001-12215 | 16-1387862 | |
(Commission File Number) | (I.R.S. Employer Identification No.) | |
Three Giralda Farms Madison, NJ | 07940 | |
(Address of principal executive offices) | (Zip Code) | |
(973) 520-2700 | ||
(Registrant's telephone number, including area code) |
d. | Exhibit | |
99.1 | Press release of Quest Diagnostics Incorporated dated October 17, 2012, announcing, among other things, its results for the quarter ended September 30, 2012. |
• | Adjusted diluted EPS of $1.18, unchanged from prior year |
• | Reported diluted EPS of $1.01, 6% below prior year |
• | Revenues of $1.9 billion, 2.9% below prior year |
• | Full year adjusted EPS guidance of $4.45 - $4.55; revenue growth outlook of approximately 0.5% |
• | Revenues to grow approximately 0.5%, compared to the prior outlook of between 1% and 2%; |
• | Earnings per diluted share to be between $4.45 and $4.55, compared to the prior outlook of $4.45 to $4.60; |
• | Operating income as a percentage of revenues to approximate 18%, unchanged from the prior outlook; |
• | Cash provided by operations to approximate $1.2 billion, unchanged from the prior outlook; and |
• | Capital expenditures to approximate $180 million, compared to the prior outlook of approximately $200 million. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Net revenues | $ | 1,851.4 | $ | 1,906.4 | $ | 5,694.7 | $ | 5,631.2 | |||||||
Operating costs and expenses: | |||||||||||||||
Cost of services | 1,089.7 | 1,116.6 | 3,316.8 | 3,318.0 | |||||||||||
Selling, general and administrative | 432.6 | 446.5 | 1,374.0 | 1,357.2 | |||||||||||
Amortization of intangible assets | 20.0 | 19.4 | 60.4 | 47.8 | |||||||||||
Other operating expense, net | 0.4 | 1.8 | 0.4 | 238.3 | |||||||||||
Total operating costs and expenses | 1,542.7 | 1,584.3 | 4,751.6 | 4,961.3 | |||||||||||
Operating income | 308.7 | 322.1 | 943.1 | 669.9 | |||||||||||
Other income (expense): | |||||||||||||||
Interest expense, net | (41.0 | ) | (43.4 | ) | (125.3 | ) | (127.9 | ) | |||||||
Equity earnings in unconsolidated joint ventures | 4.7 | 7.3 | 19.6 | 22.9 | |||||||||||
Other income (expense), net | 2.5 | (2.8 | ) | 6.0 | (0.9 | ) | |||||||||
Total non-operating expenses, net | (33.8 | ) | (38.9 | ) | (99.7 | ) | (105.9 | ) | |||||||
Income from continuing operations before taxes | 274.9 | 283.2 | 843.4 | 564.0 | |||||||||||
Income tax expense | 103.3 | 101.1 | 317.1 | 256.1 | |||||||||||
Income from continuing operations | 171.6 | 182.1 | 526.3 | 307.9 | |||||||||||
Income (loss) from discontinued operations, net of taxes | — | (0.3 | ) | 0.2 | (1.2 | ) | |||||||||
Net income | 171.6 | 181.8 | 526.5 | 306.7 | |||||||||||
Less: Net income attributable to noncontrolling interests | 8.5 | 10.0 | 26.6 | 25.6 | |||||||||||
Net income attributable to Quest Diagnostics | $ | 163.1 | $ | 171.8 | $ | 499.9 | $ | 281.1 | |||||||
Amounts attributable to Quest Diagnostics' common stockholders: | |||||||||||||||
Income from continuing operations | $ | 163.1 | $ | 172.1 | $ | 499.7 | $ | 282.3 | |||||||
Income (loss) from discontinued operations, net of taxes | — | (0.3 | ) | 0.2 | (1.2 | ) | |||||||||
Net income | $ | 163.1 | $ | 171.8 | $ | 499.9 | $ | 281.1 | |||||||
Earnings per share attributable to Quest Diagnostics' common stockholders - basic: | |||||||||||||||
Income from continuing operations | $ | 1.02 | $ | 1.08 | $ | 3.14 | $ | 1.76 | |||||||
Income (loss) from discontinued operations | — | — | — | (0.01 | ) | ||||||||||
Net income | $ | 1.02 | $ | 1.08 | $ | 3.14 | $ | 1.75 | |||||||
Earnings per share attributable to Quest Diagnostics' common stockholders - diluted: | |||||||||||||||
Income from continuing operations | $ | 1.01 | $ | 1.08 | $ | 3.11 | $ | 1.75 | |||||||
Income (loss) from discontinued operations | — | (0.01 | ) | — | (0.01 | ) | |||||||||
Net income | $ | 1.01 | $ | 1.07 | $ | 3.11 | $ | 1.74 | |||||||
Weighted average common shares outstanding: | |||||||||||||||
Basic | 158.8 | 157.8 | 158.5 | 159.0 | |||||||||||
Diluted | 160.7 | 159.0 | 160.1 | 160.5 | |||||||||||
Operating income as a percentage of net revenues | 16.7 | % | 16.9 | % | 16.6 | % | 11.9 | % | |||||||
September 30, 2012 | December 31, 2011 | ||||||
(unaudited) | |||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 191.8 | $ | 164.9 | |||
Accounts receivable, net | 930.7 | 906.5 | |||||
Inventories | 94.5 | 89.1 | |||||
Deferred income taxes | 169.0 | 153.3 | |||||
Prepaid expenses and other current assets | 86.3 | 87.4 | |||||
Total current assets | 1,472.3 | 1,401.2 | |||||
Property, plant and equipment, net | 782.8 | 799.8 | |||||
Goodwill | 5,837.2 | 5,795.8 | |||||
Intangible assets, net | 1,002.5 | 1,035.6 | |||||
Other assets | 223.9 | 281.0 | |||||
Total assets | $ | 9,318.7 | $ | 9,313.4 | |||
Liabilities and Stockholders' Equity | |||||||
Current liabilities: | |||||||
Accounts payable and accrued expenses | $ | 916.0 | $ | 906.8 | |||
Short-term borrowings and current portion of long-term debt | 154.6 | 654.4 | |||||
Total current liabilities | 1,070.6 | 1,561.2 | |||||
Long-term debt | 3,375.7 | 3,370.5 | |||||
Other liabilities | 674.8 | 666.7 | |||||
Stockholders' equity: | |||||||
Quest Diagnostics stockholders' equity: | |||||||
Common stock, par value $0.01 per share; 600 shares authorized at both September 30, 2012 and December 31, 2011; 215.0 shares and 214.6 shares issued at September 30, 2012 and December 31, 2011, respectively | 2.1 | 2.1 | |||||
Additional paid-in capital | 2,361.5 | 2,347.5 | |||||
Retained earnings | 4,682.3 | 4,263.6 | |||||
Accumulated other comprehensive income (loss) | 14.0 | (8.0 | ) | ||||
Treasury stock, at cost; 56.3 shares and 57.2 shares at September 30, 2012 and December 31, 2011, respectively | (2,888.6 | ) | (2,912.3 | ) | |||
Total Quest Diagnostics stockholders' equity | 4,171.3 | 3,692.9 | |||||
Noncontrolling interests | 26.3 | 22.1 | |||||
Total stockholders' equity | 4,197.6 | 3,715.0 | |||||
Total liabilities and stockholders' equity | $ | 9,318.7 | $ | 9,313.4 |
Nine Months Ended September 30, | |||||||
2012 | 2011 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 526.5 | $ | 306.7 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 215.3 | 209.4 | |||||
Provision for doubtful accounts | 208.4 | 214.4 | |||||
Deferred income tax provision | 0.1 | 3.3 | |||||
Stock-based compensation expense | 43.1 | 50.8 | |||||
Excess tax benefits from stock-based compensation arrangements | (3.8 | ) | (4.6 | ) | |||
Provision for special charge | — | 236.0 | |||||
Other, net | (5.3 | ) | 5.7 | ||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (231.4 | ) | (271.1 | ) | |||
Accounts payable and accrued expenses | (56.1 | ) | (84.4 | ) | |||
Settlement of special charge | — | (241.0 | ) | ||||
Income taxes payable | 32.3 | 122.1 | |||||
Termination of interest rate swap agreements | 71.8 | — | |||||
Other assets and liabilities, net | 5.9 | 10.4 | |||||
Net cash provided by operating activities | 806.8 | 557.7 | |||||
Cash flows from investing activities: | |||||||
Business acquisitions, net of cash acquired | (50.6 | ) | (1,298.5 | ) | |||
Sale of securities acquired in business acquisition | — | 213.5 | |||||
Capital expenditures | (122.3 | ) | (117.9 | ) | |||
(Increase) decrease in investments and other assets | (2.1 | ) | 0.8 | ||||
Net cash used in investing activities | (175.0 | ) | (1,202.1 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from borrowings | 715.0 | 2,658.3 | |||||
Repayments of debt | (1,222.0 | ) | (1,495.1 | ) | |||
Purchases of treasury stock | (150.0 | ) | (885.0 | ) | |||
Exercise of stock options | 143.9 | 104.0 | |||||
Excess tax benefits from stock-based compensation arrangements | 3.8 | 4.6 | |||||
Dividends paid | (81.0 | ) | (48.8 | ) | |||
Distributions to noncontrolling interests | (24.1 | ) | (25.8 | ) | |||
Other financing activities, net | 9.5 | (6.3 | ) | ||||
Net cash (used in) provided by financing activities | (604.9 | ) | 305.9 | ||||
Net change in cash and cash equivalents | 26.9 | (338.5 | ) | ||||
Cash and cash equivalents, beginning of period | 164.9 | 449.3 | |||||
Cash and cash equivalents, end of period | $ | 191.8 | $ | 110.8 | |||
Cash paid during the period for: | |||||||
Interest | $ | 129.4 | $ | 128.3 | |||
Income taxes | $ | 292.1 | $ | 132.7 |
1) | The computation of basic and diluted earnings per common share is as follows: |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
(in millions, except per share data) | |||||||||||||||
Amounts attributable to Quest Diagnostics' common stockholders: | |||||||||||||||
Income from continuing operations | $ | 163.1 | $ | 172.1 | $ | 499.7 | $ | 282.3 | |||||||
Income (loss) from discontinued operations, net of taxes | — | (0.3 | ) | 0.2 | (1.2 | ) | |||||||||
Net income available to common stockholders | $ | 163.1 | $ | 171.8 | $ | 499.9 | $ | 281.1 | |||||||
Income from continuing operations | $ | 163.1 | $ | 172.1 | $ | 499.7 | $ | 282.3 | |||||||
Less: Earnings allocated to participating securities | 0.7 | 0.9 | 2.0 | 1.9 | |||||||||||
Earnings available to Quest Diagnostics' common stockholders - basic and diluted | $ | 162.4 | $ | 171.2 | $ | 497.7 | $ | 280.4 | |||||||
Weighted average common shares outstanding - basic | 158.8 | 157.8 | 158.5 | 159.0 | |||||||||||
Effect of dilutive securities: | |||||||||||||||
Stock options and performance share units | 1.9 | 1.2 | 1.6 | 1.5 | |||||||||||
Weighted average common shares outstanding - diluted | 160.7 | 159.0 | 160.1 | 160.5 | |||||||||||
Earnings per share attributable to Quest Diagnostics' common stockholders - basic: | |||||||||||||||
Income from continuing operations | $ | 1.02 | $ | 1.08 | $ | 3.14 | $ | 1.76 | |||||||
Income (loss) from discontinued operations | — | — | — | (0.01 | ) | ||||||||||
Net income | $ | 1.02 | $ | 1.08 | $ | 3.14 | $ | 1.75 | |||||||
Earnings per share attributable to Quest Diagnostics' common stockholders - diluted: | |||||||||||||||
Income from continuing operations | $ | 1.01 | $ | 1.08 | $ | 3.11 | $ | 1.75 | |||||||
Income (loss) from discontinued operations | — | (0.01 | ) | — | (0.01 | ) | |||||||||
Net income | $ | 1.01 | $ | 1.07 | $ | 3.11 | $ | 1.74 |
2) | Adjusted amounts for operating income, operating income as a percentage of net revenues, income from continuing operations, and diluted earnings per common share represent the Company's results before the impact of the Medi-Cal charge, restructuring and integration charges, transaction costs related to the acquisitions of Athena Diagnostics and Celera Corporation, CEO succession costs, and the estimated impact of severe weather. Adjusted measures are presented because management believes those measures are useful adjuncts to reported results under accounting principles generally accepted in the United States when comparing results of operations from period to period. Adjusted measures should not be considered as an alternative to the corresponding measures determined under accounting principles generally accepted in the United States. The following tables reconcile reported results to adjusted results: |
Three Months Ended September 30, 2012 | |||||||||||
(dollars in millions, except per share data) | |||||||||||
Restructuring and Integration Charges | |||||||||||
As Reported | (a) | As Adjusted | |||||||||
Operating income | $ | 308.7 | $ | 44.6 | $ | 353.3 | |||||
Operating income as a % of net revenues | 16.7 | % | 2.4 | % | 19.1 | % | |||||
Income from continuing operations (b) | 163.1 | 27.1 | 190.2 | ||||||||
Diluted earnings per common share | 1.01 | 0.17 | 1.18 |
(a) | Represents costs primarily associated with workforce reductions and professional fees incurred in connection with further restructuring and integrating our business. |
(b) | For the restructuring and integration charges, income tax benefits were calculated using a combined federal and state rate of 38.7%. |
Nine Months Ended September 30, 2012 | |||||||||||||||
(dollars in millions, except per share data) | |||||||||||||||
Restructuring and Integration Charges | CEO Succession Costs | ||||||||||||||
As Reported | (c) | (d) | As Adjusted | ||||||||||||
Operating income | $ | 943.1 | $ | 70.2 | $ | 10.1 | $ | 1,023.4 | |||||||
Operating income as a % of net revenues | 16.6 | % | 1.2 | % | 0.2 | % | 18.0 | % | |||||||
Income from continuing operations (e) | 499.7 | 43.0 | 6.1 | 548.8 | |||||||||||
Diluted earnings per common share | 3.11 | 0.27 | 0.04 | 3.42 |
(c) | Represents costs primarily associated with workforce reductions and professional fees incurred in connection with further restructuring and integrating our business. |
(d) | Principally represents accrued severance and accelerated vesting of equity awards in connection with the succession of our prior CEO. |
(e) | For both the restructuring and integration charges, and CEO succession costs, income tax benefits were calculated using a combined federal and state rate of 38.7%. |
Three Months Ended September 30, 2011 | |||||||||||
(dollars in millions, except per share data) | |||||||||||
Restructuring and Integration Charges | |||||||||||
As Reported | (f) | As Adjusted | |||||||||
Operating income | $ | 322.1 | $ | 27.3 | $ | 349.4 | |||||
Operating income as a % of net revenues | 16.9 | % | 1.4 | % | 18.3 | % | |||||
Income from continuing operations (g) | 172.1 | 16.7 | 188.8 | ||||||||
Diluted earnings per common share | 1.08 | 0.10 | 1.18 |
(f) | Represents restructuring and integration costs, principally associated with workforce reductions. |
(g) | For the restructuring and integration charges, income tax benefits were calculated using a combined federal and state rate of 39%. |
Nine Months Ended September 30, 2011 | |||||||||||||||||||||||
(dollars in millions, except per share data) | |||||||||||||||||||||||
Medi-Cal Settlement | Restructuring & Integration Charges | Transaction Costs | Severe Weather | ||||||||||||||||||||
As Reported | (h) | (i) | (j) | (k) | As Adjusted | ||||||||||||||||||
Operating income | $ | 669.9 | $ | 236.0 | $ | 46.7 | $ | 16.6 | $ | 18.5 | $ | 987.7 | |||||||||||
Operating income as a % of net revenues | 11.9 | % | 4.2 | % | 0.8 | % | 0.3 | % | 0.3 | % | 17.5 | % | |||||||||||
Income from continuing operations (l) | 282.3 | 194.7 | 28.4 | 15.0 | 11.3 | 531.7 | |||||||||||||||||
Diluted earnings per common share | 1.75 | 1.21 | 0.18 | 0.09 | 0.07 | 3.30 |
(h) | Represents the first quarter 2011 pre-tax charge of $236 million associated with the Medi-Cal settlement. |
(i) | Represents restructuring and integration charges, principally associated with workforce reductions. |
(j) | Includes $19.7 million of pre-tax transaction costs, associated with the acquisitions of Athena Diagnostics and Celera Corporation. Of these costs, $16.6 million, primarily related to professional fees, was recorded in selling, general, and administrative expenses and $3.1 million of financing related costs were recorded in interest expense, net. |
(k) | Represents an estimate of the impact of severe weather in the first quarter of 2011. |
(l) | Income tax benefit of $41.3 million associated with the Medi-Cal charge was calculated by applying a combined federal and the applicable state tax rate of 36% to the portion of the settlement for which a tax benefit has been recorded. Income tax benefit of $4.7 million associated with transaction costs was calculated by applying a combined federal and state rate of 39% to those costs for which a tax benefit has been recorded. For the estimated impact of severe weather and the impact of restructuring and integration charges, income tax benefits were calculated using a combined federal and state rate of 39%. |
3) | The following tables summarize the impact to the year over year comparisons for the Medi-Cal charge, restructuring and integration charges, transaction costs, CEO succession costs, and the estimated impact of severe weather on certain reported results for the three and nine months ended September 30, 2012 and 2011 (in millions, except per share data): |
Three months ended September 30, 2012 and 2011 | |||||||||||||||||
Restructuring and Integration Charges | |||||||||||||||||
2012 | 2011 | Better (Worse) | |||||||||||||||
Cost of services | $ | 20.1 | $ | 15.9 | $ | (4.2 | ) | ||||||||||
Selling, general and administrative | 24.5 | 11.4 | (13.1 | ) | |||||||||||||
Operating income | 44.6 | 27.3 | (17.3 | ) | |||||||||||||
Income from continuing operations | 27.1 | 16.7 | (10.4 | ) | |||||||||||||
Diluted earnings per common share | 0.17 | 0.10 | (0.07 | ) |
Nine months ended September 30, 2012 and 2011 | |||||||||||||||||||||||
Restructuring and Integration Charges | CEO Succession Costs | ||||||||||||||||||||||
2012 | 2011 | Better (Worse) | 2012 | 2011 | Better (Worse) | ||||||||||||||||||
Cost of services | $ | 28.6 | $ | 24.9 | $ | (3.7 | ) | $ | — | $ | — | $ | — | ||||||||||
Selling, general and administrative | 41.6 | 21.8 | (19.8 | ) | 10.1 | — | (10.1 | ) | |||||||||||||||
Operating income | 70.2 | 46.7 | (23.5 | ) | 10.1 | — | (10.1 | ) | |||||||||||||||
Income from continuing operations | 43.0 | 28.4 | (14.6 | ) | 6.1 | — | (6.1 | ) | |||||||||||||||
Diluted earnings per common share | 0.27 | 0.18 | (0.09 | ) | 0.04 | — | (0.04 | ) | |||||||||||||||
Medi-Cal Settlement | Transaction Costs | ||||||||||||||||||||||
2012 | 2011 | Better (Worse) | 2012 | 2011 | Better (Worse) | ||||||||||||||||||
Cost of services | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
Selling, general and administrative | — | — | — | — | 16.6 | 16.6 | |||||||||||||||||
Operating income | — | 236.0 | 236.0 | — | 16.6 | 16.6 | |||||||||||||||||
Income from continuing operations | — | 194.7 | 194.7 | — | 15.0 | 15.0 | |||||||||||||||||
Diluted earnings per common share | — | 1.21 | 1.21 | — | 0.09 | 0.09 | |||||||||||||||||
Severe Weather | |||||||||||||||||||||||
2012 | 2011 | Better (Worse) | |||||||||||||||||||||
Cost of services | * | * | * | ||||||||||||||||||||
Selling, general and administrative | * | * | * | ||||||||||||||||||||
Operating income | — | 18.5 | 18.5 | ||||||||||||||||||||
Income from continuing operations | — | 11.3 | 11.3 | ||||||||||||||||||||
Diluted earnings per common share | — | 0.07 | 0.07 |
4) | Other operating expense, net includes special charges, and miscellaneous income and expense items related to operating activities. For the nine months ended September 30, 2011, other operating expense, net included a pre-tax charge of $236 million associated with the Medi-Cal settlement. |
5) | Other income (expense), net represents miscellaneous income and expense items related to non-operating activities, such as gains and losses associated with investments and other non-operating assets. For the three months ended September 30, 2012 and 2011, other income (expense), net includes gains (losses) of $2.5 million and $(5.9) million, respectively, associated with investments held in trusts pursuant to our supplemental deferred compensation plans. For the nine months ended September 30, 2012 and 2011, other income (expense), net includes gains (losses) of $6.0 million and $(3.5) million, respectively, associated with investments held in trusts pursuant to our supplemental deferred compensation plans. For the three and nine months ended September 30, 2011, other income (expense), net includes a pre-tax gain of $3.2 million associated with the sale of an investment. |
6) | In January 2012, our Board of Directors authorized $1.0 billion of additional share repurchases, bringing the total available under share repurchase authorizations at that time to $1.1 billion. For the three months ended September 30, 2012, the Company repurchased 832 thousand shares of its common stock at an average price of $60.12 per share for $50 million. For the nine months ended September 30, 2012, the Company repurchased 2.6 million shares of its common stock at an average price of $58.57 per share for $150 million. For the three and nine months ended September 30, 2012, the Company reissued 1.2 million shares and 3.4 million shares, respectively, for employee benefit plans. As of September 30, 2012, the Company had $915 million remaining under share repurchase authorizations. |
7) | The outlook for adjusted diluted earnings per common share and adjusted operating income as a percentage of net revenues represent management’s estimates for the full year 2012 before the impact of the restructuring and integration charges and CEO succession costs. These measures are presented because management believes they are useful adjuncts to the corresponding amounts determined under accounting principles generally accepted in the United States since they are meaningful to evaluate the Company’s ongoing operating performance and are on a basis consistent with previous estimates of diluted earnings per common share and operating income as a percentage of net revenues. Adjusted diluted earnings per common share and adjusted operating income as a percentage of net revenues are not measures of financial performance under accounting principles generally accepted in the United States and should not be considered as an alternative to the corresponding amounts determined under accounting principles generally accepted in the United States. |
Outlook for 2012 Before Special Items | |||||||||||
Restructuring and Integration Charges | CEO Succession Costs | ||||||||||
As Reported | (a) | (b) | As Adjusted | ||||||||
Diluted earnings per common share | $4.14 - $4.24 | $ | 0.27 | $ | 0.04 | $4.45 - $4.55 | |||||
Operating income as a % of net revenues | ~ 17% | 0.9 | % | 0.1 | % | ~ 18% |
(a) | Represents pre-tax costs of $70.2 million primarily associated with workforce reductions and professional fees incurred in connection with further restructuring and integrating our business. |
(b) | Represents pre-tax costs of $10.1 million related to the succession of our prior CEO. |