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 April 23, 2015, announcing, among other things, its results for the quarter ended March 31, 2015. |
QUEST DIAGNOSTICS INCORPORATED | |
By: | /s/ William J.O'Shaughnessy, Jr. |
William J. O'Shaughnessy, Jr. | |
Deputy General Counsel and | |
Corporate Secretary |
• | Revenues of $1.84 billion, up 5.3% from 2014 |
• | Adjusted diluted EPS excluding amortization of $1.05, up 13% from 2014 |
• | Reported diluted EPS of $0.42 was negatively impacted by recent debt refinancing charges |
• | Guidance unchanged for full year revenue and adjusted diluted EPS excluding amortization |
• | Revenues to increase 2% to 3% compared to 2014; |
• | Adjusted diluted EPS excluding amortization to be between $4.70 and $4.85; |
• | Adjusted cash provided by operations to approximate $850 million; and |
• | Capital expenditures to approximate $300 million. |
Three Months Ended March 31, | |||||||
2015 | 2014 | ||||||
Net revenues | $ | 1,839 | $ | 1,746 | |||
Operating costs and expenses: | |||||||
Cost of services | 1,163 | 1,101 | |||||
Selling, general and administrative | 419 | 415 | |||||
Amortization of intangible assets | 21 | 22 | |||||
Other operating expense, net | 8 | — | |||||
Total operating costs and expenses | 1,611 | 1,538 | |||||
Operating income | 228 | 208 | |||||
Other income (expense): | |||||||
Interest expense, net | (45 | ) | (39 | ) | |||
Equity in earnings of equity method investees | 7 | 6 | |||||
Other (expense) income, net | (78 | ) | 1 | ||||
Total non-operating expenses, net | (116 | ) | (32 | ) | |||
Income before income taxes | 112 | 176 | |||||
Income tax expense | 42 | 65 | |||||
Net income | 70 | 111 | |||||
Less: Net income attributable to noncontrolling interests | 9 | 7 | |||||
Net income attributable to Quest Diagnostics | $ | 61 | $ | 104 | |||
Earnings per share attributable to Quest Diagnostics' common stockholders: | |||||||
Basic | $ | 0.42 | $ | 0.72 | |||
Diluted | $ | 0.42 | $ | 0.71 | |||
Weighted average common shares outstanding: | |||||||
Basic | 144 | 144 | |||||
Diluted | 146 | 145 | |||||
March 31, 2015 | December 31, 2014 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 974 | $ | 192 | |||
Accounts receivable, net | 949 | 932 | |||||
Inventories | 106 | 110 | |||||
Deferred income taxes | 158 | 169 | |||||
Prepaid expenses and other current assets | 188 | 200 | |||||
Total current assets | 2,375 | 1,603 | |||||
Property, plant and equipment, net | 902 | 933 | |||||
Goodwill | 5,986 | 6,032 | |||||
Intangible assets, net | 1,041 | 1,071 | |||||
Other assets | 254 | 238 | |||||
Non-current assets held for sale | 55 | — | |||||
Total assets | $ | 10,613 | $ | 9,877 | |||
Liabilities and Stockholders' Equity | |||||||
Current liabilities: | |||||||
Accounts payable and accrued expenses | $ | 1,046 | $ | 1,191 | |||
Current portion of long-term debt | 1,043 | 518 | |||||
Total current liabilities | 2,089 | 1,709 | |||||
Long-term debt | 3,688 | 3,244 | |||||
Other liabilities | 565 | 594 | |||||
Stockholders' equity: | |||||||
Quest Diagnostics stockholders' equity: | |||||||
Common stock, par value $0.01 per share; 600 shares authorized at both March 31, 2015 and December 31, 2014; 216 shares and 215 shares issued at March 31, 2015 and December 31, 2014, respectively | 2 | 2 | |||||
Additional paid-in capital | 2,427 | 2,418 | |||||
Retained earnings | 5,729 | 5,723 | |||||
Accumulated other comprehensive loss | (30 | ) | (27 | ) | |||
Treasury stock, at cost; 72 shares and 71 shares at March 31, 2015 and December 31, 2014, respectively | (3,885 | ) | (3,815 | ) | |||
Total Quest Diagnostics stockholders' equity | 4,243 | 4,301 | |||||
Noncontrolling interests | 28 | 29 | |||||
Total stockholders' equity | 4,271 | 4,330 | |||||
Total liabilities and stockholders' equity | $ | 10,613 | $ | 9,877 |
Three Months Ended March 31, | |||||||
2015 | 2014 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 70 | $ | 111 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 78 | 75 | |||||
Provision for doubtful accounts | 79 | 75 | |||||
Deferred income tax provision (benefit) | 14 | (10 | ) | ||||
Stock-based compensation expense | 12 | 12 | |||||
Excess tax benefits from stock-based compensation arrangements | (2 | ) | — | ||||
Non-cash portion of loss on retirement of debt | 1 | — | |||||
Other, net | 6 | (2 | ) | ||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (97 | ) | (152 | ) | |||
Accounts payable and accrued expenses | (120 | ) | (86 | ) | |||
Income taxes payable | 10 | 70 | |||||
Other assets and liabilities, net | 1 | (9 | ) | ||||
Net cash provided by operating activities | 52 | 84 | |||||
Cash flows from investing activities: | |||||||
Business acquisitions, net of cash acquired | — | (567 | ) | ||||
Capital expenditures | (56 | ) | (68 | ) | |||
Decrease (increase) in investments and other assets | 1 | (1 | ) | ||||
Net cash used in investing activities | (55 | ) | (636 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from borrowings | 1,389 | 1,513 | |||||
Repayments of debt | (440 | ) | (923 | ) | |||
Purchases of treasury stock | (110 | ) | (32 | ) | |||
Exercise of stock options | 35 | 12 | |||||
Excess tax benefits from stock-based compensation arrangements | 2 | — | |||||
Dividends paid | (48 | ) | (43 | ) | |||
Distributions to noncontrolling interests | (10 | ) | (3 | ) | |||
Other financing activities, net | (33 | ) | (15 | ) | |||
Net cash provided by financing activities | 785 | 509 | |||||
Net change in cash and cash equivalents | 782 | (43 | ) | ||||
Cash and cash equivalents, beginning of period | 192 | 187 | |||||
Cash and cash equivalents, end of period | $ | 974 | $ | 144 | |||
Cash paid during the period for: | |||||||
Interest | $ | 54 | $ | 52 | |||
Income taxes | $ | 19 | $ | 9 |
1) | The computation of basic and diluted earnings per common share is as follows: |
Three Months Ended March 31, | |||||||
2015 | 2014 | ||||||
(in millions, except per share data) | |||||||
Amounts attributable to Quest Diagnostics' common stockholders: | |||||||
Net income attributable to Quest Diagnostics | $ | 61 | $ | 104 | |||
Less: earnings allocated to participating securities | — | 1 | |||||
Earnings available to Quest Diagnostics' common stockholders - basic and diluted | $ | 61 | $ | 103 | |||
Weighted average common shares outstanding - basic | 144 | 144 | |||||
Effect of dilutive securities: | |||||||
Stock options and performance share units | 2 | 1 | |||||
Weighted average common shares outstanding - diluted | 146 | 145 | |||||
Earnings per share attributable to Quest Diagnostics' common stockholders: | |||||||
Basic | $ | 0.42 | $ | 0.72 | |||
Diluted | $ | 0.42 | $ | 0.71 |
2) | Adjusted amounts for operating income and net income attributable to Quest Diagnostics represent the company's results before the impact of special items, such as the charges on retirement of debt and related refinancing charges, restructuring and integration charges and other items. Adjusted diluted EPS excluding amortization expense represents the company's results before the impact of special items and amortization expense. Adjusted cash provided by operations represents cash provided by operations before the cash impact of charges on retirement of debt. 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 table reconciles reported results to adjusted results: |
Three Months Ended March 31, | |||||||
2015 | 2014 | ||||||
(dollars in millions, except per share data) | |||||||
Adjusted operating income: | |||||||
Operating income | $ | 228 | $ | 208 | |||
Restructuring and integration charges (a) | 31 | 24 | |||||
Other (b) | 10 | 4 | |||||
Adjusted operating income | $ | 269 | $ | 236 | |||
Adjusted operating income as a percentage of net revenues: | |||||||
Operating income as a percentage of net revenues | 12.4 | % | 11.9 | % | |||
Restructuring and integration charges (a) | 1.7 | 1.4 | |||||
Other (b) | 0.5 | 0.2 | |||||
Adjusted operating income as a percentage of net revenues | 14.6 | % | 13.5 | % | |||
Adjusted net income: | |||||||
Net income attributable to Quest Diagnostics | $ | 61 | $ | 104 | |||
Charges on retirement of debt and related refinancing charges (c) (d) | 53 | — | |||||
Restructuring and integration charges (d) | 19 | 15 | |||||
Other (d) | 8 | 3 | |||||
Adjusted net income | $ | 141 | $ | 122 | |||
Adjusted diluted EPS excluding amortization expense: | |||||||
Diluted earnings per common share | $ | 0.42 | $ | 0.71 | |||
Charges on retirement of debt and related refinancing charges (c) | 0.36 | — | |||||
Restructuring and integration charges (a) | 0.13 | 0.11 | |||||
Other (b) | 0.05 | 0.02 | |||||
Amortization expense (e) | 0.09 | 0.09 | |||||
Adjusted diluted EPS excluding amortization expense | $ | 1.05 | $ | 0.93 | |||
Adjusted cash provided by operations: | |||||||
Cash provided by operations | $ | 52 | $ | 84 | |||
Cash charges on retirement of debt (f) | 78 | — | |||||
Adjusted cash provided by operations | $ | 130 | $ | 84 |
(a) | Represents costs primarily associated with workforce reductions and professional fees incurred in connection with further restructuring and integrating our business. The following table summarizes the impact of restructuring and integration charges on the company's consolidated statements of operations table: |
Three Months Ended March 31, | |||||||
2015 | 2014 | ||||||
(dollars in millions) | |||||||
Cost of services | $ | 20 | $ | 12 | |||
Selling, general and administrative | 11 | 12 | |||||
$ | 31 | $ | 24 |
(b) | For the three months ended March 31, 2015, primarily represents non-cash impairment charges associated with our Celera Products business and costs incurred related to a legal matter. For the three months ended March 31, 2014, principally represents costs incurred related to the settlement of a legal matter. |
(c) | Charges on retirement of debt and related refinancing charges represent charges associated with the March 2015 cash tender offer (the "Tender Offer") in which the company purchased $250 million aggregate principal amount of its 6.95% Senior Notes due July 2037 and 5.75% Senior Notes due January 2040 ($79 million pre-tax included in other (expense) income, net and $5 million pre-tax included in interest expense, net). |
(d) | For the charges on retirement of debt and related refinancing charges, income tax benefits were calculated using a combined federal and state rate of 37.3%. For the restructuring and integration charges and other items, income tax impacts, where recorded, were calculated using combined federal and state rates of 38.9% and 38.2% for the three months ended March 31, 2015 and 2014, respectively. |
(e) | Represents the impact of amortization expense, net of an estimated tax benefit, on diluted EPS. The income tax benefit was calculated using combined federal and state rates of 38.9% and 38.2% for the three months ended March 31, 2015 and 2014, respectively. |
(f) | Represents pre-tax cash charges on retirement of debt in connection with our recent debt refinancing. |
3) | Other operating expense, net includes miscellaneous income and expense items related to operating activities. For the three months ended March 31, 2015, other operating expense, net principally includes non-cash impairment charges associated with our Celera Products business. |
4) | Other (expense) 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 March 31, 2015, other (expense) income, net includes $79 million of pre-tax charges on the retirement of debt associated with the Tender Offer. |
5) | For the three months ended March 31, 2015, the company repurchased 1.5 million shares of its common stock at an average price of $71.48 per share for $110 million. At March 31, 2015, $586 million remained available under the company’s share repurchase authorizations. |
6) | The outlook for adjusted diluted EPS excluding amortization expense represents management’s estimates for the full year 2015 before the impact of special items and amortization expense. The outlook for adjusted cash provided by operations represents management’s estimate for the full year 2015 before the cash impact of charges on retirement of debt. 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. Adjusted diluted EPS excluding amortization expense and adjusted cash provided by operations are not measures of financial performance under accounting principles generally accepted in the United States and should not be considered as alternatives to the corresponding amount determined under accounting principles generally accepted in the United States. |
Low | High | ||||||
Adjusted diluted EPS excluding amortization expense: | |||||||
Diluted earnings per common share | $ | 3.83 | $ | 3.98 | |||
Charges on retirement of debt and related refinancing charges (a) | 0.36 | 0.36 | |||||
Restructuring and integration charges (b) | 0.13 | 0.13 | |||||
Other (c) | 0.05 | 0.05 | |||||
Amortization expense, net of tax (d) | 0.33 | 0.33 | |||||
Adjusted diluted EPS excluding amortization expense | $ | 4.70 | $ | 4.85 | |||
Adjusted cash provided by operations: | |||||||
Cash provided by operations | $ | 772 | |||||
Cash charges on retirement of debt (e) | 78 | ||||||
Adjusted cash provided by operations | $ | 850 |
(a) | Represents pre-tax charges of $84 million, incurred through March 31, 2015, associated with the retirement of debt and related refinancing charges in connection with the Tender Offer. |
(b) | Represents pre-tax charges of $31 million primarily associated with workforce reductions and professional fees incurred in connection with further restructuring and integrating our business through March 31, 2015. |
(c) | Represents pre-tax charges of $10 million primarily associated with the non-cash impairment charges associated with our Celera Products business and costs incurred related to a legal matter through March 31, 2015. |
(d) | Represents the full year impact of amortization expense, estimated at approximately $80 million or $49 million, net of an estimated tax benefit, on diluted earnings per common share. |
(e) | Represents pre-tax cash charges of $78 million on retirement of debt in connection with our recent debt refinancing incurred through March 31, 2015. |