Senior Vice President and
President-Clinical Development Services since September 1999. From November 1997
to September 1999, Mr. Horgan was Corporate Vice President and General Manager
of Covance Clinical Development Services Europe. From May 1996 to September
1997, Mr. Horgan was Managing Director of Nutraceuticals, Ltd., and from
September 1996 to March 1997 was Interim CEO of Lotus Healthcare, a
pharmaceutical company based in Beijing PRC. From 1994 to 1996, Mr. Horgan was
Managing Director UK Operations of Fisons, a multinational pharmaceutical
company. Mr. Horgan was Managing Director of Boot Pharmaceuticals, Ltd. From
1991 to 1994. Prior to this, he was at ER Squibb & Sons/Bristol-Myers Squibb
from 1980 in a variety of sales, marketing and general management roles.

         James Lovett, 37, has been Covance's Corporate Vice President, General
Counsel and Secretary since December 2001. From 1997 to 2001, Mr. Lovett was
with FMC Corporation, a manufacturer of machinery and chemicals for industry and
agriculture, most recently as Associate General Counsel and Assistant Secretary.
Prior to that, Mr. Lovett was a partner at the law firm of McDermott, Will &
Emery.

                                                                              47
<PAGE>

         Howard Moody, 51, joined Covance in February 2000, as Corporate Senior
Vice President and Chief Information Officer. Prior to joining Covance, Mr.
Moody was Vice President, Information Systems, Core Business for Quest
Diagnostics Inc., a position to which Mr. Moody was appointed after Smithkline
Beecham Clinical Laboratories was acquired by Quest in 1999. Mr. Moody held that
position with Smithkline Beecham Clinical Laboratories from 1995 to 1999. From
1989 to 1995 Mr. Moody held various positions of increasing responsibility with
Smithkline Beecham.

         Stephen J. Sullivan, 55, joined Covance in June 1999 and has been
Covance's Corporate Senior Vice President and President-Clinical Support
Services since September 1999. From 1996 to 1999, Mr. Sullivan was Chairman of
the Board, President and Chief Executive Officer of Xenometrix, Inc., a Boulder,
Colorado-based biotechnology company. Prior to that, Mr. Sullivan was Vice
President, Worldwide Marketing for the Diagnostics Division, and Vice President
and General Manager of the Diagnostic Assay Sector of Abbott Laboratories. Mr.
Sullivan was Chairman of the Board of Xenometrix, Inc. prior to the sale of that
company in May 2001.

Item 11. Executive Compensation

         Incorporated by reference to the Company's definitive Proxy Statement
in connection with its 2002 Annual Meeting of Shareholders to be held on May 7,
2002, which Proxy Statement has been filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended.

Item 12. Security Ownership by Certain Beneficial Owners and Management of
         Covance

         Incorporated by reference to the Company's definitive Proxy Statement
in connection with its 2002 Annual Meeting of Shareholders to be held on May 7,
2002, which Proxy Statement has been filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended.

Item 13. Certain Relationships and Related Transactions

         Incorporated by reference to the Company's definitive Proxy Statement
in connection with its 2002 Annual Meeting of Shareholders to be held on May 7,
2002, which Proxy Statement has been filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended.

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) Documents filed as part of this report.

         1.       Financial Statements. The financial statements filed as part
                  of this report are listed on the Index to Consolidated
                  Financial Statements on page 26.
         2.       Financial Statement Schedules. Schedules are omitted because
                  they are not applicable or the required information is shown
                  in the consolidated financial statements or notes thereto.
         3.       Exhibits. The exhibits required by Item 601 of Regulation S-K
                  filed as part of, or incorporated by reference in, this report
                  are listed in (c) below and in the accompanying Exhibit Index.

(b) Reports on Form 8-K.

         None.

(c) Item 601 Exhibits.

                                                                              48
<PAGE>

Exhibit
 Number                            Description
 ------                            -----------

     2.1    Transaction Agreement among Corning Incorporated, Corning Life
            Sciences Inc., Corning Clinical Laboratories Inc. (Delaware),
            Covance Inc. and Corning Clinical Laboratories Inc. (Michigan),
            dated November 22, 1996. Incorporated by reference to Covance's
            Annual Report on Form 10-K for the fiscal year ended December 31,
            1996.
     3.1    Certificate of Incorporation. Incorporated by reference to Covance's
            filing on Amendment No. 2 on Form 10, filed with the SEC on November
            19, 1996.
     3.2    By-Laws. Incorporated by reference to Covance's filing on Amendment
            No. 2 on Form 10, filed with the SEC on November 19, 1996.
     4.1    Form of Common Stock Certificate. Incorporated by reference to
            Covance's filing on Amendment No. 3 on Form 10, filed with the SEC
            on November 25, 1996.
     4.2    Rights Agreement between Covance Inc. and Harris Trust and Savings
            Bank, dated December 31, 1996. Incorporated by reference to
            Covance's Annual Report on Form 10-K for the fiscal year ended
            December 31, 1997.
     10.1   Tax Sharing Agreement among Corning Incorporated, Corning Clinical
            Laboratories Inc. and Covance Inc., dated December 31, 1996.
            Incorporated by reference to Covance's Annual Report on Form 10-K
            for the fiscal year ended December 31, 1996.
     10.2   Spin-Off Tax Indemnification Agreement between Corning Incorporated
            and Covance Inc., dated December 31, 1996. Incorporated by reference
            to Covance's Annual Report on Form 10-K for the fiscal year ended
            December 31, 1996.
     10.3   Spin-Off Tax Indemnification Agreement between Covance Inc. and
            Corning Clinical Laboratories Inc., December 31, 1996. Incorporated
            by reference to Covance's Annual Report on Form 10-K for the fiscal
            year ended December 31, 1996.
     10.4   Spin-Off Tax Indemnification Agreement between Corning Clinical
            Laboratories Inc. and Covance Inc., dated December 31, 1996.
            Incorporated by reference to Covance's Annual Report on Form 10-K
            for the fiscal year ended December 31, 1996.
     10.5   Credit Agreement among Covance Inc., NationsBank, N.A., Wachovia
            Bank of Georgia, N.A. and Lenders named therein, dated November 26,
            1996. Incorporated by reference to Covance's Annual Report on Form
            10-K for the fiscal year ended December 31, 1996.
     10.6   Employee Stock Ownership Plan. Incorporated by reference to
            Covance's Annual Report on Form 10-K for the fiscal year ended
            December 31, 1996.
     10.7   Stock Purchase Savings Plan, as amended. Incorporated by reference
            to Covance's Annual Report on Form 10-K for the fiscal year ended
            December 31, 1996.
     10.8   Employee Stock Purchase Plan. Incorporated by reference to Covance's
            Annual Report on Form 10-K for the fiscal year ended December 31,
            1996.
     10.9   Amended and Restated Supplemental Executive Retirement Plan.
            Incorporated by reference to Covance's Annual Report on Form 10-K
            for the fiscal year ended December 31, 1998.
     10.10  Restricted Share Plan. Incorporated by reference to Covance's Annual
            Report on Form 10-K for the fiscal year ended December 31, 1996.
     10.11  Non-Employee Directors' Amended and Restated Restricted Stock Plan.
            Incorporated by reference to Covance's Annual Report on Form 10-K
            for the fiscal year ended December 31, 1998.
     10.12  Directors' Deferred Compensation Plan, as amended. Incorporated by
            reference to Covance's Annual Report on Form 10-K for the fiscal
            year ended December 31, 1997.
     10.13  Variable Compensation Plan. Incorporated by reference to Covance's
            Annual Report on Form 10-K for the fiscal year ended December 31,
            1998.
     10.14  Conversion Equity Plan. Incorporated by reference to Covance's
            filing on a Registration Statement on Form S-8, Registration No.
            333-29467, filed with the SEC on June 18, 1997.
     10.15  Non-Employee Directors' Stock Option Plan. Incorporated by reference
            to Covance's Annual Report on Form 10-K for the fiscal year ended
            December 31, 1998.


                                                                              49
<PAGE>

Exhibit
 Number                            Description
 ------                            -----------

     10.16  Deferred Stock Unit Plan for Non-Employee Members of the Board of
            Directors. Incorporated by reference to Covance's Annual Report on
            Form 10-K for the fiscal year ended December 31, 1998.
     10.17  Severance Agreement and Release between Covance Inc. and James D.
            Utterback dated as of September 1, 1999. Incorporated by reference
            to Covance's Quarterly Report on Form 10-Q for the period ended
            September 30, 1999.
     10.18  Employment Agreement between Christopher A. Kuebler and Covance Inc.
            dated as of May 13, 1999. Incorporated by reference to Covance's
            Quarterly Report on Form 10-Q for the period ended September 30,
            1999.
     10.19  2000 Employee Equity Participation Plan. Incorporated by reference
            to Covance's Annual Report on Form 10-K for the fiscal year ended
            December 31, 1999.
     10.20  Letter Agreement between Covance Inc. and Stephen J. Sullivan.
            Incorporated by reference to Covance's Quarterly Report on Form 10-Q
            for the period ended March 31, 2000.
     10.21  Covance Inc. Variable Compensation Plan. Incorporated by reference
            to Covance's Quarterly Report on Form 10-Q for the period ended
            March 31, 2000.
     10.22  Amendment No. 1 to the Covance Inc. Employee Stock Purchase Plan.
            Incorporated by reference to Covance's Quarterly Report on Form 10-Q
            for the period ended March 31, 2000.
     10.23  Credit Agreement among Covance Inc., Lenders named therein, and Bank
            of America, N.A. dated June 28, 2000. Incorporated by reference to
            Covance's Quarterly Report on Form 10-Q for the period ended June
            30, 2000.
     10.24  Third Amendment to Credit Agreement dated November 26, 1996 among
            Covance Inc., Nationsbank, N.A., Wachovia Bank of Georgia, N.A., and
            Lenders named therein (amended June 28, 2000). Incorporated by
            reference to Covance's Quarterly Report on Form 10-Q for the period
            ended June 30, 2000.
     10.25  Letter Agreement between Covance Inc. and Joseph L. Herring.
            Incorporated by reference to Covance's Quarterly Report on Form 10-Q
            for the period ended June 30, 2000.
     10.26  Amended and Restated Letter Agreement between Covance Inc. and
            Charles C. Harwood, Jr. Incorporated by reference to Covance's
            Quarterly Report on Form 10-Q for the period ended September 30,
            2000.
     10.27  Resignation Agreement between Covance Inc. and Jeffrey S. Hurwitz.
            Incorporated by reference to Covance's Quarterly Report on Form 10-Q
            for the period ended September 30, 2000.
     10.28  Asset and Stock Purchase Agreement, dated as of December 21, 2000
            among Covance Inc., Covance Clinical and Periapproval Services Ltd.,
            and Fisher Scientific International, Inc. Incorporated by reference
            to Covance's Annual Report on Form 10-K for the fiscal year ended
            December 31, 2000.
     10.29  First Amendment to Credit Agreement dated November 13, 2000 among
            Covance Inc., Lenders named therein, and Bank of America, N.A.
            Incorporated by reference to Covance's Annual Report on Form 10-K
            for the fiscal year ended December 31, 2000.
     10.30  Fourth Amendment to Credit Agreement dated November 13, 2000 among
            Covance Inc., Nationsbank, N.A., Wachovia Bank of Georgia, and
            Lenders named therein. Incorporated by reference to Covance's Annual
            Report on Form 10-K for the period ended December 31, 2000.
     10.31  Credit Agreement among Covance Inc., Lenders named Therein, Bank of
            America, N.A., Barclays Bank PLC, PNC Bank, National Association,
            The Bank of Nova Scotia and Bank of Tokyo-Mitsubishi Trust Company
            dated June 28, 2001. Incorporated by reference to Covance's
            Quarterly Report on Form 10-Q for the period ended June 30, 2001.
     10.32  Stock Purchase Agreement between Covance Inc. and Akzo Nobel Inc.
            dated as of April 23, 2001. Incorporated by reference to Covance's
            Quarterly Report on Form 10-Q for the period ended June 30, 2001.
     10.33  Covance Inc. Variable Compensation Plan. Incorporated by reference
            to Covance's Quarterly Report on Form 10-Q for the period ended
            September 30, 2001.
     10.34  Employment Agreement between Covance Inc. and Christopher A. Kuebler
            dated November 7, 2001. Filed herewith.
     10.35  Letter Agreement between Covance Inc. and Joseph Herring dated
            November 7, 2001. Filed herewith.


                                                                              50
<PAGE>

Exhibit
 Number                            Description
 ------                            -----------

     10.36  Amendment and Restatement of Employment Relationship between Covance
            Inc. and Dr. F. John Mills dated November 15, 2001. Filed herewith.
     10.37  2002 Employee Equity Participation Plan.  Filed herewith.
        21  Subsidiaries. Filed herewith.
      23.1  Consent of Ernst & Young LLP. Filed herewith
      23.2  Consent of PricewaterhouseCoopers LLP. Filed herewith.

(d) Financial Statement Schedules.

         None.


                                                                              51
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Covance has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                       COVANCE INC.



Dated: March 4, 2002                   By: /s/ CHRISTOPHER A. KUEBLER
                                           -------------------------------------
                                           Christopher A. Kuebler
                                           Chairman of the Board and Chief
                                           Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of Covance
and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
          Signature                                       Title                               Date
          ---------                                       -----                               ----

<S>                                  <C>                                                 <C>
/s/ CHRISTOPHER A. KUEBLER           Chairman of the Board, Chief Executive Officer      March 4, 2002
-------------------------------      and Director
Christopher A. Kuebler               (Principal Executive Officer)

/s/ WILLIAM E. KLITGAARD             Corporate Senior Vice President and                 March 4, 2002
-------------------------------      Chief Financial Officer
William E. Klitgaard                 (Principal Financial Officer)

/s/ MICHAEL GIANNETTO                Corporate Vice President and Controller             March 4, 2002
-------------------------------      (Principal Accounting Officer)
Michael Giannetto

/s/ ROBERT M. BAYLIS                 Director                                            March 4, 2002
-------------------------------
Robert M. Baylis

/s/ IRWIN LERNER                     Director                                            March 4, 2002
-------------------------------
Irwin Lerner

/s/ J. RANDALL MACDONALD             Director                                            March 4, 2002
-------------------------------
J. Randall MacDonald

/s/ NIGEL W. MORRIS                  Director                                            March 4, 2002
-------------------------------
Nigel W. Morris

/s/ KATHLEEN G. MURRAY               Director                                            March 4, 2002
-------------------------------
Kathleen G. Murray

/s/ WILLIAM C. UGHETTA               Director                                            March 4, 2002
-------------------------------
William C. Ughetta
</TABLE>

                                                                              52
<PAGE>
                                 EXHIBIT INDEX
                                 -------------

Exhibit
 Number                            Description
 ------                            -----------

     2.1    Transaction Agreement among Corning Incorporated, Corning Life
            Sciences Inc., Corning Clinical Laboratories Inc. (Delaware),
            Covance Inc. and Corning Clinical Laboratories Inc. (Michigan),
            dated November 22, 1996. Incorporated by reference to Covance's
            Annual Report on Form 10-K for the fiscal year ended December 31,
            1996.
     3.1    Certificate of Incorporation. Incorporated by reference to Covance's
            filing on Amendment No. 2 on Form 10, filed with the SEC on November
            19, 1996.
     3.2    By-Laws. Incorporated by reference to Covance's filing on Amendment
            No. 2 on Form 10, filed with the SEC on November 19, 1996.
     4.1    Form of Common Stock Certificate. Incorporated by reference to
            Covance's filing on Amendment No. 3 on Form 10, filed with the SEC
            on November 25, 1996.
     4.2    Rights Agreement between Covance Inc. and Harris Trust and Savings
            Bank, dated December 31, 1996. Incorporated by reference to
            Covance's Annual Report on Form 10-K for the fiscal year ended
            December 31, 1997.
     10.1   Tax Sharing Agreement among Corning Incorporated, Corning Clinical
            Laboratories Inc. and Covance Inc., dated December 31, 1996.
            Incorporated by reference to Covance's Annual Report on Form 10-K
            for the fiscal year ended December 31, 1996.
     10.2   Spin-Off Tax Indemnification Agreement between Corning Incorporated
            and Covance Inc., dated December 31, 1996. Incorporated by reference
            to Covance's Annual Report on Form 10-K for the fiscal year ended
            December 31, 1996.
     10.3   Spin-Off Tax Indemnification Agreement between Covance Inc. and
            Corning Clinical Laboratories Inc., December 31, 1996. Incorporated
            by reference to Covance's Annual Report on Form 10-K for the fiscal
            year ended December 31, 1996.
     10.4   Spin-Off Tax Indemnification Agreement between Corning Clinical
            Laboratories Inc. and Covance Inc., dated December 31, 1996.
            Incorporated by reference to Covance's Annual Report on Form 10-K
            for the fiscal year ended December 31, 1996.
     10.5   Credit Agreement among Covance Inc., NationsBank, N.A., Wachovia
            Bank of Georgia, N.A. and Lenders named therein, dated November
            26,1996. Incorporated by reference to Covance's Annual Report on
            Form 10-K for the fiscal year ended December 31, 1996.
     10.6   Employee Stock Ownership Plan. Incorporated by reference to
            Covance's Annual Report on Form 10-K for the fiscal year ended
            December 31, 1996.
     10.7   Stock Purchase Savings Plan, as amended. Incorporated by reference
            to Covance's Annual Report on Form 10-K for the fiscal year ended
            December 31, 1996.
     10.8   Employee Stock Purchase Plan. Incorporated by reference to Covance's
            Annual Report on Form 10-K for the fiscal year ended December 31,
            1996.
     10.9   Amended and Restated Supplemental Executive Retirement Plan.
            Incorporated by reference to Covance's Annual Report on Form 10-K
            for the fiscal year ended December 31, 1998.
     10.10  Restricted Share Plan. Incorporated by reference to Covance's Annual
            Report on Form 10-K for the fiscal year ended December 31, 1996.
     10.11  Non-Employee Directors' Amended and Restated Restricted Stock Plan.
            Incorporated by reference to Covance's Annual Report on Form 10-K
            for the fiscal year ended December 31, 1998.
     10.12  Directors' Deferred Compensation Plan, as amended. Incorporated by
            reference to Covance's Annual Report on Form 10-K for the fiscal
            year ended December 31, 1997.
     10.13  Variable Compensation Plan. Incorporated by reference to Covance's
            Annual Report on Form 10-K for the fiscal year ended December 31,
            1998.
     10.14  Conversion Equity Plan. Incorporated by reference to Covance's
            filing on a Registration Statement on Form S-8, Registration No.
            333-29467, filed with the SEC on June 18, 1997.
     10.15  Non-Employee Directors' Stock Option Plan. Incorporated by reference
            to Covance's Annual Report on Form 10-K for the fiscal year ended
            December 31, 1998.


                                                                              53
<PAGE>

Exhibit
 Number                            Description
 ------                            -----------

     10.16  Deferred Stock Unit Plan for Non-Employee Members of the Board of
            Directors. Incorporated by reference to Covance's Annual Report on
            Form 10-K for the fiscal year ended December 31, 1998.
     10.17  Severance Agreement and Release between Covance Inc. and James D.
            Utterback dated as of September 1, 1999. Incorporated by reference
            to Covance's Quarterly Report on Form 10-Q for the period ended
            September 30, 1999.
     10.18  Employment Agreement between Christopher A. Kuebler and Covance Inc.
            dated as of May 13, 1999. Incorporated by reference to Covance's
            Quarterly Report on Form 10-Q for the period ended September 30,
            1999.
     10.19  2000 Employee Equity Participation Plan. Incorporated by reference
            to Covance's Annual Report on Form 10-K for the fiscal year ended
            December 31, 1999.
     10.20  Letter Agreement between Covance Inc. and Stephen J. Sullivan.
            Incorporated by reference to Covance's Quarterly Report on Form 10-Q
            for the period ended March 31, 2000.
     10.21  Covance Inc. Variable Compensation Plan. Incorporated by reference
            to Covance's Quarterly Report on Form 10-Q for the period ended
            March 31, 2000.
     10.22  Amendment No. 1 to the Covance Inc. Employee Stock Purchase Plan.
            Incorporated by reference to Covance's Quarterly Report on Form 10-Q
            for the period ended March 31, 2000.
     10.23  Credit Agreement among Covance Inc., Lenders named therein, and Bank
            of America, N.A. dated June 28, 2000. Incorporated by reference to
            Covance's Quarterly Report on Form 10-Q for the period ended June
            30, 2000.
     10.24  Third Amendment to Credit Agreement dated November 26, 1996 among
            Covance Inc., Nationsbank, N.A., Wachovia Bank of Georgia, N.A., and
            Lenders named therein (amended June 28, 2000). Incorporated by
            reference to Covance's Quarterly Report on Form 10-Q for the period
            ended June 30, 2000.
     10.25  Letter Agreement between Covance Inc. and Joseph L. Herring.
            Incorporated by reference to Covance's Quarterly Report on Form 10-Q
            for the period ended June 30, 2000.
     10.26  Amended and Restated Letter Agreement between Covance Inc. and
            Charles C. Harwood, Jr. Incorporated by reference to Covance's
            Quarterly Report on Form 10-Q for the period ended September 30,
            2000.
     10.27  Resignation Agreement between Covance Inc. and Jeffrey S. Hurwitz.
            Incorporated by reference to Covance's Quarterly Report on Form 10-Q
            for the period ended September 30, 2000.
     10.28  Asset and Stock Purchase Agreement, dated as of December 21, 2000
            among Covance Inc., Covance Clinical and Periapproval Services Ltd.,
            and Fisher Scientific International, Inc. Incorporated by reference
            to Covance's Annual Report on Form 10-K for the fiscal year ended
            December 31, 2000.
     10.29  First Amendment to Credit Agreement dated November 13, 2000 among
            Covance Inc., Lenders named therein, and Bank of America, N.A.
            Incorporated by reference to Covance's Annual Report on Form 10-K
            for the fiscal year ended December 31, 2000.
     10.30  Fourth Amendment to Credit Agreement dated November 13, 2000 among
            Covance Inc., Nationsbank, N.A., Wachovia Bank of Georgia, and
            Lenders named therein. Incorporated by reference to Covance's Annual
            Report on Form 10-K for the period ended December 31, 2000.
     10.31  Credit Agreement among Covance Inc., Lenders named Therein, Bank of
            America, N.A., Barclays Bank PLC, PNC Bank, National Association,
            The Bank of Nova Scotia and Bank of Tokyo-Mitsubishi Trust Company
            dated June 28, 2001. Incorporated by reference to Covance's
            Quarterly Report on Form 10-Q for the period ended June 30, 2001.
     10.32  Stock Purchase Agreement between Covance Inc. and Akzo Nobel Inc.
            dated as of April 23, 2001. Incorporated by reference to Covance's
            Quarterly Report on Form 10-Q for the period ended June 30, 2001.
     10.33  Covance Inc. Variable Compensation Plan. Incorporated by reference
            to Covance's Quarterly Report on Form 10-Q for the period ended
            September 30, 2001.
     10.34  Employment Agreement between Covance Inc. and Christopher A. Kuebler
            dated November 7, 2001. Filed herewith.
     10.35  Letter Agreement between Covance Inc. and Joseph Herring dated
            November 7, 2001. Filed herewith.


                                                                              54
<PAGE>

Exhibit
 Number                            Description
 ------                            -----------

     10.36  Amendment and Restatement of Employment Relationship between Covance
            Inc. and Dr. F. John Mills dated November 15, 2001. Filed herewith.
     10.37  2002 Employee Equity Participation Plan.  Filed herewith.
        21  Subsidiaries. Filed herewith.
      23.1  Consent of Ernst & Young LLP. Filed herewith
      23.2  Consent of PricewaterhouseCoopers LLP. Filed herewith.

(d) Financial Statement Schedules.

         None.

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