TETERBORO, N.J., Jan 27, 2005 /PRNewswire-FirstCall via COMTEX/ -- 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, 2004, net income increased to $126 million, compared to $108 million in
2003. Earnings per diluted share increased 21% to $1.23, before a required
change in accounting for the company's contingent convertible debentures.
After the change in accounting, reported earnings per diluted share were
$1.20.
Fourth quarter revenues grew 6.6% over the prior year to $1.3 billion.
Clinical testing volume, measured by the number of requisitions, increased
4.1%, and revenue per requisition increased 1.9%. The remainder of the
revenue growth was contributed by the company's non-clinical testing
businesses.
For the fourth quarter, operating income was $221 million, or 17.2% of
revenues, compared to $197 million, or 16.4% of revenues, in 2003. Bad debt
expense improved to 4.2% of revenues, from 4.7% a year ago. Days sales
outstanding improved to 47 days compared to 48 days a year ago. Cash from
operations was $264 million. During the quarter the company repurchased
3.8 million common shares for $353 million, including $254 million from
GlaxoSmithKline. Capital expenditures were $42 million.
"Our strong financial performance reflects the benefits of ongoing efforts
to accelerate organic growth," said Surya N. Mohapatra, Ph.D., Chairman and
Chief Executive Officer. "We continue to generate substantial cash flow, which
we are investing to further differentiate our services to physicians and
patients, and return value to shareholders. We expect 2005 to be another solid
year, with earnings per share increasing 14% to 16%."
For the full year 2004, net income increased to $507 million, and earnings
per diluted share increased 18% to $4.87, excluding previously disclosed
second quarter charges and before the change in accounting for the company's
contingent convertible debentures. Diluted earnings per share were $4.77,
excluding the second quarter charges and after the change in accounting.
Reported net income was $499 million, or $4.69 per diluted share, including
the second quarter charges and after the change in accounting.
Revenues for the full year increased 8.2% to $5.1 billion. Unilab,
acquired February 28, 2003, accounted for approximately 1.5% of the growth.
Operating income, excluding the second quarter charge related to the CEO
succession process, was $902 million, or 17.6% of revenues, compared to
$796 million, or 16.8% of revenues in 2003. Including the second quarter
charge, operating income was $891 million, or 17.4% of revenues. Cash from
operations totaled $799 million, compared to $663 million in 2003. During 2004
the company repurchased 8.3 million common shares for $735 million and made
capital expenditures of $176 million.
Outlook for 2005
For the full year 2005, revenues are expected to grow between 5% and 6%.
Operating income is expected to be between 18% and 19% of revenues; cash from
operations is expected to approach $800 million; and capital expenditures are
expected to be between $210 million and $230 million. The company expects full
year earnings per diluted share of between $5.45 and $5.55, an increase of 14%
to 16% compared to 2004 diluted earnings per share of $4.77 before special
charges. Estimates for 2005 earnings per diluted share, operating income and
cash from operations are before the impact of the accounting change for
equity-based compensation, effective July, 2005.
Quest Diagnostics will hold its fourth quarter conference call 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:
http://www.streetevents.com, and all others may access the Quest Diagnostics
website at: http://www.questdiagnostics.com. In addition, a replay of the call
will be available from 10:30 A.M. on January 27 through 11 P.M. on February 25
to investors in the U.S. by dialing 866-481-6893. Investors outside the U.S.
may dial 203-369-1572. 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:
http://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.
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Operations
For the Three and Twelve Months Ended December 31, 2004 and 2003
(in millions, except per share and percentage data)
Three Months Ended Twelve Months Ended
December 31, December 31,
2004 2003 2004 2003
Net revenues $1,283.3 $1,204.0 $5,126.6 $4,737.9
Operating costs and
expenses:
Cost of services 757.4 706.2 2,990.7 2,768.6
Selling, general and
administrative 304.6 298.0 1,227.8 1,165.7
Amortization of
intangible assets 0.9 2.1 6.7 8.2
Other operating (income)
expense, net (0.2) 0.7 10.2 (1.0)
Total operating costs
and expenses 1,062.7 1,007.0 4,235.4 3,941.5
Operating income 220.6 197.0 891.2 796.4
Other income (expense):
Interest expense, net (13.3) (14.5) (57.9) (59.7)
Minority share of income (5.0) (4.8) (19.4) (17.6)
Equity earnings in
unconsolidated
joint ventures 5.5 4.4 21.0 17.4
Other income, net 0.2 0.8 0.2 1.3
Total non-operating
expenses, net (12.6) (14.1) (56.1) (58.6)
Income before taxes 208.0 182.9 835.1 737.8
Income tax expense 81.9 74.6 335.9 301.1
Net income $126.1 $108.3 $499.2 $436.7
Net income before
special charges $126.1 $108.3 $507.1 $436.7
Basic earnings per
common share:
Net income $1.26 $1.04 $4.90 $4.22
Net income before
special charges $1.26 $1.04 $4.98 $4.22
Weighted average common
shares outstanding
- basic 100.4 103.8 102.0 103.4
Diluted earnings
per common share:
Net income $1.20 $1.00 $4.69 $4.04
Net income before
special charges $1.20 $1.00 $4.77 $4.04
Weighted average
common shares
outstanding - diluted 105.3 109.2 107.1 108.8
Operating income
before special charge
as a percentage of
net revenues 17.2% 16.4% 17.6% 16.8%
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Balance Sheets
December 31, 2004 and 2003
(in millions, except per share data)
December 31, December 31,
2004 2003
Assets
Current assets:
Cash and cash equivalents $73.3 $155.0
Accounts receivable, net 649.3 609.2
Inventories 75.3 72.5
Deferred income taxes 83.0 109.0
Prepaid expenses and other current assets 50.2 50.1
Total current assets 931.1 995.8
Property, plant and equipment, net 619.5 607.3
Goodwill, net 2,506.9 2,518.9
Intangible assets, net 11.5 17.0
Deferred income taxes 29.4 49.6
Other assets 105.4 112.8
Total assets $4,203.8 $4,301.4
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $669.0 $649.9
Short-term borrowings and
current portion of long-term debt 374.8 73.9
Total current liabilities 1,043.8 723.8
Long-term debt 724.0 1,028.7
Other liabilities 147.3 154.2
Stockholders' equity:
Common stock, par value $0.01 per share;
300 shares authorized;
106.8 shares issued at both
December 31, 2004 and 2003 1.1 1.1
Additional paid-in capital 2,195.3 2,267.0
Retained earnings 818.7 380.5
Unearned compensation - (2.3)
Accumulated other comprehensive income 3.9 5.9
Treasury stock, at cost; 8.7 and 4.0 shares
at December 31, 2004 and 2003,
respectively (730.3) (257.5)
Total stockholders' equity 2,288.7 2,394.7
Total liabilities and
stockholders' equity $4,203.8 $4,301.4
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
For the Twelve Months Ended December 31, 2004 and 2003
(in millions)
Twelve Months Ended
December 31,
2004 2003
Cash flows from operating activities:
Net income $499.2 $436.7
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 168.7 153.9
Provision for doubtful accounts 226.3 228.2
Deferred income tax provision 52.5 33.9
Minority share of income 19.4 17.6
Stock compensation expense 1.4 5.3
Tax benefits associated with
stock-based compensation plans 71.3 30.5
Other, net 4.7 (1.6)
Changes in operating assets and liabilities:
Accounts receivable (266.4) (254.9)
Accounts payable and accrued expenses 22.3 (6.8)
Integration, settlement and
other special charges (18.3) (18.9)
Income taxes payable 1.1 26.5
Other assets and liabilities, net 16.5 12.4
Net cash provided by operating activities 798.7 662.8
Cash flows from investing activities:
Business acquisitions, net of cash acquired - (237.6)
Capital expenditures (176.1) (174.6)
Proceeds from disposition of assets 7.6 9.0
Increase in investments and other assets (5.2) (13.8)
Net cash used in investing activities (173.7) (417.0)
Cash flows from financing activities:
Proceeds from borrowings 304.9 450.0
Repayments of debt (306.0) (391.7)
Purchases of treasury stock (734.5) (257.5)
Exercise of stock options 109.1 29.9
Dividends paid (61.4) -
Distributions to minority partners (16.7) (14.3)
Financing costs paid (2.1) (4.2)
Other - 0.2
Net cash used in financing activities (706.7) (187.6)
Net change in cash and cash equivalents (81.7) 58.2
Cash and cash equivalents,
beginning of period 155.0 96.8
Cash and cash equivalents, end of period $73.3 $155.0
Cash paid during the period for:
Interest $51.8 $59.4
Income taxes $209.2 $212.0
Notes to Financial Tables
1) Basic earnings per common share is calculated by dividing net income
by the weighted average common shares outstanding. Due to a required
change in accounting effective December 31, 2004, the Company
included the dilutive effect of its contingent convertible debentures
in its dilutive earnings per common share calculations using the if-
converted method, regardless of whether or not the holders of these
securities were permitted to exercise their conversion rights, and
retroactively restated previously reported diluted earnings per
common share. References to the diluted weighted average common
shares outstanding, including diluted earnings per common share
calculations and related disclosures, have been restated to give
effect to the required change in accounting for all periods
presented.
The computation of basic and diluted earnings per common share (using
the if-converted method) is as follows:
Three Months Ended Twelve Months Ended
December 31, December 31,
2004 2003 2004 2003
(in millions, except per share data)
Net income available to
common stockholders
- basic (A) $126.1 $108.3 $499.2 $436.7
Add: Interest expense
associated with
contingent convertible
debentures, net of
related tax effects 0.8 0.8 3.3 3.3
Income available to
common stockholders
- diluted $126.9 $109.1 $502.5 $440.0
Weighted average common
shares outstanding
- basic, as reported 100.4 103.8 102.0 103.4
Dilutive effect of stock
options and restricted
common shares granted
under the Company's
Employee Equity
Participation Program 2.0 2.5 2.2 2.5
Weighted average common
shares outstanding
- diluted (before the
required change in
accounting for the
Company's contingent
convertible
debentures) (B) 102.4 106.3 104.2 105.9
Dilutive effect of the
contingent convertible
debentures 2.9 2.9 2.9 2.9
Weighted average common
shares outstanding
- diluted, as
reported 105.3 109.2 107.1 108.8
Basic earnings per
common share,
as reported $1.26 $1.04 $4.90 $4.22
Diluted earnings
per common share,
as reported $1.20 $1.00 $4.69 $4.04
Diluted earnings per
common share, before
the required change in
accounting for the
Company's contingent
convertible
debentures * $1.23 $1.02 $4.79 $4.12
* Calculated by dividing income available to common stockholders - basic
(A) by the weighted average common shares outstanding - diluted (before
the required change in accounting for the Company's contingent
convertible debentures) (B)
2) 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,
2004 2003 2004 2003
(in millions, except per share data)
Net income
Net income,
as reported $126.1 $108.3 $499.2 $436.7
Add: Stock-based
compensation
under APB 25 0.2 1.2 1.4 5.3
Deduct: Total stock-based
compensation expense
determined under fair
value method for all
awards, net of related
tax effects (11.6) (12.3) (45.1) (52.3)
Pro forma net income $114.7 $97.2 $455.5 $389.7
Earnings per common share
Basic - as reported $1.26 $1.04 $4.90 $4.22
Basic - pro forma $1.14 $0.94 $4.47 $3.77
Diluted - as reported $1.20 $1.00 $4.69 $4.04
Diluted - pro forma $1.09 $0.90 $4.27 $3.65
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,
2004 2003 2004 2003
Dividend yield 0.6% 0.4% 0.7% 0.0%
Risk-free interest rate 3.5% 3.2% 3.1% 2.8%
Expected volatility 46.0% 47.9% 47.2% 48.1%
Expected holding period,
in years 5 5 5 5
3)Other operating (income) 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 twelve
months ended December 31, 2004, other operating expense, net includes a
$10.3 million second quarter charge associated with the acceleration of
certain pension obligations in connection with the CEO succession
process.
4) Interest expense, net for the twelve months ended December 31, 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.
5) In 2003, the Board of Directors authorized a share repurchase program,
which permitted 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.Under a separate authorization from the Board of Directors, in
December 2004 the Company repurchased 2.7 million shares of its common
stock for approximately $254 million from GlaxoSmithKline plc.For the
three months ended December 31, 2004, the Company repurchased
approximately 3.8 million shares of its common stock at an average
price of $93.47 per share for $353 million.For the twelve months ended
December 31, 2004, the Company repurchased approximately 8.3 million
shares of its common stock at an average price of $88.21 per share for
$735 million.Since the inception of the share repurchase program, the
Company has repurchased approximately 12.3 million shares of its common
stock at an average price of $80.54 for $992 million.For the three and
twelve months ended December 31, 2004, the Company has reissued
approximately 0.9 million shares and 3.6 million shares, respectively,
primarily in connection with employee benefit plans.At December 31,
2004, $162 million of the share repurchase authorizations remained
available.In January 2005, the Board of Directors expanded the share
repurchase authorization by an additional $350 million, bringing the
total amount authorized and available for repurchases to $512 million.
6) 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,
2004 2003
(in millions)
Net cash provided by operating activities $798.7 $662.8
Less: Capital expenditures 176.1 174.6
Free cash flow $622.6 $488.2
7) Net income before special charges excludes the second quarter 2004
charges associated with the acceleration of certain pension obligations
in connection with the CEO succession process and the 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 they are useful adjuncts to other measurements under
accounting principles generally accepted in the United States,
including reported operating income and net income since they are
meaningful measures of the Company's on-going operating performance and
are 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 alternatives 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 Twelve Months Ended December 31, 2004
(in millions, except per share amounts)
Special Charges Related to:
Acceleration
Before of Certain
Special Pension Debt As
Charges Obligations Refinancing Reported
Net revenues $5,126.6 $- $- $5,126.6
Operating income $901.5 $(10.3) $- $891.2
Interest expense, net (55.0) - (2.9) (57.9)
Income before taxes $848.3 $(10.3) $(2.9) $835.1
Income tax expense
(benefit) 341.2 (4.1) (1.2) 335.9
Net income $507.1 $(6.2) $(1.7) $499.2
Basic earnings
per common share $4.98 $(0.06) $(0.02) $4.90
Diluted earnings
per common share $4.77 $(0.06) $(0.02) $4.69
Diluted earnings per
common share, before
the required change in
accounting for the
Company's contingent
convertible
debentures (A) $4.87
Operating income as
a percentage of net
revenues (B) 17.6% 17.4%
(A)Calculated by dividing net income before special charges by the
weighted average common shares outstanding - diluted (before the
required change in accounting for the Company's contingent convertible
debentures) in footnote 1
(B)Calculated by dividing operating income by net revenues
8) Before the impact of the accounting change for equity-based
compensation, the Company expects 2005 diluted earnings per common
share to be between $5.45 and $5.55, operating income to be between
18% and 19% of revenues and cash from operations to approach $800
million. The Company has not finalized what, if any, changes may be
made to its equity compensation plans in light of the accounting
change, and therefore is not yet in a position to quantify its impact.
The Company expects to announce the impact in connection with
reporting its second quarter 2005 financial results. Assuming there
are no changes to the Company's equity compensation plans, and an
adoption date of July 1, 2005 for the new accounting standard, the
Company estimates that the adoption of the new accounting standard
will reduce diluted earnings per common share by up to $0.23 per share
and operating income, as a percentage of revenues, by up to
approximately 1%. The impact on cash from operations of adopting the
new accounting standard cannot be estimated at this time.
9) In December 2004, the Company called for redemption all of its
outstanding contingent convertible debentures due November 2021.
Under the terms of the debentures, the holders of the debentures had
an option to submit their debentures for redemption at par plus
accrued and unpaid interest or convert their debentures into shares of
the Company's common stock at a conversion price of $87.50 per share.
The outstanding principal of the debentures at December 31, 2004 is
classified as a current liability within short-term borrowings and
current portion of long-term debt on the Company's consolidated
balance sheet at December 31, 2004. As of January 18, 2005, the
redemption was completed and $0.4 million of principal was redeemed
for cash and $249.6 million of principal was converted into
approximately 2.9 million shares of the Company's common stock.
SOURCE Quest Diagnostics Incorporated
Laure Park, Investors, +1-201-393-5030, or Gary Samuels, Media, +1-201-
393-5700, both
of Quest Diagnostics