Exhibit 99.1
QUEST DIAGNOSTICS REPORTS STRONG FINANCIAL RESULTS
IN THIRD QUARTER 2004
TETERBORO, N.J., OCTOBER 25, 2004--Quest Diagnostics Incorporated (NYSE: DGX),
the nation's leading provider of diagnostic testing, information and services,
announced that for the third quarter ended September 30, 2004, net income
increased to $130 million, or $1.26 per diluted share, compared to $120 million,
or $1.12 per diluted share, in 2003.
Third quarter revenues grew 5.6% over the prior-year level to $1.3 billion.
Clinical testing volume, measured by the number of requisitions, increased 3.3%,
and revenue per requisition increased 1.9%. The remainder of the revenue growth
was contributed by the company's non-clinical testing businesses.
During the quarter, the estimated impact of hurricanes on the company's business
in the southeastern U.S. reduced revenue growth by slightly more than half a
percentage point and reduced earnings per share by $0.03.
For the third quarter, operating income was $232 million, or 18% of revenues,
compared to $218 million, or 17.8% of revenues, in 2003. Bad debt expense was
4.6% of revenues, compared to 4.8% a year ago. Days sales outstanding were 48
days, unchanged from a year ago. Cash from operations increased to $217 million
from $173 million in 2003. During the quarter the company repurchased $110
million of its common stock and made capital expenditures of $43 million.
"We delivered strong financial performance in the third quarter," said Surya N.
Mohapatra, Ph.D., President and Chief Executive Officer. "Quest Diagnostics
continues to differentiate itself successfully in the marketplace by providing
patients and physicians with innovative science and medicine, advanced
information technology, unparalleled access and distribution, and the benefits
of our long-standing commitment to Six Sigma quality, enabling us to drive
improvements in revenues, earnings per share and cash generation."
For the first nine months of 2004, excluding special charges in the second
quarter related to the CEO succession process and the company's debt
refinancing, net income increased to $381 million, and earnings per diluted
share increased 17% to $3.64 from $3.10 in 2003. Including the second quarter
charges, net income was $373 million and earnings per diluted share were $3.56.
Revenues increased 8.8% to $3.8 billion. Operating income, excluding the charge
for the CEO succession process, was $681 million, or 17.7% of revenues, compared
to $599 million, or 17% of revenues in 2003. Including the charge, operating
income was $671 million, or 17.4% of revenues. Through the first nine months of
2004, the company repurchased $381 million of its common stock and made capital
expenditures of $134 million.
Outlook for Fourth Quarter and Full-Year 2004
For the fourth quarter, revenues are expected to grow approximately 6%,
operating income is expected to be between 17% and 18% of revenues, and earnings
per diluted share are expected to be between $1.18 and $1.23 before a required
change in the accounting for the company's contingent convertible debentures.
Including the change in accounting, earnings per diluted share are expected to
be between $1.15 and $1.20.
For the full year 2004, revenues are expected to grow approximately 8%, with
growth of about 1.5% contributed by Unilab, acquired February 28, 2003.
Operating income is expected to approach 18% of revenues, cash from operations
is expected to exceed $700 million, and capital expenditures are expected to be
between $180 million and $190 million.
The company expects full year earnings per diluted share of between $4.82 and
$4.87, before the second quarter special charges and the change in accounting
for the company's contingent convertible debentures. Including these items,
earnings per diluted share are expected to be between $4.64 and $4.69.
Quest Diagnostics will hold its third quarter conference call on October 25 at
8:30 A.M. Eastern Time. To hear a simulcast of the call over the Internet or a
replay, registered analysts may access StreetEvents at: www.streetevents.com,
and all others may access the Quest Diagnostics website at:
www.questdiagnostics.com. In addition, a replay of the call will be available
from 10:30 A.M. on October 25 through 11 P.M. on November 26 to investors in the
U.S. by dialing 866-407-9273. Investors outside the U.S. may dial 203-369-0618.
No password is required for either number.
Quest Diagnostics Incorporated is the nation's leading provider of diagnostic
testing, information and services, providing insights that enable healthcare
professionals to make decisions that improve health. The company offers the
broadest access to diagnostic testing services through its national network of
laboratories and patient service centers, and provides interpretive consultation
through its extensive medical and scientific staff. Quest Diagnostics is the
leading provider of esoteric testing, including gene-based medical testing, and
provides advanced information technology solutions to improve patient care.
Additional company information is available at: www.questdiagnostics.com.
The statements in this press release which are not historical facts or
information may be forward-looking statements. These forward-looking statements
involve risks and uncertainties that could cause actual results and outcomes to
be materially different. Certain of these risks and uncertainties may include,
but are not limited to, competitive environment, changes in government
regulations, changing relationships with customers, payers, suppliers and
strategic partners and other factors described in the Quest Diagnostics
Incorporated 2003 Form 10-K and subsequent filings.
- Table follows -
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Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2004 and 2003
(in millions, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2004 2003 2004 2003
---- ---- ---- ----
Net revenues.............................................. $1,289.9 $1,221.2 $ 3,843.3 $3,534.0
Operating costs and expenses:
Cost of services.......................................... 748.4 711.2 2,233.3 2,062.4
Selling, general and administrative....................... 308.3 292.4 923.2 867.7
Amortization of intangible assets......................... 1.7 2.0 5.8 6.1
Other operating (income) expense, net .................... (0.2) (1.9) 10.4 (1.7)
-------- -------- --------- --------
Total operating costs and expenses...................... 1,058.2 1,003.7 3,172.7 2,934.5
-------- -------- --------- --------
Operating income ......................................... 231.7 217.5 670.6 599.5
Other income (expense):
Interest expense, net..................................... (13.6) (14.5) (44.6) (45.2)
Minority share of income.................................. (4.9) (4.6) (14.4) (12.8)
Equity earnings in unconsolidated joint ventures.......... 5.5 4.4 15.5 13.0
Other income (expense), net............................... -- (0.1) -- 0.5
-------- -------- --------- --------
Total non-operating expenses, net....................... (13.0) (14.8) (43.5) (44.5)
-------- -------- --------- --------
Income before taxes....................................... 218.7 202.7 627.1 555.0
Income tax expense........................................ 88.6 82.7 254.0 226.5
-------- -------- --------- --------
Net income................................................ $ 130.1 $ 120.0 $ 373.1 $ 328.5
======== ======== ========= ========
Net income before special charges......................... $ 130.1 $ 120.0 $ 381.0 $ 328.5
- -------------------------------------------------------------------------------------------------------------------------
Basic earnings per common share:
Net income................................................ $ 1.29 $ 1.15 $ 3.64 $ 3.18
Net income before special charges......................... $ 1.29 $ 1.15 $ 3.72 $ 3.18
Weighted average common shares outstanding - basic........ 101.2 104.8 102.5 103.3
- -------------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share:
Net income................................................ $ 1.26 $ 1.12 $ 3.56 $ 3.10
Net income before special charges......................... $ 1.26 $ 1.12 $ 3.64 $ 3.10
Weighted average common shares outstanding - diluted...... 103.3 107.3 104.8 105.8
- -------------------------------------------------------------------------------------------------------------------------
Operating income before special charge as a percentage of
net revenues ......................................... 18.0% 17.8% 17.7% 17.0%
- -------------------------------------------------------------------------------------------------------------------------
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Quest Diagnostics Incorporated and Subsidiaries
Consolidated Balance Sheets
September 30, 2004 and December 31, 2003
(in millions, except per share data)
September 30, December 31,
2004 2003
-------- --------
Assets
Current assets:
Cash and cash equivalents ............................................ $ 201.0 $ 155.0
Accounts receivable, net ............................................. 686.0 609.2
Inventories .......................................................... 73.2 72.5
Deferred income taxes ................................................ 98.3 109.0
Prepaid expenses and other current assets ............................ 54.3 50.1
-------- --------
Total current assets............................................... 1,112.8 995.8
Property, plant and equipment, net ................................... 618.0 607.3
Goodwill, net ........................................................ 2,517.3 2,518.9
Intangible assets, net ............................................... 12.4 17.0
Deferred income taxes ................................................ 33.0 49.6
Other assets ......................................................... 101.5 112.8
-------- --------
Total assets ......................................................... $4,395.0 $4,301.4
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses ................................ $ 649.7 $ 649.9
Short-term borrowings and current portion of long-term debt .......... 130.2 73.9
-------- --------
Total current liabilities ......................................... 779.9 723.8
Long-term debt ....................................................... 971.8 1,028.7
Other liabilities .................................................... 165.6 154.2
Common stockholders' equity:
Common stock, par value $0.01 per share; 300 shares authorized;
106.8 shares issued at both September 30, 2004 and
December 31, 2003 ................................................. 1.1 1.1
Additional paid-in capital ........................................... 2,214.3 2,267.0
Retained earnings ................................................... 707.6 380.5
Unearned compensation ............................................... (0.2) (2.3)
Accumulated other comprehensive income .............................. 0.2 5.9
Treasury stock, at cost; 5.8 and 4.0 shares at
September 30, 2004 and December 31, 2003,
respectively ...................................................... (445.3) (257.5)
-------- --------
Total common stockholders' equity ................................. 2,477.7 2,394.7
-------- --------
Total liabilities and stockholders' equity ........................... $4,395.0 $4,301.4
======== ========
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Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2004 and 2003
(in millions)
Nine Months Ended
September 30,
-------------------
2004 2003
------- -------
Cash flows from operating activities:
Net income ............................................. $ 373.1 $ 328.5
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .......................... 126.4 113.5
Provision for doubtful accounts ........................ 172.0 172.1
Deferred income tax provision .......................... 31.4 16.6
Minority share of income ............................... 14.4 12.8
Stock compensation expense ............................. 1.2 4.1
Tax benefits associated with stock-based compensation
plans ............................................. 54.2 17.9
Other, net ............................................. 2.5 (1.8)
Changes in operating assets and liabilities:
Accounts receivable ................................. (248.9) (232.0)
Accounts payable and accrued expenses ............... (10.3) (67.4)
Integration, settlement and other special charges ... (17.4) (13.8)
Income taxes payable ................................ 27.2 43.7
Other assets and liabilities, net ................... 9.4 6.3
------- -------
Net cash provided by operating activities .............. 535.2 400.5
------- -------
Cash flows from investing activities:
Business acquisitions, net of cash acquired ............ -- (237.5)
Capital expenditures ................................... (134.1) (121.7)
Proceeds from disposition of assets .................... 7.5 9.0
Increase in investments and other assets ............... (3.2) (11.4)
------- -------
Net cash used in investing activities .................. (129.8) (361.6)
------- -------
Cash flows from financing activities:
Proceeds from borrowings ............................... 304.9 450.0
Repayments of debt ..................................... (305.9) (372.8)
Purchases of treasury stock ............................ (381.2) (124.1)
Exercise of stock options .............................. 83.1 16.8
Dividends paid ......................................... (46.2) --
Distributions to minority partners ..................... (12.0) (10.6)
Financing costs paid ................................... (2.1) (4.2)
Other .................................................. -- 0.3
------- -------
Net cash used in financing activities .................. (359.4) (44.6)
------- -------
Net change in cash and cash equivalents ................ 46.0 (5.7)
Cash and cash equivalents, beginning of period ......... 155.0 96.8
------- -------
Cash and cash equivalents, end of period ............... $ 201.0 $ 91.1
======= =======
Cash paid during the period for:
Interest ............................................... $ 47.4 $ 55.0
Income taxes ........................................... $ 143.3 $ 150.3
Non-cash financing activities:
Treasury stock purchases not settled ................... $ -- $ 17.3
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Notes to Financial Tables
1) Net income per common share is computed by dividing net income by the
weighted average number of common shares outstanding. Potentially dilutive
common shares primarily represent stock options.
The following table presents net income and basic and diluted earnings per
common share, had the Company elected to recognize compensation cost based
on the fair value at the grant dates for stock option awards and discounts
granted for stock purchases under the Company's Employee Stock Purchase
Plan, consistent with the method prescribed by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation", as
amended by Statement of Financial Accounting Standards No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure -- an amendment of
FASB Statement No. 123":
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2004 2003 2004 2003
------ ------ ------ ------
(in millions, except per share data)
Net income
Net income, as reported ....................... $130.1 $120.0 $373.1 $328.5
Add: Stock-based compensation under APB 25 ... 0.2 1.2 1.2 4.1
Deduct: Total stock-based compensation expense
determined under fair value method for all
awards, net of related tax effects ......... (11.7) (12.2) (33.5) (40.2)
------ ------ ------ ------
Pro forma net income .......................... $118.6 $109.0 $340.8 $292.4
====== ====== ====== ======
Earnings per common share
Basic - as reported ........................... $ 1.29 $ 1.15 $ 3.64 $ 3.18
------ ------ ------ ------
Basic - pro forma ............................. $ 1.17 $ 1.04 $ 3.33 $ 2.83
------ ------ ------ ------
Diluted - as reported ......................... $ 1.26 $ 1.12 $ 3.56 $ 3.10
------ ------ ------ ------
Diluted - pro forma ........................... $ 1.15 $ 1.03 $ 3.27 $ 2.80
------ ------ ------ ------
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- ------------------------------------
2004 2003 2004 2003
---------------- --------------- ----------------- -----------------
Dividend yield.................................. 0.7% 0.0% 0.7% 0.0%
Risk-free interest rate......................... 3.7% 3.3% 3.1% 2.8%
Expected volatility............................. 46.6% 48.1% 47.2% 48.1%
Expected holding period, in years............... 5 5 5 5
2) 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. For the nine months ended September
30, 2004, other operating expense, net includes a $10.3 million charge
associated with the acceleration of certain pension obligations in
connection with the CEO succession process.
3) Interest expense, net for the nine months ended September 30, 2004,
includes a $2.9 million charge representing the write-off of deferred
financing costs associated with the second quarter 2004 refinancing of the
Company's bank debt and credit facility.
4) In 2003, the Board of Directors authorized a share repurchase program,
which permits the Company to purchase up to $600 million of its common
stock. In July 2004, the Board of Directors authorized the Company to
purchase up to an additional $300 million of its common stock. For the
three months ended September 30, 2004, the Company repurchased
approximately 1.3 million shares of its common stock at an average price of
$81.64 per share for a total of $110 million. For the nine months ended
September 30, 2004, the Company repurchased approximately 4.5 million
shares of its common stock at an average price of $83.84 per share for a
total of $381 million. Since the inception of the share repurchase program,
the Company has repurchased approximately 8.5 million shares of its common
stock at an average price of $74.82 for a total of $639 million. For the
nine months ended September 30, 2004, the Company has reissued
approximately 2.8 million of these shares in connection with employee
benefit plans. At September 30, 2004, $261 million of the share repurchase
authorization remained available.
6
5) Free cash flow represents net cash provided by operating activities less
capital expenditures. Free cash flow is presented because management
believes it is a useful adjunct to cash flow from operating activities and
other measurements under accounting principles generally accepted in the
United States since it is a meaningful measure of a company's ability to
fund investing activities and meet its future debt service requirements.
Free cash flow 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 cash flows from operating, investing or
financing activities as an indicator of cash flows or as a measure of
liquidity. The following table reconciles net cash provided by operating
activities to free cash flow:
Nine Months Ended
September 30,
----------------------------------------------
2004 2003
---------------------- ----------------------
(in millions)
Net cash provided by operating activities................. $ 535.2 $ 400.5
Less: Capital expenditures............................... 134.1 121.7
--------- ---------
Free cash flow............................................ $ 401.1 $ 278.8
========= =========
6) Net income before special charges excludes the charges associated with the
acceleration of certain pension obligations in connection with the CEO
succession process and the second quarter 2004 refinancing of the Company's
bank debt and credit facility. Operating income before special charge
excludes the charge associated with the CEO succession process. Both
operating income and net income before special charges, including per
common share amounts, are presented because management believes that it is
a useful adjunct to other measurements under accounting principles
generally accepted in the United States, including reported operating
income and net income since it is a meaningful measure of the Company's
on-going operating performance and is on a basis consistent with prior
reported results. Operating income before special charge and net income
before special charges, including per common share amounts, are not
measures of financial performance under accounting principles generally
accepted in the United States and should not be considered as an
alternative to reported operating income and net income as an indicator of
performance. The following table reconciles operating income and net income
before special charges to reported results:
For the Nine Months Ended September 30, 2004
----------------------------------------------------------
(in millions, except per share amounts)
Special Charges Related to:
--------------------------
Acceleration
of Certain
Before Special Pension Debt
Charges Obligations Refinancing As Reported
--------- ----------- ----------- -----------
Net revenues ................................... $3,843.3 $ -- $ -- $3,843.3
- -------------------------------------------------------------------------------------------------------------
Operating income ............................... $ 680.9 $(10.3) $ -- $ 670.6
Interest expense, net .......................... (41.7) -- (2.9) (44.6)
- -------------------------------------------------------------------------------------------------------------
Income before taxes ............................ $ 640.3 $(10.3) $(2.9) $ 627.1
Income tax expense (benefit) ................... 259.3 (4.1) (1.2) 254.0
-------- ------ ----- --------
Net income ..................................... $ 381.0 $ (6.2) $(1.7) $ 373.1
======== ====== ===== ========
- -------------------------------------------------------------------------------------------------------------
Basic earnings per common share:
Net income ..................................... $ 3.72 $ (0.06) $(0.02) $ 3.64
Diluted earnings per common share:
Net income ..................................... $ 3.64 $ (0.06) $(0.02) $ 3.56
- -------------------------------------------------------------------------------------------------------------
Operating income as a percentage of net revenues A 17.7% 17.4%
A Calculated by dividing operating income by
net revenues
- -------------------------------------------------------------------------------------------------------------
7
7) Estimated comparable diluted earnings per common share represents
management's estimate of diluted earnings per common share before charges
associated with the acceleration of certain pension obligations in
connection with the CEO succession process, the second quarter refinancing
of the Company's bank debt and credit facility, and the required change
in accounting for the Company's contingent convertible debentures.
Estimated comparable diluted earnings per common share is presented because
management believes it is a useful adjunct to estimated diluted earnings
per common share and other measurements under accounting principles
generally accepted in the United States since it is a meaningful measure of
the Company's ongoing operating performance and is on a basis consistent
with previous estimates of diluted earnings per common share. Estimated
comparable 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 estimated diluted
earnings per common share. The following table reconciles estimated diluted
earnings per common share to estimated comparable diluted earnings per
common share:
Three Months Twelve Months
Ended Ended
December 31, December 31,
2004 2004
------------- -------------
Estimated diluted earnings per common share............... $1.15 - $1.20 $4.64 - $4.69
Add:
Charge related to the acceleration of certain pension
obligations........................................... 0.00 0.06
Refinancing charge........................................ 0.00 0.02
Estimated impact of change in accounting for
contingent convertible debentures..................... 0.03 0.10
------------- -------------
Estimated comparable diluted earnings per common share.... $1.18 - $1.23 $4.82 - $4.87
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