TETERBORO, N.J., JANUARY 27, 1998—Quest Diagnostics Incorporated (NYSE:
DGX) announced today that for the fourth quarter ended December 31, 1997, net income
before special charges was $2.5 million, or $0.08 per share, on revenues of $365.4
million. For the fourth quarter of 1996, the pro forma net loss before special charges was
$1.3 million, or a $0.05 loss per share, on revenues of $385.0 million.
For the full year 1997, Quest Diagnostics earned $17.6 million before special charges,
or $0.60 per share, on revenues of $1.5 billion. In 1996, pro forma earnings before
special charges totaled $15.6 million, or $0.54 per share, on revenues of $1.6 billion.
As reported on December 2, 1997, Quest Diagnostics is implementing a series of actions
aimed at reducing excess capacity in its clinical laboratory network and improving its
overall efficiency and cost structure. The total pretax charges recorded during the fourth
quarter associated with these actions are $55.5 million, of which $6.8 million has been
included in selling, general and administrative expense.
"We have made solid progress in executing our business strategy during our first
year as an independent, public company, as evidenced by strong cash generation," said
Kenneth W. Freeman, chairman and chief executive officer. "Our fourth quarter
operating performance, excluding special charges, showed improvement for the first time in
more than two years. We ended the year with a cash balance of $162 million, an increase of
$120 million over the prior year. We continue to see pricing improvement and our cost
reduction efforts are showing strong results. We are also eliminating excess capacity.
These actions better position us to meet ongoing challenges facing our industry in terms
of compliance with new regulations and reductions in test utilization."
After special charges, Quest Diagnostics reported a net loss of $37.4 million or $1.29
per share for the fourth quarter of 1997, compared to a loss of $467.1 million for the
1996 quarter. For the full year, after special charges, Quest Diagnostics reported a net
loss of $22.3 million, or $0.77 per share for 1997 compared to a net loss of $626.0
million for 1996.
During the quarter, revenues declined 5.1% from the previous year, primarily due to
competitive pressures, changes in reimbursement policies, and actions taken on
unprofitable accounts. Clinical testing volume, measured by the number of test
requisitions, declined 8.8%. However, prices for clinical testing continued to strengthen
for the fourth consecutive quarter, due, in large part, to continued pricing discipline
and success in renegotiating reimbursement rates with some customers. Total operating
costs for the quarter before special charges declined from the year-earlier period by
$22.3 million, reflecting ongoing efforts to reduce capacity and align costs with business
conditions.
Cash generation was strong during the quarter. Earnings before interest, taxes,
depreciation and amortization (EBITDA) were $33.4 million for the fourth quarter, compared
to $31.7 million for the 1996 fourth quarter, adjusted for special charges in both years.
For the full year, adjusted for special charges, EBITDA totaled $153.8 million, compared
with $166.4 million in 1996. The number of days sales outstanding, a measure of billing
and collection efficiency, improved to 63 days, compared to 73 days a year ago. Accounts
receivable, which totaled $238.4 million, declined by $32.7 million during the quarter.
Capital expenditures totaled $9.3 million for the quarter and $30.8 million for the year.
"While competitive pressures remain intense, efforts are underway to stabilize our
volume by the end of this year as we aggressively expand our relationships with
traditional physician accounts as well as hospitals, employers and other large buyers of
health care services," Mr. Freeman said.
Quest Diagnostics Incorporated is one of the nation'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 helps doctors and hospitals
diagnose, treat and monitor disease. Its Nichols Institute unit conducts research,
specializes in esoteric testing using genetic screening and other advanced technologies,
performs clinical studies testing, and manufactures and distributes diagnostic test kits
and instruments. Quest Informatics collects and analyzes laboratory, pharmaceutical and
other data to help large healthcare customers identify and monitor patients who are
at-risk for certain diseases and to use clinical data for other related business
activities.
The first annual meeting of Quest Diagnostics shareholders will be held May 12 in New
York City. Additional company information can be found on the Internet 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 the outcome to be materially different. Certain of these
risks and uncertainties are listed in the Quest Diagnostics Incorporated 1996 Form 10-K
and subsequent public filings.
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Operations
For the Quarters and Years Ended December 31, 1997 and 1996
(in millions, except per share data)
|
Quarter
Ended December 31 |
Year Ended
December 31 |
|
|
Pro Forma |
Historical |
|
Pro Forma |
Historical |
|
1997 |
1996 |
1996 |
1997 |
1996 |
1996 |
Net revenues |
$ 365.4 |
$ 385.0 |
$ 385.0 |
$ 1,528.7 |
$ 1,616.3 |
$ 1,616.3 |
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
Costs of services |
219.8 |
242.1 |
242.1 |
927.9 |
1,010.9 |
1,010.9 |
Selling, general and administrative |
130.6 |
123.9 |
123.9 |
502.1 |
495.3 |
495.3 |
Interest expense, net |
9.5 |
11.3 |
15.0 |
41.0 |
47.1 |
74.9 |
Amortization of intangible assets |
5.9 |
6.2 |
9.8 |
24.0 |
27.0 |
41.6 |
Provision for restructuring and other special charges |
48.7 |
-- |
466.9 |
48.7 |
668.6 |
668.6 |
Other, net |
1.1 |
1.4 |
1.4 |
4.1 |
1.2 |
1.2 |
Total |
415.6 |
384.9 |
859.1 |
1,547.8 |
2,250.1 |
2,292.5 |
Income (loss) before taxes |
(50.2) |
0.1 |
(474.1) |
(19.1) |
(633.8) |
(676.2) |
Income tax expense (benefit) |
(12.8) |
1.4 |
(7.0) |
3.2 |
(39.3) |
(50.2) |
|
|
|
|
|
|
|
Net loss |
$ (37.4) |
$ (1.3) |
$ (467.1) |
$ (22.3) |
$ (594.5) |
$ (626.0) |
|
|
|
|
|
|
|
Net loss per common share |
$ (1.29) |
|
|
$ (0.77) |
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
29.5 |
28.8 |
|
29.2 |
28.8 |
|
|
|
|
|
|
|
|
Net income (loss) before special charges |
$ 2.5 |
$ (1.3) |
$ (7.2) |
$ 17.6 |
$ 15.6 |
$ (15.9) |
|
|
|
|
|
|
|
Net income (loss) per common share before special
charges |
$ 0.08 |
$ (0.05) |
|
$ 0.60 |
$ 0.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. Basic and diluted earnings per share are
based upon the weighted average number of shares outstanding during 1997. Potentially
dilutive common shares, which primarily result from stock options, are insignificant and
do not impact earnings per share.
Historical
earnings per share for 1996 are not meaningful as the Company's historical capital
structure for 1996 is not comparable with 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 statements of operations include 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.
(3) Net income (loss) before special charges excludes restructuring and other special
charges, and in 1997, a $6.8 million charge included in selling, general and
administrative expenses related to the Company's consolidation of its laboratory
network.