- Total revenues of $1.8 billion, up 1.7%
- Cash flow from operations improved to $363 million
- 2009 EPS expected to be between $3.50 to $3.70 per diluted share
Quest Diagnostics Incorporated (NYSE: DGX), the world's leading provider of diagnostic testing, information and services, announced that for the fourth quarter ended December 31, 2008, income from continuing operations increased to $170 million, or $0.87 per diluted share, compared to $154 million, or $0.79 per diluted share in 2007. The 2008 results included a pre-tax charge of $16 million, or $0.05 per share, principally associated with workforce reductions, and a benefit of $0.05 per share, primarily associated with the favorable resolution of various tax contingencies.
Fourth quarter revenues increased 1.7% to $1.8 billion. Clinical testing revenues increased by 2.3% compared to the prior year. Revenue per requisition increased 2.8% and clinical testing volume, measured by the number of requisitions, decreased 0.4%. Excluding the impact of drugs-of-abuse testing, which is sensitive to hiring trends, testing volume increased by approximately 1%.
"We delivered another quarter of solid earnings growth, completing a year of strong performance. For the full year, earnings per share increased 14%, revenues grew 8% and cash flow exceeded $1 billion. I am very pleased with our achievements," said Surya N. Mohapatra, Ph.D., Chairman and Chief Executive Officer. "Our business is strong, and we expect continued growth in 2009. We will grow revenues largely by driving increased sales of esoteric tests, particularly cancer diagnostics, to physicians and hospitals. We will grow earnings through top-line growth combined with further improvements in operating efficiencies."
For the fourth quarter, operating income increased to $317 million, or 17.6% of revenues, from $312 million, or 17.6% of revenues in 2007. The $16 million charge reduced fourth quarter operating income as a percentage of revenues by approximately 1%. Bad debt expense, as a percentage of revenues, improved to 4.3%, compared to 4.4% in 2007. Days sales outstanding improved to 44 days, compared to 45 days at the end of the third quarter of 2008 and 48 days a year ago. Cash from operations increased to $363 million from $355 million in the fourth quarter of 2007. During the quarter, the company repurchased $254 million of its common shares; reduced debt by $45 million; and made capital expenditures of $73 million. Cash and cash equivalents was $254 million at the end of the fourth quarter.
Full Year Performance
Diluted earnings per share increased 14% to $3.23 from $2.84 in 2007. Income from continuing operations increased to $632 million, from $554 million in 2007. Revenues increased 8.1% to $7.2 billion. For the full year, the May 31, 2007 acquisition of AmeriPath increased consolidated revenues by 5.0%.
Operating income for 2008 increased to $1.2 billion, or 16.9% of revenues, compared to $1.1 billion, or 16.3% of revenues in 2007. Cash from operations for 2008 increased to $1.1 billion from $927 million in 2007. During 2008, the company repurchased $254 million of its common shares; reduced debt by $458 million, and made capital expenditures of $213 million.
Outlook for 2009
For 2009, the company expects results from continuing operations as follows: earnings per diluted share of between $3.50 and $3.70, excluding special charges; revenue growth of approximately 3%, and operating income approaching 18% of revenues. Cash from operations is expected to approximate $1 billion, before the expected payment of the $316 million reserve established for the previously disclosed NID matter, or approximately $700 million after such payment. Capital expenditures are expected to approximate $200 million.
Quest Diagnostics will hold its fourth quarter conference call on January 26, 2009 at 8:30 A.M. Eastern Time. A simulcast of the call is available by dialing 415-228-4961, passcode 3214469 and via the Internet at: www.questdiagnostics.com. Registered analysts may access the call at: www.streetevents.com. In addition, a replay of the call will be available from 10:30 A.M. on January 26 through midnight on February 23, 2009 to investors in the U.S. by dialing 866-431-7950. Investors outside the U.S. may dial 203-369-0981. No password is required for either number.
About Quest Diagnostics
Quest Diagnostics is the world's leading provider of diagnostic testing, information and services that patients and doctors need to make better healthcare decisions. The company offers the broadest access to diagnostic testing services through its network of laboratories and patient service centers, and provides interpretive consultation through its extensive medical and scientific staff. Quest Diagnostics is a pioneer in developing innovative diagnostic tests and advanced healthcare information technology solutions that help improve patient care.
Quest Diagnostics maintains one of the largest private clinical laboratory databases in the United States. The data is used to generate Quest Diagnostics Health Trends(TM), which identifies and tracks disease and wellness benchmarks, and the Drug Testing Index(R), which is published as a public service for government, media and industry and has been considered a benchmark for national drugs-of-abuse trends since its inception in 1988. Additional company information is available at www.questdiagnostics.com.
The statements in this press release which are not historical facts may be forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date that they are made and which reflect management's current estimates, projections, expectations or beliefs and which involve risks and uncertainties that could cause actual results and outcomes to be materially different. Risks and uncertainties that may affect the future results of the company include, but are not limited to, adverse results from pending or future government investigations, lawsuits or private actions, the competitive environment, changes in government regulations, changing relationships with customers, payers, suppliers and strategic partners and other factors discussed in "Business" in Part I, Item 1, "Risk Factors" and "Cautionary Factors that May Affect Future Results" in Part I, Item 1A, "Legal Proceedings" in Part I, Item 3, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 and "Quantitative and Qualitative Disclosures About Market Risk" in Part II, Item 7A in the company's 2007 Annual Report on Form 10-K and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosures about Market Risk" in the company's 2008 Quarterly Reports on Form 10-Q and other items throughout the Form 10-K and the company's 2008 Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Estimated cash from operations before the expected payment for the NID matter is presented because management believes that it is a useful adjunct to estimated cash from operations under accounting principles generally accepted in the United States since it is a meaningful measure of the company's ongoing operating performance. Estimated cash from operations before the expected payment for the NID matter 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 cash from operations. See footnote 7 to the attached tables.
This earnings release, including the attached financial tables, is available online in the Press Room section at www.questdiagnostics.com.
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Operations
For the Three and Twelve Months Ended December 31, 2008 and 2007
(in millions, except per share and percentage data)
Three Months Ended Twelve Months Ended
December 31, December 31,
2008 2007 2008 2007
(unaudited) (unaudited) (unaudited)
Net revenues $1,800.3 $1,770.5 $7,249.4 $6,704.9
Operating costs and expenses:
Cost of services 1,040.9 1,042.7 4,256.1 3,969.8
Selling, general and
administrative 435.6 408.7 1,736.9 1,612.9
Amortization of intangible
assets 9.3 9.2 37.3 27.9
Other operating (income)
expense, net (2.6) (2.1) (3.3) 3.0
Total operating costs and
expenses 1,483.2 1,458.5 6,027.0 5,613.6
Operating income 317.1 312.0 1,222.4 1,091.3
Other income (expense):
Interest expense, net (43.6) (53.9) (179.7) (178.3)
Minority share of income (8.2) (7.4) (31.7) (26.5)
Equity earnings in unconsolidated
joint ventures 6.6 6.9 29.7 27.0
Other expense, net (8.8) (3.9) (21.7) (1.1)
Total non-operating expenses,
net (54.0) (58.3) (203.4) (178.9)
Income from continuing operations
before taxes 263.1 253.7 1,019.0 912.4
Income tax expense 93.5 99.7 386.8 358.6
Income from continuing operations 169.6 154.0 632.2 553.8
Income (loss) from discontinued
operations, net of taxes 0.2 (159.3) (50.7) (213.9)
Net income (loss) $169.8 $(5.3) $581.5 $339.9
Earnings per common share - basic:
Income from continuing
operations $0.88 $0.80 $3.25 $2.87
Loss from discontinued
operations - (0.83) (0.26) (1.11)
Net income (loss) $0.88 $(0.03) $2.99 $1.76
Earnings per common share - diluted:
Income from continuing
operations $0.87 $0.79 $3.23 $2.84
Loss from discontinued
operations - (0.82) (0.26) (1.10)
Net income (loss) $0.87 $(0.03) $2.97 $1.74
Weighted average common shares
outstanding:
Basic 193.5 193.6 194.3 193.2
Diluted 194.7 195.7 196.0 195.3
Operating income as a percentage
of net revenues 17.6% 17.6% 16.9% 16.3%
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Balance Sheets
December 31, 2008 and December 31, 2007
(in millions, except per share data)
December 31, December 31,
2008 2007
(unaudited)
Assets
------
Current assets:
Cash and cash equivalents $253.9 $167.6
Accounts receivable, net 832.9 882.0
Inventories 102.1 95.2
Deferred income taxes 218.4 149.8
Prepaid expenses and other
current assets 89.5 79.8
---- ----
Total current assets 1,496.8 1,374.4
Property, plant and equipment,
net 879.7 912.0
Goodwill, net 5,054.9 5,220.1
Intangible assets, net 827.4 886.7
Other assets 145.0 172.5
----- -----
Total assets $8,403.8 $8,565.7
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued
expenses $1,219.6 $1,124.7
Short-term borrowings and
current portion of long-term
debt 5.1 163.6
--- -----
Total current liabilities 1,224.7 1,288.3
Long-term debt 3,078.1 3,377.2
Other liabilities 496.1 576.0
Stockholders' equity:
Common stock, par value $0.01 per share;
600 shares authorized at both December
31, 2008 and December 31, 2007; 214.1
shares and 213.7 shares issued at December
31, 2008 and December 31, 2007,
respectively 2.1 2.1
Additional paid-in capital 2,262.1 2,210.8
Retained earnings 2,561.7 2,057.7
Accumulated other comprehensive
(loss) income (68.1) 25.3
Treasury stock, at cost; 23.7 shares and
19.7 shares at December 31, 2008 and
December 31, 2007, respectively (1,152.9) (971.7)
--------- -------
Total stockholders' equity 3,604.9 3,324.2
------- -------
Total liabilities and
stockholders' equity $8,403.8 $8,565.7
========= =========
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
For the Twelve Months Ended December 31, 2008 and 2007
(in millions)
Twelve Months Ended
December 31,
2008 2007
(unaudited)
Cash flows from operating activities:
Net income $581.5 $339.9
Adjustments to reconcile net income to
net cash provided by
operating activities:
Depreciation and amortization 264.6 237.9
Provision for doubtful accounts 326.2 300.2
Stock-based compensation expense 70.6 56.9
Provision for special charge 72.7 238.8
Deferred income tax provision
(benefit) 0.5 (1.6)
Minority share of income 31.7 26.5
Excess tax benefits from stock-based
compensation arrangements (2.4) (14.0)
Other, net 13.8 8.3
Changes in operating assets and
liabilities:
Accounts receivable (282.6) (265.3)
Accounts payable and accrued expenses (4.3) (5.4)
Integration, settlement and other
special charges (8.2) (14.0)
Income taxes payable 24.7 3.2
Other assets and liabilities, net (25.7) 15.6
------ ----
Net cash provided by operating
activities 1,063.1 927.0
------- -----
Cash flows from investing activities:
Business acquisitions, net of cash
acquired 8.1 (1,535.8)
Capital expenditures (212.7) (219.1)
Decrease (increase) in investments and
other assets 5.7 (4.3)
--- -----
Net cash used in investing activities (198.9) (1,759.2)
------- ---------
Cash flows from financing activities:
Repayments of debt (481.9) (2,705.4)
Proceeds from borrowings 22.9 3,754.5
Increase (decrease) in book overdrafts 14.2 (24.9)
Purchases of treasury stock (254.0) (145.7)
Exercise of stock options 30.5 80.9
Excess tax benefits from stock-based
compensation arrangements 2.4 14.0
Dividends paid (78.0) (77.3)
Distributions to minority partners (32.9) (24.7)
Financing costs paid (1.1) (21.2)
----- ------
Net cash (used in) provided by
financing activities (777.9) 850.2
------- -----
Net change in cash and cash
equivalents 86.3 18.0
Cash and cash equivalents, beginning
of period 167.6 149.6
----- -----
Cash and cash equivalents, end of
period $253.9 $167.6
======== ========
Cash paid during the period for:
Interest $189.3 $157.5
Income taxes $359.3 $315.7
Notes to Financial Tables
1) The computation of basic and diluted earnings per common share is as
follows:
Three Months Ended Twelve Months Ended
December 31, December 31,
2008 2007 2008 2007
(in millions, except per share data)
Income from continuing
operations $169.6 $154.0 $632.2 $553.8
Income (loss) from
discontinued operations 0.2 (159.3) (50.7) (213.9)
Net income (loss)
available to common
stockholders - basic and
diluted $169.8 $(5.3) $581.5 $339.9
Weighted average common
shares outstanding - basic 193.5 193.6 194.3 193.2
Effect of dilutive securities:
Stock options, restricted
common shares, restricted stock
units and performance share units 1.2 2.1 1.7 2.1
Weighted average common shares
outstanding - diluted 194.7 195.7 196.0 195.3
Earnings per common share - basic:
Income from continuing
operations $0.88 $0.80 $3.25 $2.87
Loss from discontinued
operations - (0.83) (0.26) (1.11)
Net income (loss) $0.88 $(0.03) $2.99 $1.76
Earnings per common share - diluted:
Income from continuing
operations $0.87 $0.79 $3.23 $2.84
Loss from discontinued
operations - (0.82) (0.26) (1.10)
Net income (loss) $0.87 $(0.03) $2.97 $1.74
2) Results for the year ended December 31, 2008 include pre-tax
charges of $16.2 million recorded during the fourth quarter of 2008
primarily associated with workforce reductions. Of these costs,
$7.7 million and $8.5 million, respectively, were included in cost
of services and selling, general and administrative expenses. In
addition, for 2008 management estimates the impact of hurricanes in
the third quarter of 2008 reduced consolidated revenue growth and
operating income by approximately $10 million and $8 million,
respectively.
Results for the year ended December 31, 2007 include pre-tax charges
of $10.7 million recorded in the first quarter of 2007 associated
with workforce reductions in response to reduced volume levels. Of
these costs, $3.9 million and $6.8 million, respectively, were
included in cost of services and selling, general and administrative
expenses.
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
and provisions for restructurings and other special charges.
For the year ended December 31, 2007, other operating (income)
expense, net includes a $4.0 million charge recorded in the first
quarter of 2007 related to in-process research and development
expense associated with HemoCue, which the Company acquired on
January 31, 2007.
4) Other expense, net represents miscellaneous income and expense
items related to non-operating activities such as gains and losses
associated with investments and other non-operating assets. For the
year ended December 31, 2008, other expense, net includes a third
quarter charge of $8.9 million associated with the write-down of an
equity investment.
For the three and twelve months ended December 31, 2007, other
expense, net includes a fourth quarter charge of $4.0 million
associated with the write-down of an investment.
5) For the three and twelve months ended December 31, 2008, the Company
repurchased approximately 5.5 million shares of its common stock at
an average price of $46.09 per share for $254 million. For the
three and twelve months ended December 31, 2008, the Company
reissued 0.3 million and 1.5 million shares, respectively, for
employee benefit plans.
6) The following table summarizes the approximate impact of various
items on year-over-year comparisons for certain revenue metrics
reported for the three and twelve months ended December 31, 2008,
and is included for informational purposes only:
Continuing Operations
Three Months Ended Twelve Months Ended
December 31, 2008 December 31, 2008
Consolidated Revenue Consolidated Revenue
Revenue Volume per Revenue Volume per
Growth Growth Requisition Growth Growth Requisition
Reported: 1.7% (0.4)% 2.8% 8.1% 2.7% 5.5%
Impact on
comparisons
to prior
year of:
AmeriPath
acquisition - - - 5.0% 2.4% 2.9%
Drugs of
abuse
testing (0.5)% (1.2)% 0.7% (0.3)% (0.9)% 0.6%
Laboratory
Management
contracts (0.2)% (0.9)% 0.7% (0.1)% (0.3)% 0.3%
7) Estimated cash from operations represents management's estimate
of cash from operations for the full year 2009, before the
expected payment of $316 million related to the previously
disclosed NID matter. Estimated cash from operations before the
expected payment for the NID matter is presented because
management believes it is a useful adjunct to estimated cash from
operations under accounting principles generally accepted in the
United States since it is a meaningful measure of the Company's
ongoing operating performance. Estimated cash from operations before
the expected payment for the NID matter 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 cash from operations. The following table reconciles
estimated cash from operations to estimated cash from operations before
the expected payment for the NID matter:
Twelve Months
Ended
December 31,
2009
(in millions)
Estimated cash from operations ~ $700
Add:
Expected NID settlement payment 316
---
Estimated cash from operations before the
expected payment for the NID matter ~ $1,000
========
SOURCE Quest Diagnostics
http://www.questdiagnostics.com