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 21, 2016, announcing, among other things, its results for the quarter ended March 31, 2016. |
QUEST DIAGNOSTICS INCORPORATED | |
By: | /s/ William J.O'Shaughnessy, Jr. |
William J. O'Shaughnessy, Jr. | |
Deputy General Counsel and | |
Corporate Secretary |
• | Q1 2016 revenues of $1.86 billion grew 3.6% on an equivalent basis and 1.3% on a reported basis |
• | Diagnostic Information Services revenues increased 3.8% from a year ago |
• | Adjusted diluted EPS excluding amortization of $1.12, up 6.7% from 2015 |
• | Reported diluted EPS of $0.70, up 67% from 2015 |
• | Revenues to be between $7.52 billion and $7.59 billion, an increase of 1.5% to 2.5% over 2015 revenues on an equivalent basis. |
• | As part of the company's strategy to refocus on Diagnostic Information Services, the company contributed its clinical trials testing business to the Q2 Solutions joint venture in July 2015. Revenues on an equivalent basis for full year 2015 are $7.41 billion and represent the reported revenues excluding 2015 clinical trials revenue totaling $85 million. |
• | Adjusted diluted EPS excluding amortization to be between $5.02 and 5.17. |
• | Adjusted cash provided by operations to approximate $1 billion. |
• | Capital expenditures to be between $250 million and $300 million. |
Three Months Ended March 31, | |||||||
2016 | 2015 | ||||||
Net revenues | $ | 1,863 | $ | 1,839 | |||
Operating costs, expenses and other income: | |||||||
Cost of services | 1,144 | 1,163 | |||||
Selling, general and administrative | 442 | 419 | |||||
Amortization of intangible assets | 19 | 21 | |||||
Other operating expense, net | 1 | 8 | |||||
Total operating costs, expenses and other income, net | 1,606 | 1,611 | |||||
Operating income | 257 | 228 | |||||
Other income (expense): | |||||||
Interest expense, net | (36 | ) | (45 | ) | |||
Other expense, net | (49 | ) | (78 | ) | |||
Total non-operating expenses, net | (85 | ) | (123 | ) | |||
Income before income taxes and equity in earnings of equity method investees | 172 | 105 | |||||
Income tax expense | (68 | ) | (42 | ) | |||
Equity in earnings of equity method investees, net of taxes | 10 | 7 | |||||
Net income | 114 | 70 | |||||
Less: Net income attributable to noncontrolling interests | 12 | 9 | |||||
Net income attributable to Quest Diagnostics | $ | 102 | $ | 61 | |||
Earnings per share attributable to Quest Diagnostics' common stockholders: | |||||||
Basic | $ | 0.71 | $ | 0.42 | |||
Diluted | $ | 0.70 | $ | 0.42 | |||
Weighted average common shares outstanding: | |||||||
Basic | 143 | 144 | |||||
Diluted | 144 | 146 | |||||
March 31, 2016 | December 31, 2015 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 128 | $ | 133 | |||
Accounts receivable, net | 952 | 901 | |||||
Inventories | 82 | 84 | |||||
Prepaid expenses and other current assets | 138 | 207 | |||||
Assets held for sale | 193 | 176 | |||||
Total current assets | 1,493 | 1,501 | |||||
Property, plant and equipment, net | 925 | 925 | |||||
Goodwill | 5,996 | 5,905 | |||||
Intangible assets, net | 1,008 | 984 | |||||
Investment in equity method investees | 471 | 473 | |||||
Other assets | 204 | 174 | |||||
Total assets | $ | 10,097 | $ | 9,962 | |||
Liabilities and Stockholders' Equity | |||||||
Current liabilities: | |||||||
Accounts payable and accrued expenses | $ | 932 | $ | 1,014 | |||
Current portion of long-term debt | 158 | 159 | |||||
Total current liabilities | 1,090 | 1,173 | |||||
Long-term debt | 3,740 | 3,492 | |||||
Other liabilities | 529 | 514 | |||||
Redeemable noncontrolling interest | 72 | 70 | |||||
Stockholders' equity: | |||||||
Quest Diagnostics stockholders' equity: | |||||||
Common stock, par value $0.01 per share; 600 shares authorized at both March 31, 2016 and December 31, 2015; 216 shares issued at both March 31, 2016 and December 31, 2015 | 2 | 2 | |||||
Additional paid-in capital | 2,493 | 2,481 | |||||
Retained earnings | 6,244 | 6,199 | |||||
Accumulated other comprehensive loss | (40 | ) | (38 | ) | |||
Treasury stock, at cost; 75 shares and 73 shares at March 31, 2016 and December 31, 2015, respectively | (4,063 | ) | (3,960 | ) | |||
Total Quest Diagnostics stockholders' equity | 4,636 | 4,684 | |||||
Noncontrolling interests | 30 | 29 | |||||
Total stockholders' equity | 4,666 | 4,713 | |||||
Total liabilities and stockholders' equity | $ | 10,097 | $ | 9,962 |
Three Months Ended March 31, | |||||||
2016 | 2015 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 114 | $ | 70 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 62 | 78 | |||||
Provision for doubtful accounts | 86 | 79 | |||||
Deferred income tax provision | 8 | 14 | |||||
Stock-based compensation expense | 18 | 12 | |||||
Excess tax benefits from stock-based compensation arrangements | (2 | ) | (2 | ) | |||
Other, net | 1 | 7 | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (145 | ) | (97 | ) | |||
Accounts payable and accrued expenses | (77 | ) | (120 | ) | |||
Income taxes payable | 63 | 10 | |||||
Other assets and liabilities, net | 15 | 1 | |||||
Net cash provided by operating activities | 143 | 52 | |||||
Cash flows from investing activities: | |||||||
Business acquisitions, net of cash acquired | (135 | ) | — | ||||
Capital expenditures | (47 | ) | (56 | ) | |||
(Increase) decrease in investments and other assets | (8 | ) | 1 | ||||
Net cash used in investing activities | (190 | ) | (55 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from borrowings | 665 | 1,389 | |||||
Repayments of debt | (453 | ) | (440 | ) | |||
Purchases of treasury stock | (115 | ) | (110 | ) | |||
Exercise of stock options | 7 | 35 | |||||
Excess tax benefits from stock-based compensation arrangements | 2 | 2 | |||||
Dividends paid | (55 | ) | (48 | ) | |||
Distributions to noncontrolling interests | (9 | ) | (10 | ) | |||
Other financing activities, net | — | (33 | ) | ||||
Net cash provided by financing activities | 42 | 785 | |||||
Net change in cash and cash equivalents | (5 | ) | 782 | ||||
Cash and cash equivalents, beginning of period | 133 | 192 | |||||
Cash and cash equivalents, end of period | $ | 128 | $ | 974 | |||
Cash paid during the period for: | |||||||
Interest | $ | 53 | $ | 54 | |||
Income taxes | $ | 4 | $ | 19 |
1) | The computation of basic and diluted earnings per common share is as follows: |
Three Months Ended March 31, | |||||||
2016 | 2015 | ||||||
(in millions, except per share data) | |||||||
Amounts attributable to Quest Diagnostics' common stockholders: | |||||||
Net income attributable to Quest Diagnostics | $ | 102 | $ | 61 | |||
Less: earnings allocated to participating securities | — | — | |||||
Earnings available to Quest Diagnostics' common stockholders - basic and diluted | $ | 102 | $ | 61 | |||
Weighted average common shares outstanding - basic | 143 | 144 | |||||
Effect of dilutive securities: | |||||||
Stock options and performance share units | 1 | 2 | |||||
Weighted average common shares outstanding - diluted | 144 | 146 | |||||
Earnings per share attributable to Quest Diagnostics' common stockholders: | |||||||
Basic | $ | 0.71 | $ | 0.42 | |||
Diluted | $ | 0.70 | $ | 0.42 |
2) | Adjusted amounts for operating income, operating income as a percentage of net revenues and net income attributable to Quest Diagnostics represent the company's results before the impact of special items, such as the 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. Revenue on an equivalent basis represents 2015 net revenues excluding the 2015 clinical trials testing revenues. 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 tables reconciles reported results to adjusted results: |
Three Months Ended March 31, | |||||||
2016 | 2015 | ||||||
(dollars in millions, except per share data) | |||||||
Adjusted operating income: | |||||||
Operating income | $ | 257 | $ | 228 | |||
Restructuring and integration charges (a) | 19 | 31 | |||||
Other (b) | 5 | 10 | |||||
Adjusted operating income | $ | 281 | $ | 269 | |||
Adjusted operating income as a percentage of net revenues: | |||||||
Operating income as a percentage of net revenues | 13.8 | % | 12.4 | % | |||
Restructuring and integration charges (a) | 1.0 | 1.7 | |||||
Other (b) | 0.3 | 0.5 | |||||
Adjusted operating income as a percentage of net revenues | 15.1 | % | 14.6 | % | |||
Adjusted net income: | |||||||
Net income attributable to Quest Diagnostics | $ | 102 | $ | 61 | |||
Retirement of debt and related refinancing charges (c) (d) | 30 | 53 | |||||
Restructuring and integration charges (a) (d) | 12 | 19 | |||||
Other (b) (d) | 3 | 8 | |||||
Adjusted net income | $ | 147 | $ | 141 | |||
Adjusted diluted EPS excluding amortization expense: | |||||||
Diluted earnings per common share | $ | 0.70 | $ | 0.42 | |||
Retirement of debt and related refinancing charges (c) (d) | 0.21 | 0.36 | |||||
Restructuring and integration charges (a) (d) | 0.09 | 0.13 | |||||
Other (b) (d) | 0.02 | 0.05 | |||||
Amortization expense (e) | 0.10 | 0.09 | |||||
Adjusted diluted EPS excluding amortization expense | $ | 1.12 | $ | 1.05 |
Three Months Ended March 31, | |||||||
2016 | 2015 | ||||||
(dollars in millions) | |||||||
Revenue on an equivalent basis: | |||||||
Net revenues | $ | 1,863 | $ | 1,839 | |||
Excluded revenue (f) | — | (40 | ) | ||||
Revenue on an equivalent basis | $ | 1,863 | $ | 1,799 | |||
Adjusted cash provided by operations: | |||||||
Cash provided by operations | $ | 143 | $ | 52 | |||
Cash charges on retirement of debt (g) | 47 | 78 | |||||
Adjusted cash provided by operations | $ | 190 | $ | 130 |
(a) | For the three months ended March 31, 2016, represents costs primarily associated with systems conversions and integration costs incurred in connection with further restructuring and integrating our business. For the three months ended March 31, 2015, 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 pre-tax impact of restructuring and integration charges on the company's consolidated statements of operations: |
Three Months Ended March 31, | |||||||
2016 | 2015 | ||||||
(dollars in millions) | |||||||
Cost of services | $ | 7 | $ | 20 | |||
Selling, general and administrative | 12 | 11 | |||||
Operating income | $ | 19 | $ | 31 | |||
Equity in earnings of equity method investees, net of taxes | $ | 2 | $ | — |
(b) | For the three months ended March 31, 2016, primarily represents costs associated with winding down subsidiaries, non-cash asset impairment charges and costs incurred related to legal matters. For the three months ended March 31, 2015, principally represents non-cash asset impairment charges and costs incurred related to legal matters. The following table summarizes the pre-tax impact of these other items on the company's consolidated statements of operations: |
Three Months Ended March 31, | |||||||
2016 | 2015 | ||||||
(dollars in millions) | |||||||
Selling, general and administrative | $ | 3 | $ | 2 | |||
Other operating expense, net | 2 | 8 | |||||
Operating income | $ | 5 | $ | 10 | |||
Other non-operating expense, net | $ | 1 | $ | — |
(c) | Retirement of debt and related refinancing charges represent charges associated with cash tender offers where the company purchased $200 million and $250 million in March 2016 and March 2015, respectively, of its 6.95% Senior Notes due July 2037 and 5.75% Senior Notes due January 2040. The following table summarizes the pre-tax impact of retirement of debt and related refinancing charges on the company's consolidated statements of operations: |
Three Months Ended March 31, | |||||||
2016 | 2015 | ||||||
(dollars in millions) | |||||||
Interest expense, net | $ | — | $ | 5 | |||
Other non-operating expense, net | 48 | 79 | |||||
$ | 48 | $ | 84 |
(d) | For the retirement of debt and related refinancing charges, income tax benefits were calculated using a combined tax rate of 38.9% in 2016 and 40% in 2015. For the restructuring and integration charges and other items, income tax impacts, where recorded, were calculated using combined tax rate of 38.9% for both 2016 and 2015. |
(e) | Represents the impact of amortization expense on diluted earnings per common share, net of the income tax benefit. The income tax benefit was primarily calculated using a combined tax rate of 38.9% for 2016 and 2015. The pre-tax amortization expense that is excluded from the calculation of adjusted diluted EPS excluding amortization expense is recorded in the company's statements of operations as follows: |
Three Months Ended March 31, | |||||||
2016 | 2015 | ||||||
(dollars in millions) | |||||||
Amortization of intangible assets | $ | 19 | $ | 21 | |||
Equity in earnings of equity method investees, net of taxes | 4 | — | |||||
$ | 23 | $ | 21 |
(f) | Effective July 1, 2015, the company contributed its clinical trials testing business to the Q2 Solutions joint venture. Clinical trials testing revenues reported in the first quarter of 2015 are excluded to provide 2015 revenue on an equivalent basis. |
(g) | For the three months ended March 31, 2016, represents $47 million of pre-tax cash charges on retirement of debt in connection with the March 2016 cash tender offer. For the three months ended March 31, 2015, represents $78 million of pre-tax cash charges on retirement of debt in connection with the March 2015 cash tender offer. |
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 asset impairment charges associated with our Celera Products business. |
4) | For the three months ended March 31, 2016, the company repurchased 1.7 million shares of its common stock for $115 million. At March 31, 2016, $857 million remained available under the company’s share repurchase authorizations. |
5) | The outlook for adjusted diluted EPS excluding amortization expense represents management’s estimates for the full year 2016 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 2016 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 | ||||||
(dollars in millions, except per share data) | |||||||
Adjusted diluted EPS excluding amortization expense: | |||||||
Diluted earnings per common share | $ | 4.31 | $ | 4.46 | |||
Retirement of debt and related refinancing charges (a) | 0.21 | 0.21 | |||||
Restructuring and integration charges (b) | 0.09 | 0.09 | |||||
Other (c) | 0.02 | 0.02 | |||||
Amortization expense (d) | 0.39 | 0.39 | |||||
Adjusted diluted EPS excluding amortization expense | $ | 5.02 | $ | 5.17 | |||
Adjusted cash provided by operations: | |||||||
Cash provided by operations | $ | 903 | $ | 1,003 | |||
Cash charges on retirement of debt (e) | 47 | 47 | |||||
Adjusted cash provided by operations | $ | 950 | $ | 1,050 |
(a) | Represents pre-tax charges of $48 million, incurred through March 31, 2016, associated with the retirement of debt and related refinancing charges in connection with the March 2016 cash tender offer. |
(b) | Represents pre-tax charges of $21 million primarily associated with systems conversions and integration costs incurred in connection with further restructuring and integrating our business through March 31, 2016. Further charges to earnings may be incurred as additional restructuring and integration activities are executed throughout the remainder of the year. |
(c) | Represents pre-tax charges of $6 million primarily associated with winding down subsidiaries, non-cash asset impairment charges and costs incurred related to legal matters through March 31, 2016. |
(d) | Represents the full year impact of amortization expense on the calculation of adjusted diluted EPS excluding amortization expense. Amortization expense used in the calculation is as follows (dollars in millions): |
Amortization of intangible assets | $ | 74 | |
Amortization expense included in equity in earnings of equity method investees | 17 | ||
Total pre-tax amortization expense | $ | 91 | |
Total amortization expense, net of an estimated tax benefit | $ | 56 |
(e) | Represents pre-tax cash charges of $47 million on retirement of debt in connection with the March 2016 cash tender offer through March 31, 2016. |
6) | The outlook for 1.5% to 2.5% revenue growth on an equivalent basis in 2016 represents management’s estimates for 2016 versus reported 2015 revenues adjusted to exclude the 2015 revenues from the clinical trials testing business. In 2015, the company contributed its clinical trials testing business to the Q2 Solutions joint venture. Consequently, our 2016 revenues will not include revenues associated with that business. Revenues for 2015 have been adjusted to exclude clinical trials testing revenues to provide an equivalent basis for our growth outlook. |
Three Months Ended | Year Ended | ||||||||||||||||||
March 31, 2015 | June 30, 2015 | September 30, 2015 | December 31, 2015 | December 31, 2015 | |||||||||||||||
(dollars in millions) | |||||||||||||||||||
2015 Revenue on an equivalent basis: | |||||||||||||||||||
Net revenues | $ | 1,839 | $ | 1,925 | $ | 1,880 | $ | 1,849 | $ | 7,493 | |||||||||
Excluded revenue (a) | (40 | ) | (45 | ) | — | — | (85 | ) | |||||||||||
2015 Revenue on an equivalent basis | $ | 1,799 | $ | 1,880 | $ | 1,880 | $ | 1,849 | $ | 7,408 |
(a) | The 2015 excluded revenue is comprised of clinical trials testing revenues reported in 2015. |