TETERBORO, N.J., Jan. 27 /PRNewswire-FirstCall/ -- Quest Diagnostics
Incorporated (NYSE: DGX), the nation's leading provider of diagnostic testing,
information and services, announced that for the fourth quarter ended
December 31, 2003, net income increased to $108 million from $82 million in
2002. Earnings per diluted share increased 24% to $1.02 from $0.82 in 2002.
Fourth quarter revenues increased 16.5% over the prior year level to
$1.2 billion and reflect the acquisition of Unilab Corporation, which was
completed on February 28, 2003. Clinical testing volume, measured by the
number of requisitions, increased 12.7%. Revenue per requisition increased
3.5%, driven primarily by improvements in test and payer mix. On a pro forma
basis, assuming that Unilab had been part of Quest Diagnostics since
January 1, 2002, revenue per requisition increased 5.3%, and clinical testing
volume increased 0.3%.
For the fourth quarter of 2003, earnings before interest, taxes,
depreciation and amortization (EBITDA) were $238 million, or 19.8% of
revenues, compared to $185 million, or 17.9% of revenues in 2002. Operating
income was $197 million, or 16.4% of revenues, compared to $148 million, or
14.3% of revenues, in 2002. Bad debt expense improved to 4.7% of revenues,
compared to 5.1% for the prior year period. Days sales outstanding improved
to 48 days, compared to 49 days a year ago. Cash flow from operations was
$262 million, compared to $246 million in 2002. During the quarter the
company repurchased $116 million of its common stock and made capital
expenditures of $53 million.
For the full year 2003, net income increased to $437 million from
$322 million in 2002. Earnings per diluted share increased 28% to $4.12,
compared to $3.23 in the prior year. Revenues increased 15.3% to $4.7 billion.
EBITDA was $951 million, or 20.1% of revenues, compared to $727 million, or
17.7% of revenues in 2002. Operating income was $796 million, or 16.8% of
revenues, compared to $592 million, or 14.4% of revenues in 2002. Cash flow
from operations was $663 million, compared to $596 million in 2002. Capital
expenditures were $175 million. Common stock repurchases totaled $258 million
at an average price of $64.54 per share under the stock repurchase program
initiated in May 2003.
"We had another quarter of excellent financial performance, capping a year
in which earnings per share grew 28% and revenues grew 15%," said Kenneth W.
Freeman, Chairman and Chief Executive Officer. "Our focus on Six Sigma
quality, standardizing operations and driving profitable growth is yielding
results. We are well positioned for continued strong performance."
The company raised its previous financial guidance for the full year 2004.
Earnings per diluted share are expected to increase to between $4.70 and
$4.80. The company raised guidance for revenue growth to 6% from 5%
previously. This includes a full 12 months of revenues from Unilab, acquired
on February 28, 2003, which is expected to increase reported revenues by
approximately 1.5%. Operating income as a percentage of revenues is expected
to approximate 18%. Cash flow from operations is expected to exceed
$650 million, compared to prior guidance of more than $600 million. Capital
expenditures are expected to be between $180 million and $190 million.
For the first quarter of 2004, revenues are expected to increase between
13% and 14%, earnings per diluted share are expected to be between $1.02 and
$1.07, and operating income as a percentage of revenues is expected to
approximate 16%. This includes a full quarter of revenues from Unilab, which
is expected to increase reported revenues by approximately 6.5%.
Quest Diagnostics will discuss results for the fourth quarter and full
year 2003 during a conference call for investors on January 27 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 a.m. on January 27
through 11 p.m. on February 27, 2004 to investors in the U.S. by dialing
800-925-1657. Investors outside the U.S. may dial 402-530-8063. 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
physicians, hospitals, managed care organizations and other healthcare
professionals to make decisions to improve health. The company offers
patients and physicians the broadest access to diagnostic laboratory services
through its national network of laboratories and patient service centers.
Quest Diagnostics is the leading provider of esoteric testing, including
gene-based medical testing, and empowers healthcare organizations and
clinicians with state-of-the-art connectivity solutions that improve practice
management. 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 actual results and
outcomes to be materially different. Certain of these risks and uncertainties
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, integration of acquired businesses, and other factors described in
the filings of Quest Diagnostics Incorporated with the Securities & Exchange
Commission, including its 2002 Form 10-K.
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Operations
For the Three and Twelve Months Ended December 31, 2003 and 2002
(in millions, except per share data)
Three Months Ended Twelve Months Ended
December 31, December 31
2003 2002 2003 2002
Net revenues $1,204.0 $1,033.8 $4,737.9 $4,108.1
Operating costs
and expenses:
Cost of services 706.2 619.3 2,768.6 2,432.4
Selling, general and
administrative 298.0 267.0 1,165.7 1,074.8
Amortization of
intangible assets 2.1 2.1 8.2 8.3
Other operating (income)
expense, net 0.7 (2.6) (1.0) 0.3
Total operating costs
and expenses 1,007.0 885.8 3,941.5 3,515.8
Operating income 197.0 148.0 796.4 592.3
Other income (expense):
Interest expense, net (14.5) (12.7) (59.7) (53.7)
Minority share of income (4.8) (3.4) (17.6) (14.9)
Equity earnings in
unconsolidated joint
ventures 4.4 4.9 17.4 16.6
Other income, net 0.8 0.5 1.3 2.1
Total non-operating
expenses, net (14.1) (10.7) (58.6) (49.9)
Income before taxes 182.9 137.3 737.8 542.4
Income tax expense 74.6 55.6 301.1 220.2
Net income $108.3 $81.7 $436.7 $322.2
Basic earnings per
common share:
Net income $1.04 $0.84 $4.22 $3.34
Weighted average common
shares outstanding -
basic 103.8 97.2 103.4 96.5
Diluted earnings per
common share:
Net income $1.02 $0.82 $4.12 $3.23
Weighted average common
shares outstanding -
diluted 106.3 99.8 105.9 99.8
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Balance Sheets
December 31, 2003 and 2002
(in millions, except per share data)
December 31, December 31,
2003 2002
Assets
Current assets:
Cash and cash equivalents $155.0 $96.8
Accounts receivable, net 609.2 522.1
Inventories 72.5 60.9
Deferred income taxes 109.0 102.7
Prepaid expenses and other current assets 50.1 41.9
Total current assets 995.8 824.4
Property, plant and equipment, net 607.3 570.1
Goodwill 2,518.9 1,788.9
Intangible assets, net 17.0 22.1
Deferred income taxes 49.6 29.8
Other assets 112.8 88.9
Total assets $4,301.4 $3,324.2
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $649.9 $610.0
Short-term borrowings and current portion
of long-term debt 73.9 26.0
Total current liabilities 723.8 636.0
Long-term debt 1,028.7 796.5
Other liabilities 154.2 122.8
Stockholders' equity:
Common stock, par value $0.01 per share; 300
shares authorized; 106.8 and 98.0 shares issued
at December 31, 2003 and 2002, respectively 1.1 1.0
Additional paid-in capital 2,267.0 1,817.5
Retained earnings (accumulated deficit) 380.5 (40.8)
Unearned compensation (2.3) (3.3)
Accumulated other comprehensive income (loss) 5.9 (5.5)
Treasury stock, at cost; 4.0 shares at
December 31, 2003 (257.5) --
Total stockholders' equity 2,394.7 1,768.9
Total liabilities and stockholders' equity $4,301.4 $3,324.2
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
For the Twelve Months Ended December 31, 2003 and 2002
(in millions)
Twelve Months Ended
December 31,
2003 2002
Cash flows from operating activities:
Net income $436.7 $322.2
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 153.9 131.4
Provision for doubtful accounts 228.2 217.4
Deferred income tax provision 33.9 90.4
Minority share of income 17.6 14.9
Stock compensation expense 5.3 9.0
Tax benefits associated with stock-based
compensation plans 30.5 44.5
Other, net (1.6) (0.8)
Changes in operating assets and liabilities:
Accounts receivable (254.9) (168.2)
Accounts payable and accrued expenses (6.8) (12.7)
Integration, settlement and other special charges (18.9) (29.7)
Income taxes payable 26.5 (3.9)
Other assets and liabilities, net 12.4 (18.1)
Net cash provided by operating activities 662.8 596.4
Cash flows from investing activities:
Business acquisitions, net of cash acquired (237.6) (333.5)
Capital expenditures (174.6) (155.2)
Increase in investments and other assets (13.8) (9.7)
Proceeds from disposition of assets 9.0 10.5
Collection of note receivable -- 10.7
Net cash used in investing activities (417.0) (477.2)
Cash flows from financing activities:
Proceeds from borrowings 450.0 475.2
Repayments of debt (391.7) (634.2)
Purchases of treasury stock (257.5) --
Exercise of stock options 29.9 27.0
Distributions to minority partners (14.3) (12.2)
Financing costs paid (4.2) (0.1)
Other 0.2 (0.4)
Net cash used in financing activities (187.6) (144.7)
Net change in cash and cash equivalents 58.2 (25.5)
Cash and cash equivalents, beginning of year 96.8 122.3
Cash and cash equivalents, end of year $155.0 $96.8
Cash paid during the period for:
Interest $59.4 $56.1
Income taxes $212.0 $83.7
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 Twelve Months Ended
December 31, December 31,
2003 2002 2003 2002
(in millions, except per share data)
Net income
Net income, as reported $108.3 $81.7 $436.7 $322.2
Add: Stock-based
compensation under APB 25 1.2 2.2 5.3 9.0
Deduct: Total stock-based
compensation expense
determined under fair value
method for all awards,
net of related tax effects (12.3) (12.4) (52.3) (47.4)
Pro forma net income $97.2 $71.5 $389.7 $283.8
Earnings per common share
Basic - as reported $1.04 $0.84 $4.22 $3.34
Basic - pro forma $0.94 $0.74 $3.77 $2.94
Diluted - as reported $1.02 $0.82 $4.12 $3.23
Diluted - pro forma $0.92 $0.73 $3.72 $2.87
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 Twelve Months Ended
December 31, December 31,
2003 2002 2003 2002
Dividend yield 0.4% 0.0% 0.0% 0.0%
Risk-free interest rate 3.2% 2.9% 2.8% 4.2%
Expected volatility 47.9% 47.5% 48.1% 45.2%
Expected holding period,
in years 5 5 5 5
Certain options granted during the fourth quarter of 2003 were issued
prior to the declaration of the quarterly cash dividend and as such carry a 0%
dividend yield, reducing the weighted average dividend yield for the period.
2) Other operating (income) expense, net represents miscellaneous income
and expense items related to operating activities such as gains and
losses associated with the disposal of operating assets. For the
three months ended December 31, 2002 other operating (income) expense,
net includes a $1.8 million pretax gain on the sale of certain
operating assets.
3) During the fourth quarter of 2003, the Company's Board of Directors
declared a quarterly cash dividend of $0.15 per common share payable
on January 23, 2004 to shareholders of record on January 8, 2004.
During the fourth quarter of 2003, the Company recorded the estimated
dividend payable of $15.4 million.
4) EBITDA represents income before net interest expense, income taxes,
depreciation and amortization. The following table reconciles net
income, representing the most comparable measure under accounting
principles generally accepted in the United States, to EBITDA. In
addition, the calculations to determine net income as a percentage of
net revenues, operating income as a percentage of net revenues and
EBITDA as a percentage of net revenues are presented.
A reconciliation of net income to net cash provided by operating
activities is presented on the face of the statement of cash flows.
EBITDA is presented and discussed because management believes it is a
useful adjunct to net income and other measurements under accounting
principles generally accepted in the United States since it is a
meaningful measure of a company's performance and ability to meet its
future debt service requirements, fund capital expenditures and meet
working capital requirements. EBITDA 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 (i)
net income (or any other measure of performance under accounting
principles generally accepted in the United States) as a measure of
performance or (ii) cash flows from operating, investing or financing
activities as an indicator of cash flows or as a measure of liquidity.
Three Months Ended Twelve Months Ended
December 31, December 31,
2003 2002 2003 2002
(in millions, except percentage data)
Net revenues $1,204.0 $1,033.8 $4,737.9 $4,108.1
Net income $108.3 $81.7 $436.7 $322.2
Add:
Interest expense, net 14.5 12.7 59.7 53.7
Income tax expense 74.6 55.6 301.1 220.2
Depreciation 38.3 32.5 145.7 123.0
Amortization of
intangible assets 2.1 2.1 8.2 8.3
EBITDA $237.8 $184.6 $951.4 $727.4
Net income as a
percentage of net
revenues A 9.0% 7.9% 9.2% 7.8%
EBITDA as a percentage
of net revenues B 19.8% 17.9% 20.1% 17.7%
Operating income C $197.0 $148.0 $796.4 $592.3
Operating income as a
percentage of net
revenues C, D 16.4% 14.3% 16.8% 14.4%
A. Calculated by dividing net income by net revenues.
B. Calculated by dividing EBITDA by net revenues.
C. Presented for comparative purposes only.
D. Calculated by dividing operating income by net revenues.
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:
Twelve Months Ended
December 31,
2003 2002
(in millions)
Net cash provided by operating activities $662.8 $596.4
Less: Capital expenditures 174.6 155.2
Free cash flow $488.2 $441.2
SOURCE Quest Diagnostics Incorporated
-0- 01/27/2004
/CONTACT: Laure Park (Investors): +1-201-393-5030 and Gary Samuels
(Media): +1-201-393-5700, both of Quest Diagnostics Incorporated/
/Web site: http://www.questdiagnostics.com /
(DGX)
CO: Quest Diagnostics Incorporated
ST: New Jersey