TETERBORO, N.J., JULY 16, 1997 -- Quest Diagnostics Incorporated (NYSE: DGX) today
announced that for the second quarter ended June 30, 1997, net income was $8.1 million, or
$0.28 per share, on revenues of $401.5 million. For the second quarter of 1996, pro forma
net income before non-recurring special charges was $9.3 million, or $0.32 per share, on
revenues of $424.5 million.
"We are encouraged by the progress we are making in controlling our costs and
exerting pricing discipline," said Kenneth W. Freeman, chairman and chief executive
officer. "However, our volume continues to decline as we become more selective about
the business we accept. In addition, volume is being affected by mounting government
regulations that are reducing the amount of testing ordered by doctors, as well as by
intense competition for existing business."
Earnings before interest, taxes, depreciation and amortization (EBITDA) were $46.1
million for the second quarter. This compares to $53.6 million for the 1996 second
quarter, adjusted for special charges, and is 19.6% above this year's first quarter
level, reflecting seasonal strength typical of the second quarter.
Revenues in the quarter declined 5.4% from the previous year. The sale in 1996 of a
majority share of the Company's imaging business contributed 2.1% of the revenue
decline.
Clinical testing volume, measured by the number of test requisitions, declined 5.6%.
However, prices for clinical testing have continued to strengthen. In the second quarter,
prices were 2.1% above the prior year's level, due, in large part, to increased
pricing discipline and the successful renegotiation of reimbursement rates with some
customers.
"We continue to focus on strengthening our market positions around the
country," said Mr. Freeman. "In Connecticut, we made a small acquisition which
we expect will add value for our shareholders and yield additional benefits for our
clients and us in that state. Just after the end of the second quarter, we created a joint
venture in Arizona, which has been a difficult market for us, with Samaritan Health
System, the state's largest health care delivery system."
Efforts to reduce costs continued to show results with the exception of bad debt
expense. Total operating costs for the quarter declined from the year earlier period. Bad
debt expense was 7.7% of revenues for the second quarter, slightly higher than the first
quarter level of 7.5%, and above the 5.6% level of the prior year period. The challenge of
complying with additional Medicare medical necessity documentation requirements imposed
during the past year continues. "We expect further improvements in our cost structure
as we realize additional benefits from our standardization initiative and as bad debt
expense starts to decline," said Mr. Freeman.
Cash generation remained strong during the quarter, as a result of seasonal strength
and the continued focus on improving billing operations. The company's cash balance
was $75.8 million at June 30, $7.9 million above the first quarter level. The number of
days sales outstanding, a measure of billing and collection efficiency, improved to 65
days from 68 days at the end of the first quarter. Accounts receivable, which totaled $288
million, declined by $3.4 million during the quarter. Capital expenditures totaled $7.1
million for the quarter.
For the first half of 1997, the company earned $12.1 million, or $0.42 per share, on
revenue of $789.6 million. For the prior year, pro forma earnings before special charges
totaled $14.5 million, or $0.50 per share, on revenues of $825.9 million. EBITDA for the
six month period totaled $84.7 million, versus $97.1 million before special charges last
year.
Quest Diagnostics Incorporated is one of the world's leading providers of
diagnostic testing, information and services with laboratories across the United States.
The wide variety of tests performed on human tissue and fluids help doctors and hospitals
diagnose, treat and monitor disease. In addition, Quest Diagnostics also conducts
research, produces test kits and instruments, and specializes in esoteric testing using
genetic screening and other advanced technologies. Formerly known as Corning Clinical
Laboratories Inc., Quest Diagnostics was spun off to Corning Incorporated stockholders in
a tax-free distribution of shares on December 31, 1996.
The statements in this press release which are not historical facts or information are
forward-looking statements. These forward-looking statements involve risks and
uncertainties that could cause the outcome to be materially different. Certain of these
risks and uncertainties are listed in the Quest Diagnostics Incorporated 1996 Form 10-K.
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 1997 and 1996
(in millions, except per share data)
|
Three Months Ended June 30 Six Months Ended
June 30 |
|
Historical |
Pro Forma |
Historical |
Historical |
Pro Forma |
Historical |
|
1997 |
1996 |
1996 |
1997 |
1996 |
1996 |
|
|
|
|
|
|
|
| Net revenues |
$401.5 |
$424.5 |
$424.5 |
$789.6 |
$825.9 |
$825.9 |
|
|
|
|
|
|
|
| Costs and expenses: |
|
|
|
|
|
|
| Cost of services |
239.6 |
266.3 |
266.3 |
478.9 |
513.4 |
513.4 |
| Selling, general and administrative |
127.9 |
120.2 |
120.2 |
251.9 |
246.2 |
246.2 |
| Interest expense, net |
10.5 |
11.9 |
19.9 |
21.1 |
24.0 |
40.0 |
| Amortization of intangible assets |
6.0 |
7.0 |
10.7 |
12.0 |
14.1 |
21.5 |
| Provision for restructuring and other special charges |
-- |
46.0 |
46.0 |
-- |
67.9 |
46.0 |
| Write-down of intangible assets |
-- |
-- |
-- |
-- |
445.0 |
-- |
| Other, net |
1.1 |
(1.1) |
(1.1) |
0.9 |
(2.1) |
(2.1) |
| Total |
385.1 |
450.3 |
462.0 |
764.8 |
1,308.5 |
865.0 |
| Income (loss) before taxes |
16.4 |
(25.8) |
(37.5) |
24.8 |
(482.6) |
(39.1) |
| Income tax expense (benefit) |
8.3 |
1.8 |
0.4 |
12.7 |
(0.3) |
0.3 |
|
|
|
|
|
|
|
| Net income (loss) |
$ 8.1 |
$(27.6) |
$(37.9) |
$ 12.1 |
$(482.3) |
$(39.4) |
|
|
|
|
|
|
|
| Net income per common share |
$ 0.28 |
-- |
|
$ 0.42 |
-- |
|
|
|
|
|
|
|
|
| Weighted average common shares outstanding |
29.1 |
28.8 |
|
29.0 |
28.8 |
|
| Net income before restructuring and other special charges and
write-down of intangible assets |
$ 8.1 |
$ 9.3 |
|
$ 12.1 |
$ 14.5 |
|
|
|
|
|
|
|
|
| Net income per common share before restructuring and other
special charges and write-down of intangible assets |
$ 0.28 |
$0.32 |
|
$ 0.42 |
$ 0.50 |
|
Notes to consolidated statements of operations:
(1) Earnings per share are computed by dividing net income less dividends on
preferred stock (approximately $30 thousand per quarter) by the weighted average number of
common shares outstanding. Historical earnings per share for 1996 is not meaningful as the
Company's historical capital structure for 1996 is not comparable to the capital
structure subsequent to its spin-off from Corning Incorporated. Pro forma earnings per
share for 1996 were calculated by reducing net income for preferred stock dividends and by
assuming that all common shares issued as a result of the spin-off and the establishment
of the employee stock ownership plan were outstanding for the entire period.
(2) The pro forma consolidated statements of operations were prepared assuming
that the Company's spin-off from Corning Incorporated had been completed and the new
accounting policy for intangible assets had been adopted as of January 1, 1996. In the
opinion of management, the pro forma consolidated statement of operations includes all
material adjustments necessary to reflect the impact of the spin-off and the change in
accounting policy. Such adjustments consist of reductions to interest and amortization
expense.