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 July 24, 2014, announcing, among other things, its results for the quarter ended June 30, 2014. |
QUEST DIAGNOSTICS INCORPORATED | |
By: | /s/ William J.O'Shaughnessy, Jr. |
William J. O'Shaughnessy, Jr. | |
Deputy General Counsel and | |
Corporate Secretary |
• | Revenues from continuing operations of $1.9 billion, up 4.8% versus prior year |
• | Adjusted diluted EPS from continuing operations of $1.08, up 1.9% versus prior year |
• | Reported diluted EPS from continuing operations of $0.92, 7% below prior year |
• | Cash from operations of $280 million, up 34% versus prior year |
• | Full year 2014 revenues now expected to be up 2.5% to 3.5%, versus up 2% to 4% previously |
• | Full year 2014 adjusted diluted EPS range narrowed to $4.00 to $4.10 from $3.95 to $4.15 previously |
• | Revenues expected to increase 2.5% to 3.5% compared to the prior year, versus previous guidance of up 2% to 4%; |
• | Adjusted diluted EPS to be between $4.00 and $4.10, versus previous guidance of between $3.95 and $4.15; |
• | Cash provided by operations to approximate $900 million, unchanged; and |
• | Capital expenditures to approximate $300 million, unchanged |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Net revenues | $ | 1,902 | $ | 1,815 | $ | 3,648 | $ | 3,602 | |||||||
Operating costs and expenses: | |||||||||||||||
Cost of services | 1,174 | 1,094 | 2,275 | 2,186 | |||||||||||
Selling, general and administrative | 440 | 418 | 855 | 866 | |||||||||||
Amortization of intangible assets | 25 | 20 | 47 | 39 | |||||||||||
Other operating expense (income), net | 1 | (6 | ) | 1 | (5 | ) | |||||||||
Total operating costs and expenses | 1,640 | 1,526 | 3,178 | 3,086 | |||||||||||
Operating income | 262 | 289 | 470 | 516 | |||||||||||
Other income (expense): | |||||||||||||||
Interest expense, net | (42 | ) | (40 | ) | (81 | ) | (80 | ) | |||||||
Equity in earnings of equity method investees | 6 | 7 | 12 | 13 | |||||||||||
Other income, net | 3 | — | 4 | 4 | |||||||||||
Total non-operating expenses, net | (33 | ) | (33 | ) | (65 | ) | (63 | ) | |||||||
Income from continuing operations before taxes | 229 | 256 | 405 | 453 | |||||||||||
Income tax expense | 87 | 95 | 152 | 168 | |||||||||||
Income from continuing operations | 142 | 161 | 253 | 285 | |||||||||||
Income from discontinued operations, net of taxes | — | 13 | — | 33 | |||||||||||
Net income | 142 | 174 | 253 | 318 | |||||||||||
Less: Net income attributable to noncontrolling interests | 9 | 9 | 16 | 17 | |||||||||||
Net income attributable to Quest Diagnostics | $ | 133 | $ | 165 | $ | 237 | $ | 301 | |||||||
Amounts attributable to Quest Diagnostics' common stockholders: | |||||||||||||||
Income from continuing operations | $ | 133 | $ | 152 | $ | 237 | $ | 268 | |||||||
Income from discontinued operations, net of taxes | — | 13 | — | 33 | |||||||||||
Net income | $ | 133 | $ | 165 | $ | 237 | $ | 301 | |||||||
Earnings per share attributable to Quest Diagnostics' common stockholders - basic: | |||||||||||||||
Income from continuing operations | $ | 0.92 | $ | 0.99 | $ | 1.64 | $ | 1.72 | |||||||
Income from discontinued operations | — | 0.08 | — | 0.21 | |||||||||||
Net income | $ | 0.92 | $ | 1.07 | $ | 1.64 | $ | 1.93 | |||||||
Earnings per share attributable to Quest Diagnostics' common stockholders - diluted: | |||||||||||||||
Income from continuing operations | $ | 0.92 | $ | 0.99 | $ | 1.63 | $ | 1.71 | |||||||
Income from discontinued operations | — | 0.08 | — | 0.21 | |||||||||||
Net income | $ | 0.92 | $ | 1.07 | $ | 1.63 | $ | 1.92 | |||||||
Weighted average common shares outstanding: | |||||||||||||||
Basic | 144 | 153 | 144 | 155 | |||||||||||
Diluted | 145 | 154 | 145 | 157 | |||||||||||
Operating income as a percentage of net revenues | 13.8 | % | 15.9 | % | 12.9 | % | 14.3 | % | |||||||
June 30, 2014 | December 31, 2013 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 144 | $ | 187 | |||
Accounts receivable, net | 963 | 852 | |||||
Inventories | 109 | 91 | |||||
Deferred income taxes | 164 | 148 | |||||
Prepaid expenses and other current assets | 125 | 105 | |||||
Total current assets | 1,505 | 1,383 | |||||
Property, plant and equipment, net | 884 | 805 | |||||
Goodwill | 6,024 | 5,649 | |||||
Intangible assets, net | 1,117 | 896 | |||||
Other assets | 227 | 215 | |||||
Total assets | $ | 9,757 | $ | 8,948 | |||
Liabilities and Stockholders' Equity | |||||||
Current liabilities: | |||||||
Accounts payable and accrued expenses | $ | 1,038 | $ | 920 | |||
Short-term borrowings and current portion of long-term debt | 220 | 212 | |||||
Total current liabilities | 1,258 | 1,132 | |||||
Long-term debt | 3,738 | 3,120 | |||||
Other liabilities | 642 | 723 | |||||
Stockholders' equity: | |||||||
Quest Diagnostics stockholders' equity: | |||||||
Common stock, par value $0.01 per share; 600 shares authorized at both June 30, 2014 and December 31, 2013; 215 shares issued at both June 30, 2014 and December 31, 2013 | 2 | 2 | |||||
Additional paid-in capital | 2,394 | 2,379 | |||||
Retained earnings | 5,500 | 5,358 | |||||
Accumulated other comprehensive loss | (8 | ) | (8 | ) | |||
Treasury stock, at cost; 71 shares at both June 30, 2014 and December 31, 2013 | (3,796 | ) | (3,783 | ) | |||
Total Quest Diagnostics stockholders' equity | 4,092 | 3,948 | |||||
Noncontrolling interests | 27 | 25 | |||||
Total stockholders' equity | 4,119 | 3,973 | |||||
Total liabilities and stockholders' equity | $ | 9,757 | $ | 8,948 |
Six Months Ended June 30, | |||||||
2014 | 2013 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 253 | $ | 318 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 156 | 142 | |||||
Provision for doubtful accounts | 148 | 139 | |||||
Deferred income tax benefit | (26 | ) | (11 | ) | |||
Stock-based compensation expense | 25 | 17 | |||||
Excess tax benefits from stock-based compensation arrangements | — | (3 | ) | ||||
Gain on sale of business | — | (22 | ) | ||||
Other, net | (2 | ) | (1 | ) | |||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (191 | ) | (213 | ) | |||
Accounts payable and accrued expenses | (39 | ) | (68 | ) | |||
Income taxes payable | 44 | (35 | ) | ||||
Other assets and liabilities, net | (4 | ) | (8 | ) | |||
Net cash provided by operating activities | 364 | 255 | |||||
Cash flows from investing activities: | |||||||
Business acquisitions, net of cash acquired | (723 | ) | (180 | ) | |||
Proceeds from sale of businesses | — | 266 | |||||
Capital expenditures | (117 | ) | (105 | ) | |||
Increase in investments and other assets | (1 | ) | — | ||||
Net cash used in investing activities | (841 | ) | (19 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from borrowings | 1,738 | 578 | |||||
Repayments of debt | (1,159 | ) | (415 | ) | |||
Purchases of treasury stock | (57 | ) | (512 | ) | |||
Exercise of stock options | 30 | 63 | |||||
Excess tax benefits from stock-based compensation arrangements | — | 3 | |||||
Dividends paid | (91 | ) | (95 | ) | |||
Distributions to noncontrolling interests | (14 | ) | (13 | ) | |||
Other financing activities, net | (13 | ) | (10 | ) | |||
Net cash provided by (used in) financing activities | 434 | (401 | ) | ||||
Net change in cash and cash equivalents | (43 | ) | (165 | ) | |||
Change in cash and cash equivalents included in assets held for sale | — | 17 | |||||
Cash and cash equivalents, beginning of period | 187 | 296 | |||||
Cash and cash equivalents, end of period | $ | 144 | $ | 148 | |||
Cash paid during the period for: | |||||||
Interest | $ | 82 | $ | 84 | |||
Income taxes | $ | 138 | $ | 205 |
1) | The computation of basic and diluted earnings per common share is as follows: |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
(in millions, except per share data) | |||||||||||||||
Amounts attributable to Quest Diagnostics' common stockholders: | |||||||||||||||
Income from continuing operations | $ | 133 | $ | 152 | $ | 237 | $ | 268 | |||||||
Income from discontinued operations, net of taxes | — | 13 | — | 33 | |||||||||||
Net income attributable to Quest Diagnostics’ common stockholders | $ | 133 | $ | 165 | $ | 237 | $ | 301 | |||||||
Income from continuing operations | $ | 133 | $ | 152 | $ | 237 | $ | 268 | |||||||
Less: Earnings allocated to participating securities | — | — | 1 | 1 | |||||||||||
Earnings available to Quest Diagnostics' common stockholders - basic and diluted | $ | 133 | $ | 152 | $ | 236 | $ | 267 | |||||||
Weighted average common shares outstanding - basic | 144 | 153 | 144 | 155 | |||||||||||
Effect of dilutive securities: | |||||||||||||||
Stock options and performance share units | 1 | 1 | 1 | 2 | |||||||||||
Weighted average common shares outstanding - diluted | 145 | 154 | 145 | 157 | |||||||||||
Earnings per share attributable to Quest Diagnostics' common stockholders - basic: | |||||||||||||||
Income from continuing operations | $ | 0.92 | $ | 0.99 | $ | 1.64 | $ | 1.72 | |||||||
Income from discontinued operations | — | 0.08 | — | 0.21 | |||||||||||
Net income | $ | 0.92 | $ | 1.07 | $ | 1.64 | $ | 1.93 | |||||||
Earnings per share attributable to Quest Diagnostics' common stockholders - diluted: | |||||||||||||||
Income from continuing operations | $ | 0.92 | $ | 0.99 | $ | 1.63 | $ | 1.71 | |||||||
Income from discontinued operations | — | 0.08 | — | 0.21 | |||||||||||
Net income | $ | 0.92 | $ | 1.07 | $ | 1.63 | $ | 1.92 |
2) | Adjusted amounts for operating income, operating income as a percentage of net revenues, income from continuing operations attributable to Quest Diagnostics' stockholders, and diluted earnings per common share represent the Company's results before the impact of restructuring, integration and other charges. 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 June 30, 2014 | |||||||||||||||
(dollars in millions, except per share data) | |||||||||||||||
Restructuring and Integration Charges | Other | ||||||||||||||
As Reported | (a) | (b) | As Adjusted | ||||||||||||
Operating income | $ | 262 | $ | 27 | $ | 7 | $ | 296 | |||||||
Operating income as a % of net revenues | 13.8 | % | 1.4 | % | 0.3 | % | 15.5 | % | |||||||
Income from continuing operations attributable to Quest Diagnostics' stockholders (c) | $ | 133 | $ | 19 | $ | 5 | $ | 157 | |||||||
Diluted earnings per common share | $ | 0.92 | $ | 0.13 | $ | 0.03 | $ | 1.08 |
(a) | Represents costs primarily associated with workforce reductions and professional fees incurred in connection with further restructuring and integrating our business ($11 million in cost of services and $16 million in selling, general and administrative expenses). |
(b) | Principally represents costs incurred related to the settlement of legal matters. |
(c) | For the restructuring, integration and other charges, income tax benefits, where recorded, were calculated using a combined federal and state rate of 38.2%. |
Six Months Ended June 30, 2014 | |||||||||||||||
(dollars in millions, except per share data) | |||||||||||||||
Restructuring and Integration Charges | Other | ||||||||||||||
As Reported | (d) | (e) | As Adjusted | ||||||||||||
Operating income | $ | 470 | $ | 51 | $ | 11 | $ | 532 | |||||||
Operating income as a % of net revenues | 12.9 | % | 1.4 | % | 0.3 | % | 14.6 | % | |||||||
Income from continuing operations attributable to Quest Diagnostics' stockholders (f) | $ | 237 | $ | 34 | $ | 8 | $ | 279 | |||||||
Diluted earnings per common share | $ | 1.63 | $ | 0.24 | $ | 0.05 | $ | 1.92 |
(d) | Represents costs primarily associated with workforce reductions and professional fees incurred in connection with further restructuring and integrating our business ($23 million in cost of services and $28 million in selling, general and administrative expenses). |
(e) | Principally represents costs incurred related to the settlement of legal matters. |
(f) | For the restructuring, integration and other charges, income tax benefits, where recorded, were calculated using a combined federal and state rate of 38.2%. |
Three Months Ended June 30, 2013 | |||||||||||
(dollars in millions, except per share data) | |||||||||||
Restructuring and Integration Charges | |||||||||||
As Reported | (g) | As Adjusted | |||||||||
Operating income | $ | 289 | $ | 19 | $ | 308 | |||||
Operating income as a % of net revenues | 15.9 | % | 1.0 | % | 16.9 | % | |||||
Income from continuing operations attributable to Quest Diagnostics' stockholders (h) | $ | 152 | $ | 12 | $ | 164 | |||||
Diluted earnings per common share | $ | 0.99 | $ | 0.07 | $ | 1.06 |
(g) | Represents costs primarily associated with workforce reductions and professional fees incurred in connection with further restructuring and integrating our business ($7 million in cost of services and $12 million in selling, general and administrative expenses). |
(h) | For the restructuring and integration charges, income tax benefits were calculated using a combined federal and state rate of 38.4%. |
Six Months Ended June 30, 2013 | |||||||||||
(dollars in millions, except per share data) | |||||||||||
Restructuring and Integration Charges | |||||||||||
As Reported | (i) | As Adjusted | |||||||||
Operating income | $ | 516 | $ | 63 | $ | 579 | |||||
Operating income as a % of net revenues | 14.3 | % | 1.8 | % | 16.1 | % | |||||
Income from continuing operations attributable to Quest Diagnostics' stockholders (j) | $ | 268 | $ | 39 | $ | 307 | |||||
Diluted earnings per common share | $ | 1.71 | $ | 0.24 | $ | 1.95 |
(i) | Represents costs primarily associated with workforce reductions and professional fees incurred in connection with further restructuring and integrating our business ($24 million in cost of services and $39 million in selling, general and administrative expenses). |
(j) | For the restructuring and integration charges, income tax benefits were calculated using a combined federal and state rate of 38.4%. |
3) | Other operating expense (income), net includes miscellaneous income and expense items related to operating activities. For both the three and six months ended June 30, 2013, other operating expense (income), net includes a gain of $6 million resulting from consideration associated with certain non-compete agreements. |
4) | Other income, 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 June 30, 2014, other income, net includes a gain of $2 million, associated with investments held in trusts pursuant to our supplemental deferred compensation plans. |
5) | On April 9, 2013, the Company completed the sale of its HemoCue diagnostic products business. As a result, income from discontinued operations, net of taxes, for the three and six months ended June 30, 2013, include a gain of $13 million associated with the sale of HemoCue. In addition, income from discontinued operations, net of taxes for the six months ended June 30, 2013, includes discrete tax benefits of $20 million associated with favorable resolution of certain tax contingencies related to our NID business, which was wound down in 2006. |
6) | For the three months ended June 30, 2014, the Company repurchased 0.4 million shares of its common stock at an average price of $57.74 per share for $25 million. For the six months ended June 30, 2014, the Company repurchased 1.0 million shares of its |
7) | The outlook for adjusted diluted earnings per common share represents management’s estimates for the full year 2014 before the impact of restructuring, integration and other charges. This measure is presented because management believes it is a useful adjunct to the corresponding amount determined under accounting principles generally accepted in the United States since it is meaningful to evaluate the Company’s ongoing operating performance and is on a basis consistent with previous estimates of diluted earnings per common share. Adjusted diluted earnings per common share is not a measure of financial performance under accounting principles generally accepted in the United States and should not be considered as an alternative to the corresponding amount determined under accounting principles generally accepted in the United States. |
Outlook for 2014 Before Special Items | |||||||
Restructuring and Integration Charges | Other | ||||||
As Reported | (a) | (b) | As Adjusted | ||||
Diluted earnings per common share | $3.71 - $3.81 | $0.24 | $0.05 | $4.00 - $4.10 |
(a) | Represents pre-tax costs of $51 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 $11 million principally related to the settlement of legal matters. |