and the resulting number of shares that will be earned. If the actual number of performance share units earned is different from our estimates, stock-based compensation could be significantly different from what we have recorded in the current period. We periodically obtain and review publicly available financial information for the members of the peer group and the Company, including forecasted earnings estimates. This information is used to evaluate our progress towards achieving the performance criteria and our estimate of the number of performance share units expected to be earned at the end of the performance period. The cumulative effect on current and prior periods of a change in the estimated number of performance share units expected to be earned is recognized as compensation cost in earnings in the period of the revision. While the assumptions used to calculate and account for stock-based compensation awards represent management’s best estimates, these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if revisions are made to our assumptions and estimates, our stock-based compensation expense could be materially different in the future. See Notes 1 and 2 to the interim consolidated financial statements for a further discussion of stock-based compensation.
Through the acquisition, Quest Diagnostics acquired all of LabOne’s operations, including its health screening and risk assessment services to life insurance companies, as well as its clinical diagnostic testing services to healthcare providers and drugs-of-abuse testing to employers. LabOne had 3,100 employees and principal laboratories in Lenexa, Kansas, as well as in Cincinnati, Ohio. We financed the acquisition and related transaction costs together with the repayment of substantially all of LabOne’s debt outstanding with proceeds from a $900 million private placement of senior notes, as described in Note 10 to the Consolidated Financial Statements contained in our 2005 Annual Report on Form 10-K, and from cash on hand.
During the first quarter of 2006, we finalized our plan related to the integration of LabOne and recorded $23 million of costs, primarily comprised of employee severance benefits. Employee groups affected as a result of this plan include those involved in the testing of specimens, as well as administrative and other support functions. Of the total costs indicated above, $21 million related to actions that impact Quest Diagnostics’ employees and its operations and are comprised principally of employee severance benefits for approximately 600 employees. These costs were accounted for as a charge to earnings and included in “other operating expenses, net” within the consolidated statements of operations.
In addition, $2.6 million of integration costs, related to actions that impact the employees and operations of LabOne, were accounted for as a cost of the LabOne acquisition and included in goodwill. Of the $2.6 million, $1.2 million related to asset write-offs with the remainder primarily associated with employee severance benefits for approximately 95 employees.
While the majority of the accrued integration costs are expected to be paid in 2006 and 2007, there are certain severance costs that have payment terms extending into 2008.
Upon completion of the LabOne integration, we expect to realize approximately $40 million of annual synergies and we expect to achieve this annual rate of synergies by the end of 2007.
Our clinical testing business currently represents our one reportable business segment. The clinical testing business accounts for approximately 92% and 96% of consolidated net revenues in 2006 and 2005, respectively. Our other operating segments consist of our risk assessment services business, our clinical trials testing business, our healthcare information technology business, MedPlus and our test kit manufacturing subsidiary, NID. Our business segment information is disclosed in Note 10 to the interim consolidated financial statements.
Net income for the three months ended June 30, 2006 decreased to $132 million, or $0.66 per diluted share, compared to $149 million, or $0.72 per diluted share in 2005. For the six months ended June 30, 2006, net income decreased to $277 million, or $1.38 per diluted share compared to $281 million or $1.36 per diluted share in 2005. These decreases in reported earnings are a result of NID’s performance, which has more than offset the strong performance in
our clinical testing operations. For the three and six months ended June 30, 2006, NID’s performance reduced reported earnings by $24 million or $0.12 per share, and $34 million, or $0.17 per share, respectively, and included second quarter pre-tax charges of $28 million related to the wind-down of NID’s operations. On April 19, 2006, the Company decided to discontinue the operations of NID and is in the process of winding down NID’s operations.
Our results for the three and six months ended June 30, 2006 were favorably impacted by our clinical testing business, driven by organic revenue growth and increases in operating efficiencies resulting from our Six Sigma and standardization efforts. Results for the six months ended June 30, 2006 included pre-tax special charges of $27 million, or $0.08 per share, recorded in the first quarter primarily associated with integration activities. In addition, the year-to-date results for 2006 include pre-tax net gains of $4 million, or $0.01 per diluted share, consisting of a first quarter gain of $16 million, or $0.05 per diluted share, related to a gain on the sale of an investment partially offset by a second quarter loss of $12 million, or $0.04 per diluted share, related to the write-off of an investment. Also, results for the quarter and six months ended June 30, 2006, included pre-tax expenses of $20 million, or $0.06 per share, and $39 million, or $0.12 per share, respectively, associated with stock-based compensation recorded in accordance with SFAS 123R.
Net Revenues
Net revenues for the three and six months ended June 30, 2006 grew by 15.0% and 16.4% over the prior year levels to $1.6 billion and $3.1 billion, respectively. The acquisition of LabOne contributed about 10% to the consolidated revenue growth for each period. Approximately 55% of LabOne’s net revenues are generated from risk assessment services provided to life insurance companies, with the remainder classified as clinical laboratory testing. The performance at NID reduced consolidated revenue growth by approximately 1% for both periods.
Our clinical testing business grew 10.3% and 11.8%, respectively for the three and six months ended June 30, 2006, with the acquisition of LabOne contributing almost 5% for both periods, principally reflected in volume. For the three and six months ended June 30, 2006, clinical testing volume increased 5.7% and 7.2%, respectively, compared to the prior year periods. Average revenue per requisition improved 4.4% for both periods. The increase in revenue per requisition was principally driven by a shift to a more esoteric test mix and an increase in the number of tests ordered per requisition.
Our businesses other than clinical laboratory testing accounted for approximately 8% of our consolidated net revenues for the three and six months ended June 30, 2006. These businesses include our clinical trials testing business and our healthcare information technology business (MedPlus), whose growth rates did not significantly affect our consolidated growth rate. In addition, we consider the risk assessment business, acquired as part of the LabOne acquisition, and NID to be non-clinical laboratory testing businesses. The risk assessment business represents approximately 5% of our consolidated net revenues and is currently growing at between 2% and 3% per year. On April 19, 2006, the Company decided to discontinue NID’s operations. NID’s net revenues for the three and six months ended June 30, 2006 decreased $13 million and $25 million, respectively, from the prior year levels and reduced consolidated revenue growth for each period by approximately 1%.
Operating Costs and Expenses
Total operating costs and expenses for the three and six months ended June 30, 2006 increased $205 million and $427 million, respectively, from the prior year periods primarily due to the LabOne acquisition and, to a lesser degree, organic growth in our clinical testing volume. The increased costs were primarily in the areas of employee compensation and benefits, which included $20 million and $39 million of stock-based compensation recorded in accordance with SFAS 123R, for the three and six months ended June 30, 2006, respectively, and testing supplies. While our cost structure has been favorably impacted by efficiencies generated from our Six Sigma and standardization initiatives, we continue to make investments in sales, service, science and information technology to further differentiate our company. During the second quarter of 2006, we recorded $28 million of costs related to the wind-down of NID’s operations. The $28 million charge, which is more fully described in Note 9 to the interim consolidated financial statements, included $7.4 million related to the write-off of inventories, which was recorded in “cost of services”, with the remainder recorded in “other operating expense, net”. During the first quarter of 2006, we recorded $27 million of pre-tax charges (included in “other operating expense, net”) primarily associated with integration activities.
Cost of services, which includes the costs of obtaining, transporting and testing specimens, was 59.1% of net revenues for the three months ended June 30, 2006, increasing from 58.0% of net revenues in the prior year period. For the six months ended June 30, 2006, cost of services as a percentage of net revenues, increased to 59.2% from 58.5% in
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the prior year period. The increases over the prior year are primarily due to the addition of the LabOne business, which carries a higher cost of sales percentage than the Company average and the impact of NID’s performance. Partially offsetting these increases were improvements related to the increase in average revenue per requisition and efficiency gains resulting from our Six Sigma and standardization initiatives.
Selling, general and administrative expenses, which include the costs of the sales force, billing operations, bad debt expense and general management and administrative support, were 22.9% of net revenues for the three months ended June 30, 2006, unchanged from the prior year period. For the six months ended June 30, 2006, selling, general and administrative expenses, as a percentage of net revenues, decreased to 23.0% from 23.1% in the prior year period. Revenue growth which has allowed us to leverage our expense base, as well as continued benefits from our Six Sigma and standardization efforts have reduced these expenses as a percentage of net revenues. Also serving to reduce the percentage is the addition of the LabOne business, which carries a lower selling, general and administrative expense percentage than the Company average. For the three and six months ended June 30, 2006, bad debt expense was 3.8% and 3.9% of net revenues, respectively, compared to 4.3% and 4.4% of net revenues for the comparable prior year’s periods. The lower bad debt rate primarily related to the improved collection of diagnosis, patient and insurance information necessary to more effectively bill for services performed. We believe that our Six Sigma and standardization initiatives and the increased use of electronic ordering by our customers is driving the improvement and will provide additional opportunities to further improve our overall collection experience and cost structure. Offsetting these improvements was stock-based compensation expense recorded in accordance with SFAS 123R, which increased the selling general and administrative expense percentage by approximately 1% for both the three and six months ended June 30, 2006.
Other operating expense, net represents miscellaneous income and expense items related to operating activities, including gains and losses associated with the disposal of operating assets and provisions for restructurings and other special charges. For the three and six months ended June 30, 2006, other operating expense, net included a $21 million second quarter charge related to the wind-down of NID’s operations. For the six months ended June 30, 2006, other operating expense, net also included a first quarter charge of $27 million principally associated with integration activities related to LabOne and our operations in California, which are more fully described in Note 4 to the interim consolidated financial statements.
Operating Income
Operating income for the three months ended June 30, 2006 was $263 million, or 16.6% of net revenues, compared to $261 million, or 19.0% of net revenues, in the prior year period. For the six months ended June 30, 2006, operating income was $507 million, or 16.2% of net revenues, compared to $491 million or 18.2% of net revenues, in the prior year period. Improvements in operating income over the prior year were driven by the performance of our clinical testing business. Partially offsetting these improvements was the performance of NID which reduced operating income compared to the prior year by $30 million and $44 million for the three and six months ended June 30, 2006, respectively, and $27 million of special charges recorded in the first quarter of 2006, primarily related to integration activities. Additionally, operating income for the three and six months ended June 30, 2006 included $20 million and $39 million, respectively, of stock-based compensation expense recorded pursuant to SFAS 123R.
Operating income as a percentage of net revenues for the three and six months ended June 30, 2006 compared to the prior year’s periods was reduced by approximately 1.6% and 1.2%, respectively, due to NID’s performance, by 1.3% due to stock-based compensation expense, and by 0.8% due to the results of the LabOne business which we expect will continue to carry lower margins than the rest of our operations until we have realized most of the expected $40 million in synergies. Operating income as a percentage of net revenues for the six months ended June 30, 2006 was also reduced by approximately 0.9% due to special charges recorded in the first quarter of 2006, primarily related to integration activities. Lastly, while the timing of Easter reduced operating income as a percentage of net revenues by about 0.3% for the second quarter of 2006, it had a similar but opposite impact in the first quarter of 2006 and therefore, did not impact operating income growth for the six months ended June 30, 2006.
Other Income (Expense)
Interest expense, net for the three and six months ended June 30, 2006 increased $10 million and $21 million, respectively, over the prior year periods. The increases in interest expense, net were primarily due to additional interest expense associated with our $900 million senior notes offering in October 2005 used to fund the LabOne acquisition, as described more fully in Note 10 to the Consolidated Financial Statements contained in our 2005 Annual Report on Form 10-K.
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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 and six months ended June 30, 2006 other income (expense), net includes a $12 million second quarter loss associated with the write-down of an investment. For the six months ended June 30, 2006, other income (expense), net includes a $16 million first quarter gain on the sale of an investment.
Income taxes
The increase in the effective tax rate for the three and six months ended June 30, 2006, compared to the prior year periods, was primarily due to losses generated at NID’s foreign operations, for which we do not expect to realize a tax benefit as a result of our decision to discontinue NID’s operations.
NID
During the fourth quarter of 2005, NID instituted its second voluntary product hold within a six-month period, due to quality issues, which adversely impacted the operating performance of NID. As a result, the Company evaluated a number of strategic options for NID. On April 19, 2006, the Company decided to discontinue NID’s operations and is in the process of winding down NID’s operations. The decision to discontinue NID’s operations is currently expected to result in pre-tax charges totaling between $33 million and $38 million. Of these charges, $28 million was recorded in the second quarter of 2006 and the balance will be recorded principally in the third quarter of 2006. For the three and six months ended June 30, 2006, NID’s pre-tax losses totaled $35 million and $49 million, respectively, including the second quarter wind-down charge, and reduced diluted earnings per share by $0.12 and $0.17, respectively.
The ongoing government investigation and regulatory review of NID continue. While we do not believe that these matters will have a material adverse impact on our overall financial condition, their final resolution could be material to our results of operations or cash flows in the period in which the impact of such matters is determined or paid. See Note 6 to the interim consolidated financial statements for a further description of these matters.
Quantitative and Qualitative Disclosures About Market Risk
We address our exposure to market risks, principally the market risk of changes in interest rates, through a controlled program of risk management that may include the use of derivative financial instruments. We do not hold or issue derivative financial instruments for trading purposes. We do not believe that our foreign exchange exposure is material to our financial condition or results of operations. See Note 2 to the Consolidated Financial Statements in our 2005 Annual Report on Form 10-K for additional discussion of our financial instruments and hedging activities.
At June 30, 2006 and December 31, 2005, the fair value of our debt was estimated at approximately $1.5 billion and $1.6 billion, respectively, using quoted market prices and yields for the same or similar types of borrowings, taking into account the underlying terms of the debt instruments. At June 30, 2006, the carrying value exceeded the estimated fair value of the debt by approximately $22 million. At December 31, 2005, the estimated fair value exceeded the carrying value of the debt by approximately $39 million. An assumed 10% increase in interest rates (representing approximately 46 and 59 basis points at June 30, 2006 and December 31, 2005, respectively) would potentially reduce the estimated fair value of our debt by approximately $37 million and $36 million at June 30, 2006 and December 31, 2005, respectively.
Borrowings under our senior unsecured revolving credit facility, our secured receivables credit facility and our term loan due December 2008, are subject to variable interest rates. Interest on our secured receivables credit facility is based on rates that are intended to approximate commercial paper rates for highly rated issuers. Interest rates on our senior unsecured revolving credit facility and term loan due December 2008 are subject to a pricing schedule that can fluctuate based on changes in our credit ratings. As such, our borrowing cost under these credit arrangements will be subject to both fluctuations in interest rates and changes in our credit ratings. As of June 30, 2006, our borrowing rate for our LIBOR-based loans was LIBOR plus 0.5%. At June 30, 2006, there was $75million outstanding under our term loan due December 2008 and no borrowings outstanding under our $500 million senior unsecured revolving credit facility or our $300 million secured receivables credit facility. Based on our net exposure to interest rate changes, an assumed 10% change in interest rates on our variable rate indebtedness (representing approximately 53 basis points) would impact annual net interest expense by approximately $0.4 million, assuming no changes to the debt outstanding at June 30, 2006. See Note 11 to the interim consolidated financial statements and Note 10 to the Consolidated Financial Statements in our 2005 Annual Report on Form 10-K for details regarding our debt outstanding.
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Liquidity and Capital Resources
Cash and Cash Equivalents
Cash and cash equivalents at June 30, 2006 totaled $151 million compared to $92 million at December 31, 2005. Cash flows from operating activities in 2006 were $411 million, which were used to fund investing and financing activities of $76 million and $277 million, respectively. Cash and cash equivalents at June 30, 2005 totaled $204 million, compared to $73 million at December 31, 2004. Cash flows from operating activities in 2005 were $371 million, which were used to fund investing and financing activities of $167 million and $73 million, respectively.
Cash Flows from Operating Activities
Net cash provided by operating activities for the six months ended June 30, 2006 was $411 million compared to $371 million in the prior year period. This increase was primarily due to improved operating performance of our clinical testing business, partially offset by the performance of NID. Days sales outstanding, a measure of billing and collection efficiency, improved to 45 days at June 30, 2006 from 46 days at December 31, 2005.
Cash Flows from Investing Activities
Net cash used in investing activities for the six months ended June 30, 2006 was $76 million, consisting primarily of capital expenditures of $88 million offset by $16 million of proceeds received in connection with the sale of an investment during the first quarter of 2006. The decrease in capital expenditures versus the prior year is principally due to the completion of a new facility in California, for which there were substantial expenditures in the prior year.
Net cash used in investing activities for the six months ended June 30, 2005 was $167 million, consisting primarily of capital expenditures of $124 million, equity investments of $24 million in companies which develop diagnostic tests, and an acquisition of a small regional laboratory for $19 million.
Cash Flows from Financing Activities
Net cash used in financing activities for the six months ended June 30, 2006 was $277 million, consisting primarily of purchases of treasury stock totaling $254 million, the repayment of $60 million of principal outstanding under our secured receivables credit facility and dividend payments of $38 million, partially offset by $99 million in proceeds from the exercise of stock options, including related tax benefits. The $254 million in treasury stock purchases represents 4.6 million shares of our common stock purchased at an average price of $55.13 per share.
Net cash used in financing activities for the six months ended June 30, 2005 was $73 million, consisting primarily of purchases of treasury stock totaling $92 million and dividend payments totaling $33 million, partially offset by $64 million in proceeds from the exercise of stock options. In addition, we repaid the remaining $100 million of principal outstanding under our senior unsecured revolving credit facility with $100 million of borrowings under our secured receivables credit facility. The $92 million in treasury stock purchases represents 1.8 million shares of our common stock purchased at an average price of $50.64 per share.
Dividend Policy
During each of the quarters of 2005, our Board of Directors declared a quarterly cash dividend of $0.09 per common share. During each of the quarters of 2006, our Board of Directors has declared a quarterly cash dividend per common share of $0.10. We expect to fund future dividend payments with cash flows from operations, and do not expect the dividend to have a material impact on our ability to finance future growth.
Share Repurchase Plan
For the three months ended June 30, 2006, we repurchased 2.6 million shares of our common stock at an average price of $57.49 per share for $150 million. For the six months ended June 30, 2006, we repurchased 4.6 million shares of our common stock at an average price of $55.13 for $254 million. Through June 30, 2006, we have repurchased approximately 37 million shares of our common stock at an average price of $44.16 for approximately $1.6 billion under our share repurchase program. At June 30, 2006, the total available for repurchases under the remaining authorizations was $468 million.
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Contractual Obligations and Commitments
A full description of the terms of our indebtedness and related debt service requirements and our future payments under certain of our contractual obligations is contained in Note 10 to the Consolidated Financial Statements in our 2005 Annual Report on Form 10-K. A full discussion and analysis regarding our minimum rental commitments under noncancelable operating leases and noncancelable commitments to purchase products or services at December 31, 2005 is contained in Note 14 to the Consolidated Financial Statements in our 2005 Annual Report on Form 10-K. See Note 6 to the interim consolidated financial statements for information regarding the status of legal matters involving the Company.
Our credit agreements relating to our senior unsecured revolving credit facility and our term loan due December 2008 contain various covenants and conditions, including the maintenance of certain financial ratios, that could impact our ability to, among other things, incur additional indebtedness. We do not expect these covenants to adversely impact our ability to execute our growth strategy or conduct normal business operations.
Unconsolidated Joint Ventures
We have investments in unconsolidated joint ventures in Phoenix, Arizona; Indianapolis, Indiana; and Dayton, Ohio, which are accounted for under the equity method of accounting. We believe that our transactions with our joint ventures are conducted at arm’s length, reflecting current market conditions and pricing. Total net revenues of our unconsolidated joint ventures equal less than 6% of our consolidated net revenues. Total assets associated with our unconsolidated joint ventures are less than 2% of our consolidated total assets. We have no material unconditional obligations or guarantees to, or in support of, our unconsolidated joint ventures and their operations.
Acquisition of Focus Diagnostics, Inc.
On July 5, 2006, we completed our previously announced acquisition of Focus Diagnostics, Inc., or Focus, in an all-cash transaction valued at $206 million including approximately $3 million of assumed debt of Focus. Focus is a leading provider of infectious and immunologic diseases testing and develops and markets diagnostic products. Focus offers its reference testing services to large academic medical centers, hospitals and commercial laboratories. We financed the acquisition and related transaction costs together with the repayment of substantially all of Focus’s debt outstanding with $135 million of borrowings under our secured receivables credit facility and with cash on hand. The acquisition will be accounted for under the purchase method of accounting.
Requirements and Capital Resources
We estimate that we will invest approximately $210 million to $230 million during 2006 for capital expenditures to support and expand our existing operations, principally related to investments in information technology, equipment, and facility upgrades.
Our 6¾% senior notes, which have an aggregate principal amount of $275 million outstanding, matured in July 2006. On July 12, 2006, we repaid these notes with $165 million of borrowings under our secured receivables credit facility, $75 million of borrowings under our senior unsecured revolving credit facility and cash on hand.
As of July 28, 2006, $425 million of borrowing capacity was available under our existing credit facilities.
We believe that cash from operations and our borrowing capacity under our credit facilities will provide sufficient financial flexibility to meet seasonal working capital requirements and to fund capital expenditures, debt service requirements, cash dividends on common shares, share repurchases and additional growth opportunities for the foreseeable future. Our investment grade credit ratings have had a favorable impact on our cost of and access to capital, and we believe that our strong financial performance should provide us with access to additional financing, if necessary, to fund growth opportunities that cannot be funded from existing sources.
Impact of New Accounting Standards
Effective January 1, 2006, we adopted SFAS 123R using the modified prospective approach. See Notes 1 and 2 to the interim consolidated financial statements for further details.
In July 2006, the Financial Accounting Standards Board issued Financial Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”). See Note 1 to the interim consolidated financial statements for further details.
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Forward-Looking Statements
Some statements and disclosures in this document are forward-looking statements. Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as “may”, “believe”, “will”, “expect”, “project”, “estimate”, “anticipate”, “plan” or “continue”. These forward-looking statements are based on our current plans and expectations and are subject to a number of risks and uncertainties that could significantly cause our plans and expectations, including actual results, to differ materially from the forward-looking statements. The Private Securities Litigation Reform Act of 1995, or the Litigation Reform Act, provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information about their companies without fear of litigation.
We would like to take advantage of the “safe harbor” provisions of the Litigation Reform Act in connection with the forward-looking statements included in this document. The risks and other factors that could cause our actual financial results to differ materially from those projected, forecasted or estimated by us in forward-looking statements may include, but are not limited to, unanticipated expenditures, changing relationships with customers, payers, suppliers and strategic partners, competitive environment, changes in government regulations, conditions of the economy and other factors described in our 2005 Annual Report on Form 10-K and subsequent filings.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
Item 4. Controls and Procedures
| |
(a) | Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are adequate and effective. |
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(b) | During the second quarter of 2006, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. |
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 6 to the interim consolidated financial statements for information regarding the status of legal proceedings involving the Company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
ISSUER PURCHASES OF EQUITY SECURITIES
| | | | | | | | | | | | | |
Period | | (a) Total
Number of
Shares
Purchased | | (b) Average Price
Paid per Share | | (c) Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs | | (d) Approximate Dollar Value
of Shares that May Yet Be
Purchased Under the Plans or
Programs
(in thousands) | |
| |
| |
| |
| |
| |
April 1, 2006 – April 30, 2006 | | | — | | $ | — | | | — | | $ | 618,046 | |
| | | | | | | | | | | | | |
May 1, 2006 – May 31, 2006 | | | 1,011,800 | | $ | 57.47 | | | 1,011,800 | | $ | 559,898 | |
| | | | | | | | | | | | | |
June 1, 2006 – June 30, 2006 | | | 1,597,500 | | $ | 57.50 | | | 1,597,500 | | $ | 468,047 | |
| |
|
| |
|
| |
|
| |
|
| |
Total | | | 2,609,300 | | $ | 57.49 | | | 2,609,300 | | $ | 468,047 | |
| |
|
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|
| |
|
| |
|
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In 2003, our Board of Directors authorized a share repurchase program, which permitted us to purchase up to $600 million of our common stock. In July 2004, our Board of Directors authorized us to purchase up to an additional $300 million of our common stock. Under a separate authorization from our Board of Directors, in December 2004 we repurchased 5.4 million shares of our common stock for approximately $254 million from GlaxoSmithKline plc. In January 2005, our Board of Directors expanded the share repurchase authorization by an additional $350 million. In January 2006, our Board of Directors expanded the share repurchase authorization by an additional $600 million.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Company was held on May 4, 2006. At the meeting the matters described below were approved by the shareholders.
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(a) | The following nominees for the office of director were elected for terms expiring at the 2009 Annual Meeting of Shareholders, by the following votes: |
| | | | | | |
| | For | | Withheld | | |
| |
| |
| |
| Jenne K. Britell, Ph.D. | 178,255,619 | | 3,405,767 | | |
|
| Gail R. Wilensky, Ph.D. | 176,442,745 | | 5,218,641 | | |
|
| Mr. John B. Ziegler | 169,364,288 | | 12,297,098 | | |
| | | | | | |
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| The following persons continue as directors: |
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| John C. Baldwin, M.D. |
| Mr. William F. Buehler |
| Mr. William R. Grant |
| Ms. Rosanne Haggerty |
| Surya N. Mohapatra, Ph.D. |
| Mr. Gary M. Pfeiffer |
| Daniel C. Stanzione, Ph.D. |
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| | | |
(b) | The ratification of the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm to audit the financial statements of the Company and its subsidiaries for the fiscal year ending December 31, 2006, was approved by the following number of stockholder votes for, against, and abstained: |
| | | |
| For: 175,801,288 | Against: 4,849,057 | Abstained: 1,011,041 |
| | | |
(c) | The Amendment to the Restated Certificate of Incorporation of the Company was approved by the following number of shareholder votes for, against, and abstained: |
| | | |
| For: 148,089,324 | Against: 32,560,629 | Abstained: 1,011,430 |
| | | |
(d) | The Amended and Restated Employee Stock Purchase Plan of the Company was approved by the following number of shareholder votes for, against, and abstained: |
| | | |
| For: 160,387,888 | Against: 2,854,550 | Abstained: 1,389,843 |
Item 6. Exhibits
| | | |
| Exhibits: |
| | | |
| 3.1 | | Certification of Amendment to Restated Certificate of Incorporation of Quest Diagnostics Incorporated |
| | | |
| 10.1 | | Letter Agreement dated June 15, 2006 between the Company and Surya N. Mohapatra |
| | | |
| 31.1 | | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | | |
| 31.2 | | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | | |
| 32.1 | | Certification of Chief Executive Officer Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | | |
| 32.2 | | Certification of Chief Financial Officer Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
July 31, 2006
Quest Diagnostics Incorporated
| | | |
By | /s/ | Surya N. Mohapatra | |
|
| |
| | Surya N. Mohapatra, Ph.D. | |
| | Chairman, President and | |
| | Chief Executive Officer | |
| | | |
By | /s/ | Robert A. Hagemann | |
|
| |
| | Robert A. Hagemann | |
| | Senior Vice President and | |
| | Chief Financial Officer | |
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