Form 8-K QUEST DIAGNOSTICS INC For: Jan 29
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): January�26, 2015
Quest Diagnostics Incorporated
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or other jurisdiction of incorporation)
001-12215 | 16-1387862 | |
(Commission File Number) | (I.R.S. Employer Identification No.) | |
Three Giralda Farms Madison, NJ | 07940 | |
(Address of principal executive offices) | (Zip Code) | |
(973) 520-2700 | ||
(Registrant's telephone number, including area code) | ||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition
On January�29, 2015, Quest Diagnostics Incorporated (the Company ) issued a press release (the "Press Release") announcing, among other things, its results for the quarter and full year ended December�31, 2014. A copy of the Press Release is attached hereto as Exhibit 99.1 and is incorporated by reference herein. ����
Item 2.05.����Costs Associated with Exit or Disposal Activities
On November 5, 2014, the Company announced that it was developing a new multi-year program designed to drive operational excellence and reduce the Companys cost structure by an additional $600 million in run rate savings as it exits 2017. The Company identified key opportunities to change how it operates, in order to meet this goal. These opportunities include: standardizing the Company's processes, information technology systems, equipment and data; enhancing electronic enabling services; and enhancing reimbursement for work the Company performs.
On January 26, 2015, the Company adopted a course of action related to this multi-year program. The Company has developed a high-level estimate of the pre-tax charges expected to be incurred in connection with the course of action for the program: $300 million. Except as set forth in the next paragraph, the Company has not yet developed an estimate of the total amount, or range of amounts:
" | by major cost type, of the pre-tax charges expected to be incurred in connection with the course of action; or |
" | of the pre-tax charges that will result in future cash expenditures. |
The Company shall file an amended report on Form 8-K under this Item 2.05 within four business days after it makes a determination of such an estimate or range of estimates.
�
In addition to the high-level estimate set forth in the preceding paragraph, the Company has developed high-level estimates of the pre-tax charges expected to be incurred in connection with the course of action for 2015 totaling $95 million to $115 million consisting of: $25 million to $30 million of employee separation costs; $10 million to $15 million of facility-related costs and asset impairment charges; and $60 million to $70 million of systems conversion and integration costs. Principally all of the total estimated pre-tax charges expected to be incurred in 2015 are anticipated to result in cash expenditures. The actual charges incurred in connection with the course of action in 2015 could be materially different from these estimates.
As detailed plans to implement the course of action are approved and executed, it will result in charges to earnings.
Item 7.01. Regulation FD Disclosure
�
The Press Release included information regarding the Companys outlook for 2015, including its outlook for 2015 adjusted diluted EPS excluding amortization expense from continuing operations.
To enable investors to better understand the Companys outlook, the Company is providing information regarding the Companys amortization expense from continuing operations and adjusted diluted EPS excluding amortization expense from continuing operations for each of the fiscal quarters and fiscal years during the period January 1, 2012 through December 31, 2014. That information is set forth on Exhibit 99.2 to this Current Report on Form 8-K and is incorporated by reference herein.
Item 9.01. Financial Statements and Exhibits
d. | Exhibit | |
99.1 | Press release of Quest Diagnostics Incorporated dated January 29, 2015, announcing, among other things, its results for the quarter and full year ended December 31, 2014. | |
99.2 | Amortization expense from continuing operations and adjusted diluted EPS excluding amortization expense from continuing operations for each of the fiscal quarters and fiscal years during the period January 1, 2012 through December 31, 2014. | |
Signature
����
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
January�29, 2015
QUEST DIAGNOSTICS INCORPORATED | |
By: | /s/ William J. O'Shaughnessy, Jr. |
William J. O'Shaughnessy, Jr. | |
Deputy General Counsel and Secretary | |
Exhibit 99.1
QUEST DIAGNOSTICS REPORTS FOURTH QUARTER AND FULL YEAR 2014 FINANCIAL RESULTS;
PROVIDES GUIDANCE FOR FULL YEAR 2015;
INCREASES DIVIDEND 15%
" | Fourth quarter revenues from continuing operations of $1.9 billion, up 7.2% versus prior year |
" | Adjusted diluted EPS from continuing operations of $1.08, up 4.9% versus prior year |
" | Reported diluted EPS from continuing operations of $1.26, up 30% versus prior year |
" | Dividend increased 15% to $0.38 per quarter |
" | Full year 2015 revenues to grow 2% to 3% |
" | Full year 2015 adjusted diluted EPS excluding amortization expense expected to be between $4.70 and $4.85 |
MADISON, N.J., JANUARY 29, 2015 - Quest Diagnostics Incorporated (NYSE: DGX), the world's leading provider of diagnostic information services, announced today that for the fourth quarter ended December 31, 2014, adjusted income from continuing operations grew to $158 million, or $1.08 per diluted share, compared to $151 million, or $1.03 per diluted share, for 2013.
For the fourth quarter of 2014, reported income from continuing operations was $185 million, or $1.26 per diluted share. Income from continuing operations in the fourth quarter of 2014 benefited from the favorable resolution of tax contingencies of $44 million, or $0.30 per diluted share. This benefit was partially offset by $17 million, or $0.12 per diluted share, of charges primarily related to restructuring and integration costs and ongoing efforts to drive operational excellence. In the fourth quarter of 2013, reported income from continuing operations was $143 million, or $0.97 per diluted share.
Revenues from continuing operations were $1.9 billion for the fourth quarter of 2014, 7.2% higher than the prior year. Organic revenues from continuing operations increased for the fourth quarter by 0.6% compared to the prior year. Diagnostic information services revenues increased 7.1% compared to a year ago; volume, measured by the number of requisitions, increased 8.8% versus a year ago; and revenue per requisition was 1.5% lower than a year ago. Excluding acquisitions, revenue per requisition for diagnostic information services was essentially unchanged from a year ago.
For the fourth quarter of 2014, adjusted operating income from continuing operations grew modestly to $283 million, or 15.0% of revenues, compared to $282 million, or 16.1% of revenues, for the fourth quarter of 2013. For the fourth quarter of 2014, reported operating income from continuing operations was $257 million, or 13.7% of revenues, compared to $270 million, or 15.3% of revenues in the fourth quarter of 2013. Cash provided by operations was $303 million in the fourth quarter of 2014.�
�
We ended 2014 strong, and in the fourth quarter generated growth in revenues and EPS, said Steve Rusckowski, President and CEO. The 2015 outlook we are providing today is based on our expectations for strengthening operational performance and an improving business environment. Further, based on our ability to continue to generate strong cash flow, today we are announcing the fourth increase in our dividend since 2011.
Full Year 2014 Performance
Revenues from continuing operations were $7.4 billion for the full year 2014, an increase of 4% compared to the prior year. Adjusted income from continuing operations was $598 million, or $4.10 per diluted share, compared to $612 million, or $4.00 per diluted share, in 2013.
Reported income from continuing operations for the full year 2014 was $551 million, or $3.78 per diluted share. In 2013, reported income from continuing operations was $814 million, or $5.31 per diluted share, including a gain of approximately $300 million on the sale of ibrutinib royalty rights.
Adjusted operating income from continuing operations for the full year 2014 was $1.1 billion, or 15.0% of revenues, compared to $1.2 billion, or 16.2% of revenues, for 2013. Reported operating income from continuing operations was $983 million, or 13.2% of revenues, compared to $1.5 billion, or 20.6% of revenues, in 2013. Cash from operations was $938 million for the full year 2014. Capital expenditures for 2014 were $308 million.
Dividend Increased
Quest Diagnostics' Board of Directors authorized a 15% increase in its quarterly dividend from $0.33 to $0.38 per share, or $1.52 per share annually, payable on April 22, 2015, to shareholders of record of Quest Diagnostics common stock on April 8, 2015.�
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Outlook for Full Year 2015
At its November 5, 2014 Investor Day the company indicated it would begin to present adjusted diluted EPS excluding amortization expense, which the company believes provides investors with better insight into its underlying operating performance. As a result, the companys presentation of 2015 adjusted diluted EPS guidance described below excludes the impact of special items and amortization expense. For the full year 2014, adjusted diluted EPS excluding amortization expense was $4.50.
For 2015, the company estimates results from continuing operations, before special items as follows:
" | Revenues to increase approximately 2% to 3%, compared to 2014; |
" | Adjusted diluted EPS excluding amortization expense to be between $4.70 and $4.85; |
" | Cash provided by operations to approximate $850 million; and |
" | Capital expenditures to approximate $300 million |
Note on Non-GAAP Financial Measures
As used in this press release, for the purpose of earnings the term adjusted refers to the operating performance measures that exclude the gain on sale of ibrutinib royalty rights, restructuring and integration charges, favorable resolution of tax contingencies, loss on sale of the Enterix business and other items. For 2015 guidance and the presentation of 2014 full year results, adjusted diluted EPS excluding amortization expense represents the Company's results before the impact of special items and amortization expense. Adjusted measures are presented because management believes those measures are useful adjuncts to reported results under accounting principles generally accepted in the United States. Adjusted measures should not be considered as an alternative to the corresponding measures determined under accounting principles generally accepted in the United States.
The attached tables include reconciliations of adjusted operating performance measures to measures reported under accounting principles generally accepted in the United States.
Conference Call Information
Quest Diagnostics will hold its quarterly conference call to discuss financial results beginning at 8:30 a.m. Eastern Time today. The conference call can also be accessed in listen-only mode by dialing 415-228-4961, passcode 3214469. The company suggests participants dial in approximately 10 minutes before the call.� A replay of the call may be accessed online at www.QuestDiagnostics.com/investor or by phone at 866-498-3465 for domestic callers or 203-369-1791 for international callers. Telephone replays will be available from approximately 10:30 a.m. Eastern Time today until midnight Eastern Time on March 1, 2015.
Anyone listening to the call is encouraged to read the company's periodic reports, on file with the Securities and Exchange Commission, including the discussion of risk factors and historical results of operations and financial condition in those reports.
About Quest Diagnostics
Quest Diagnostics is the world's leading provider of diagnostic information�services needed 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. Additional company information is available at 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 managements 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 or strategic partners and other factors discussed in the Company's most recently filed Annual Report on Form 10-K and in any of the Company's subsequently filed Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, including those discussed in the Business, Risk Factors, Cautionary Factors that May Affect Future Results and Managements Discussion and Analysis of Financial Condition and Results of Operations sections of those reports. This earnings release, including the attached financial tables, is available online in the Newsroom section at www.QuestDiagnostics.com.
TABLES FOLLOW
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Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Operations
For the Three and Twelve Months Ended December�31, 2014 and 2013
(in millions, except per share data)
(unaudited)
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Net revenues | $ | 1,883 | $ | 1,756 | $ | 7,435 | $ | 7,146 | |||||||
Operating costs and expenses: | � | � | � | ||||||||||||
Cost of services | 1,184 | 1,051 | 4,637 | 4,326 | |||||||||||
Selling, general and administrative | 427 | 415 | 1,728 | 1,704 | |||||||||||
Amortization of intangible assets | 23 | 20 | 94 | 79 | |||||||||||
Gain on sale of royalty rights | (474 | ) | |||||||||||||
Other operating (income) expense, net | (8 | ) | (7 | ) | 36 | ||||||||||
Total operating costs and expenses | 1,626 | 1,486 | 6,452 | 5,671 | |||||||||||
Operating income | 257 | 270 | 983 | 1,475 | |||||||||||
Other income (expense): | � | � | � | ||||||||||||
Interest expense, net | (42 | ) | (39 | ) | (164 | ) | (159 | ) | |||||||
Equity in earnings of equity method investees | 7 | 6 | 26 | 24 | |||||||||||
Other income, net | 1 | 1 | 4 | 8 | |||||||||||
Total non-operating expenses, net | (34 | ) | (32 | ) | (134 | ) | (127 | ) | |||||||
Income from continuing operations before taxes | 223 | 238 | 849 | 1,348 | |||||||||||
Income tax expense | 28 | 87 | 262 | 500 | |||||||||||
Income from continuing operations | 195 | 151 | 587 | 848 | |||||||||||
Income (loss) from discontinued operations, net of taxes | 5 | 5 | 35 | ||||||||||||
Net income | 200 | 151 | 592 | 883 | |||||||||||
Less: Net income attributable to noncontrolling interests | 10 | 8 | 36 | 34 | |||||||||||
Net income attributable to Quest Diagnostics | $ | 190 | $ | 143 | $ | 556 | $ | 849 | |||||||
Amounts attributable to Quest Diagnostics' common stockholders: | � | ||||||||||||||
Income from continuing operations | $ | 185 | $ | 143 | $ | 551 | $ | 814 | |||||||
Income (loss) from discontinued operations, net of taxes | 5 | 5 | 35 | ||||||||||||
Net income | $ | 190 | $ | 143 | $ | 556 | $ | 849 | |||||||
Earnings per share attributable to Quest Diagnostics' common stockholders - basic: | |||||||||||||||
Income from continuing operations | $ | 1.27 | $ | 0.98 | $ | 3.80 | $ | 5.35 | |||||||
Income (loss) from discontinued operations | 0.03 | (0.01 | ) | 0.03 | 0.23 | ||||||||||
Net income | $ | 1.30 | $ | 0.97 | $ | 3.83 | $ | 5.58 | |||||||
Earnings per share attributable to Quest Diagnostics' common stockholders - diluted: | � | � | |||||||||||||
Income from continuing operations | $ | 1.26 | $ | 0.97 | $ | 3.78 | $ | 5.31 | |||||||
Income (loss) from discontinued operations | 0.03 | 0.03 | 0.23 | ||||||||||||
Net income | $ | 1.29 | $ | 0.97 | $ | 3.81 | $ | 5.54 | |||||||
Weighted average common shares outstanding: | |||||||||||||||
Basic | 145 | 146 | 145 | 152 | |||||||||||
Diluted | 146 | 146 | 145 | 153 | |||||||||||
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Quest Diagnostics Incorporated and Subsidiaries
Consolidated Balance Sheets
December�31, 2014 and 2013
(in millions, except per share data)
(unaudited)
December�31, 2014 | December�31, 2013 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 192 | $ | 187 | |||
Accounts receivable, net | 932 | 852 | |||||
Inventories | 110 | 91 | |||||
Deferred income taxes | 169 | 148 | |||||
Prepaid expenses and other current assets | 200 | 105 | |||||
Total current assets | 1,603 | 1,383 | |||||
Property, plant and equipment, net | 933 | 805 | |||||
Goodwill | 6,032 | 5,649 | |||||
Intangible assets, net | 1,071 | 896 | |||||
Other assets | 238 | 215 | |||||
Total assets | $ | 9,877 | $ | 8,948 | |||
Liabilities and Stockholders' Equity | |||||||
Current liabilities: | |||||||
Accounts payable and accrued expenses | $ | 1,191 | $ | 920 | |||
Current portion of long-term debt | 518 | 212 | |||||
Total current liabilities | 1,709 | 1,132 | |||||
Long-term debt | 3,244 | 3,120 | |||||
Other liabilities | 594 | 723 | |||||
Stockholders' equity: | |||||||
Quest Diagnostics stockholders' equity: | |||||||
Common stock, par value $0.01 per share; 600 shares authorized at both December 31, 2014 and 2013; 215 shares issued at both December 31, 2014 and 2013 | 2 | 2 | |||||
Additional paid-in capital | 2,418 | 2,379 | |||||
Retained earnings | 5,723 | 5,358 | |||||
Accumulated other comprehensive loss | (27 | ) | (8 | ) | |||
Treasury stock, at cost; 71 shares at both December 31, 2014 and 2013 | (3,815 | ) | (3,783 | ) | |||
Total Quest Diagnostics stockholders' equity | 4,301 | 3,948 | |||||
Noncontrolling interests | 29 | 25 | |||||
Total stockholders' equity | 4,330 | 3,973 | |||||
Total liabilities and stockholders' equity | $ | 9,877 | $ | 8,948 | |||
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Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
For the Twelve Months Ended December�31, 2014 and 2013
(in millions)
(unaudited)
Twelve Months Ended December 31, | |||||||
2014 | 2013 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 592 | $ | 883 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | � | � | |||||
Depreciation and amortization | 314 | 283 | |||||
Provision for doubtful accounts | 296 | 270 | |||||
Deferred income tax provision | 23 | 19 | |||||
Stock-based compensation expense | 51 | 28 | |||||
Excess tax benefits from stock-based compensation arrangements | (4 | ) | |||||
Gain on sale of royalty rights | (474 | ) | |||||
Asset impairment and loss on sale of businesses, net | 17 | ||||||
Other, net | (12 | ) | 2 | ||||
Changes in operating assets and liabilities: | � | � | |||||
Accounts receivable | (312 | ) | (247 | ) | |||
Accounts payable and accrued expenses | 68 | (21 | ) | ||||
Income taxes payable | (84 | ) | (93 | ) | |||
Other assets and liabilities, net | 2 | (11 | ) | ||||
Net cash provided by operating activities | 938 | 652 | |||||
Cash flows from investing activities: | |||||||
Business acquisitions, net of cash acquired | (728 | ) | (213 | ) | |||
Proceeds from sale of businesses | 296 | ||||||
Proceeds from sale of royalty rights | 474 | ||||||
Capital expenditures | (308 | ) | (231 | ) | |||
Decrease in investments and other assets | 11 | 2 | |||||
Net cash (used in) provided by investing activities | (1,025 | ) | 328 | ||||
Cash flows from financing activities: | |||||||
Proceeds from borrowings | 2,018 | 896 | |||||
Repayments of debt | (1,647 | ) | (900 | ) | |||
Purchases of treasury stock | (132 | ) | (1,037 | ) | |||
Exercise of stock options | 78 | 138 | |||||
Excess tax benefits from stock-based compensation arrangements | 4 | ||||||
Dividends paid | (187 | ) | (185 | ) | |||
Distributions to noncontrolling interests | (31 | ) | (32 | ) | |||
Other financing activities, net | (7 | ) | 10 | ||||
Net cash provided by (used in) financing activities | 92 | (1,106 | ) | ||||
Net change in cash and cash equivalents | 5 | (126 | ) | ||||
Change in cash and cash equivalents included in assets held for sale | 17 | ||||||
Cash and cash equivalents, beginning of period | 187 | 296 | |||||
Cash and cash equivalents, end of period | $ | 192 | $ | 187 | |||
Cash paid during the period for: | |||||||
Interest | $ | 170 | $ | 167 | |||
Income taxes | $ | 327 | $ | 568 | |||
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Notes to Financial Tables
1) | The computation of basic and diluted earnings per common share is as follows: |
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
(in millions, except per share data) | |||||||||||||||
Amounts attributable to Quest Diagnostics' common stockholders: | |||||||||||||||
Income from continuing operations | $ | 185 | $ | 143 | $ | 551 | $ | 814 | |||||||
Income (loss) from discontinued operations, net of taxes | 5 | 5 | 35 | ||||||||||||
Net income available to common stockholders | $ | 190 | $ | 143 | $ | 556 | $ | 849 | |||||||
Income from continuing operations | $ | 185 | $ | 143 | $ | 551 | $ | 814 | |||||||
Less: Earnings allocated to participating securities | 1 | 2 | 3 | ||||||||||||
Earnings available to Quest Diagnostics' common stockholders - basic and diluted | $ | 185 | $ | 142 | $ | 549 | $ | 811 | |||||||
Weighted average common shares outstanding - basic | 145 | 146 | 145 | 152 | |||||||||||
Effect of dilutive securities: | |||||||||||||||
Stock options and performance share units | 1 | 1 | |||||||||||||
Weighted average common shares outstanding - diluted | 146 | 146 | 145 | 153 | |||||||||||
Earnings per share attributable to Quest Diagnostics' common stockholders - basic: | |||||||||||||||
Income from continuing operations | $ | 1.27 | $ | 0.98 | $ | 3.80 | $ | 5.35 | |||||||
Income (loss) from discontinued operations | 0.03 | (0.01 | ) | 0.03 | 0.23 | ||||||||||
Net income | $ | 1.30 | $ | 0.97 | $ | 3.83 | $ | 5.58 | |||||||
Earnings per share attributable to Quest Diagnostics' common stockholders - diluted: | |||||||||||||||
Income from continuing operations | $ | 1.26 | $ | 0.97 | $ | 3.78 | $ | 5.31 | |||||||
Income (loss) from discontinued operations | 0.03 | 0.03 | 0.23 | ||||||||||||
Net income | $ | 1.29 | $ | 0.97 | $ | 3.81 | $ | 5.54 | |||||||
Earnings per common share are computed independently for each quarterly period. Therefore, the sum of quarterly earnings per common share may not equal earnings per common share for the twelve months ended December�31, 2014 and 2013.
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2) | Adjusted amounts for operating income, income from continuing operations attributable to Quest Diagnostics' stockholders, and diluted EPS represent the Company's results before the impact of the gain on sale of ibrutinib royalty rights, restructuring and integration charges, favorable resolution of tax contingencies, loss on sale of the Enterix business and other. Adjusted diluted EPS excluding amortization expense represents the Company's results before the impact of special items and amortization expense. Adjusted measures are presented because management believes those measures are useful adjuncts to reported results under accounting principles generally accepted in the United States when comparing results of operations from period to period. Adjusted measures should not be considered as an alternative to the corresponding measures determined under accounting principles generally accepted in the United States. The following tables reconcile reported results to adjusted results: |
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
(dollars in millions, except per share data) | |||||||||||||||
Adjusted operating income: | |||||||||||||||
Operating income | $ | 257 | $ | 270 | $ | 983 | $ | 1,475 | |||||||
Gain on sale of ibrutinib royalty rights (a) | (474 | ) | |||||||||||||
Restructuring and integration charges (b) | 30 | 12 | 121 | 115 | |||||||||||
Loss on sale of Enterix | 40 | ||||||||||||||
Other (c) | (4 | ) | 15 | ||||||||||||
Adjusted operating income | $ | 283 | $ | 282 | $ | 1,119 | $ | 1,156 | |||||||
Adjusted operating income as a percentage of net revenues: | |||||||||||||||
Operating income as a percentage of net revenues | 13.7 | �% | 15.3 | % | 13.2 | % | 20.6 | �% | |||||||
Gain on sale of ibrutinib royalty rights (a) | (6.6 | ) | |||||||||||||
Restructuring and integration charges (b) | 1.5 | 0.8 | 1.6 | 1.6 | |||||||||||
Loss on sale of Enterix | 0.6 | ||||||||||||||
Other (c) | (0.2 | ) | 0.2 | ||||||||||||
Adjusted operating income as a percentage of net revenues | 15.0 | �% | 16.1 | % | 15.0 | % | 16.2 | �% | |||||||
Adjusted income from continuing operations: | |||||||||||||||
Income from continuing operations attributable to Quest Diagnostics' stockholders | $ | 185 | $ | 143 | $ | 551 | $ | 814 | |||||||
Gain on sale of ibrutinib royalty rights (d) | (298 | ) | |||||||||||||
Restructuring and integration charges (d) | 18 | 8 | 77 | 71 | |||||||||||
Favorable resolution of tax contingencies | (44 | ) | (44 | ) | |||||||||||
Loss on sale of Enterix (d) | 25 | ||||||||||||||
Other (d) | (1 | ) | 14 | ||||||||||||
Adjusted income from continuing operations | $ | 158 | $ | 151 | $ | 598 | $ | 612 | |||||||
Adjusted diluted EPS: | |||||||||||||||
Diluted earnings per common share | $ | 1.26 | $ | 0.97 | $ | 3.78 | $ | 5.31 | |||||||
Gain on sale of ibrutinib royalty rights (a) | (1.95 | ) | |||||||||||||
Restructuring and integration charges (b) | 0.13 | 0.06 | 0.53 | 0.47 | |||||||||||
Favorable resolution of tax contingencies | (0.30 | ) | (0.30 | ) | |||||||||||
Loss on sale of Enterix | 0.17 | ||||||||||||||
Other (c) | (0.01 | ) | 0.09 | ||||||||||||
Adjusted diluted EPS | 1.08 | 1.03 | 4.10 | 4.00 | |||||||||||
Amortization expense (e) | 0.10 | 0.08 | 0.40 | 0.32 | |||||||||||
Adjusted diluted EPS excluding amortization expense | $ | 1.18 | $ | 1.11 | $ | 4.50 | $ | 4.32 | |||||||
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(a) | Represents the gain, net of transaction costs, associated with the sale of the Company's ibrutinib royalty rights. |
(b) | Represents costs primarily associated with workforce reductions and professional fees incurred in connection with further restructuring and integrating our business. |
(c) | For the three months ended December 31, 2014, represents a gain of $9 million associated with a decrease in the fair value of the contingent consideration accrual associated with the Summit Health acquisition, partially offset by costs incurred related to legal matters. For the twelve months ended December 31, 2014, represents costs incurred related to legal matters, partially offset by a gain of $9 million associated with a decrease in the fair value of the contingent consideration accrual associated with the Summit Health acquisition. |
(d) | For the gain on sale of ibrutinib royalty rights, income tax expense was calculated using a combined federal and state rate of 37.1%. For the restructuring and integration charges and other, income tax impacts, where recorded, were calculated using a combined federal and state rate of 38.2%. For the loss on sale of Enterix, income tax benefits were calculated using combined federal and state rates of 35.9%. |
(e) | Represents the impact of amortization expense, net of the estimated tax benefit, on diluted EPS. The income tax benefit was calculated using a combined federal and state rate of 38.2%. |
3) | For the twelve months ended December�31, 2013, gain on sale of royalty rights represents the sale of the Company's ibrutinib royalty rights for $474 million, net of transaction costs. For the twelve months ended December�31, 2013, income tax expense includes $176 million associated with the gain on sale of royalty rights. |
4) | Other operating (income) expense, net includes miscellaneous income and expense items related to operating activities. For the three and twelve months ended December 31, 2014, other operating (income) expense, net includes a gain of $9 million associated with a decrease in the fair value of the contingent consideration accrual associated with the Summit Health acquisition. For the twelve months ended December�31, 2013, other operating (income) expense, net includes the pre-tax loss on sale of Enterix of $40 million. In addition, other operating (income) expense, net, for the twelve months ended December�31, 2013, includes a gain of $6 million resulting from consideration associated with certain non-compete agreements. |
5) | Other income, 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 three months ended December�31, 2014 and 2013, other income, net includes gains of $2 million and $4 million, respectively, associated with investments held in trusts pursuant to our supplemental deferred compensation plans. Other income, net for the twelve months ended December�31, 2014 and 2013, includes gains of $4 million and $10 million, respectively, associated with investments held in trusts pursuant to our supplemental deferred compensation plans. |
6) | On April 9, 2013, the Company completed the sale of its HemoCue diagnostic products business. As a result, income (loss) from discontinued operations, net of taxes, for the twelve months ended December�31, 2013, includes a gain of $14 million (including foreign currency translation adjustments, partially offset by income tax expense and transaction costs) associated with the sale of HemoCue. In addition, income (loss) from discontinued operations, net of taxes for the twelve months ended December�31, 2013, includes discrete tax benefits of $20 million associated with favorable resolution of certain tax contingencies related to our NID business, which was wound down in 2006. |
7) | For the three months ended December�31, 2014, the Company repurchased 0.8 million shares of its common stock at an average price of $64.44 per share for a total of $50 million. For the twelve months ended December�31, 2014, the Company repurchased 2.2 million shares of its common stock at an average price of $59.49 per share for a total of $132 million. At December�31, 2014, $696 million remained available under the Companys share repurchase authorizations. |
8) | The outlook for adjusted diluted EPS excluding amortization expense represents managements estimates for the full year 2015 before the impact of special items and amortization expense. This measure is presented because management believes it is a useful adjunct to the corresponding amount determined under accounting principles generally accepted in the United States since it is meaningful to evaluate the Companys ongoing operating performance. Adjusted diluted EPS excluding amortization expense 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 the corresponding amount determined under accounting principles generally accepted in the United States. |
8
The following table reconciles our 2015 outlook for adjusted diluted EPS excluding amortization expense to the corresponding amount determined under accounting principles generally accepted in the United States.
Low | High | ||||||
Diluted earnings per common share | $ | 4.34 | $ | 4.49 | |||
Amortization expense, net of tax (a) | 0.36 | 0.36 | |||||
Adjusted diluted EPS excluding amortization expense | $ | 4.70 | $ | 4.85 | |||
(a) | Represents the impact of amortization expense, estimated at approximately $85 million or $52 million, net of an estimated tax benefit, on diluted earnings per common share. |
9
Exhibit 99.2
At its November 5, 2014 Investor Day, the Company indicated it would begin to present adjusted diluted EPS excluding amortization expense. Adjusted diluted EPS excluding amortization expense represents the Company's reported diluted earnings per common share before amortization expense and special items, which includes the impacts of restructuring and integration charges, favorable resolution of tax contingencies, gain on sale of ibrutinib royalty rights, loss on sale of Enterix, CEO succession costs and other items. Adjusted diluted EPS represents the reported diluted earnings per common share before the aforementioned special items. These measures are presented because management believes they are useful adjuncts to the corresponding amount determined under accounting principles generally accepted in the United States since they are meaningful to evaluate the Companys ongoing operating performance. Adjusted diluted EPS excluding amortization expense and adjusted diluted EPS are not measures of financial performance under accounting principles generally accepted in the United States and should not be considered as an alternative to the corresponding amount determined under accounting principles generally accepted in the United States.
The tables below provide the Company's quarterly and full year amortization expense as well as reconcile the quarterly and full year diluted earnings per common share, on an adjusted basis excluding amortization expense, to the corresponding amount determined under accounting principles generally accepted in the United States for 2014, 2013 and 2012.
Three Months Ended | Year Ended | ||||||||||||||||||
March 31, 2014 | June 30, 2014 | September 30, 2014 | December 31, 2014 | December 31, 2014 | |||||||||||||||
(dollars in millions, except per share data) | |||||||||||||||||||
Amortization expense (a) | $ | 22 | $ | 25 | $ | 24 | $ | 23 | $ | 94 | |||||||||
Adjusted Diluted EPS Excluding Amortization Expense: | |||||||||||||||||||
Diluted earnings per common share - as reported (a) | $ | 0.71 | $ | 0.92 | $ | 0.88 | $ | 1.26 | $ | 3.78 | |||||||||
Restructuring and integration charges (b) | 0.11 | 0.13 | 0.17 | 0.13 | 0.53 | ||||||||||||||
Favorable resolution of tax contingencies | (0.30 | ) | (0.30 | ) | |||||||||||||||
Other (c) | 0.02 | 0.03 | 0.05 | (0.01 | ) | 0.09 | |||||||||||||
Adjusted diluted EPS | 0.84 | 1.08 | 1.10 | 1.08 | 4.10 | ||||||||||||||
Amortization expense (d) | 0.09 | 0.11 | 0.10 | 0.10 | 0.40 | ||||||||||||||
Adjusted diluted EPS excluding amortization expense | $ | 0.93 | $ | 1.19 | $ | 1.20 | $ | 1.18 | $ | 4.50 | |||||||||
Three Months Ended | Year Ended | ||||||||||||||||||
March 31, 2013 | June 30, 2013 | September 30, 2013 | December 31, 2013 | December 31, 2013 | |||||||||||||||
(dollars in millions, except per share data) | |||||||||||||||||||
Amortization expense (e) | $ | 19 | $ | 20 | $ | 20 | $ | 20 | $ | 79 | |||||||||
Adjusted Diluted EPS Excluding Amortization Expense: | |||||||||||||||||||
Diluted earnings per common share - as reported (f) | $ | 0.72 | $ | 0.99 | $ | 2.66 | $ | 0.97 | $ | 5.31 | |||||||||
Gain on sale of ibrutinib royalty rights | (1.97 | ) | (1.95 | ) | |||||||||||||||
Restructuring and integration charges (b) | 0.17 | 0.07 | 0.16 | 0.06 | 0.47 | ||||||||||||||
Loss on sale of Enterix | 0.17 | 0.17 | |||||||||||||||||
Adjusted diluted EPS | 0.89 | 1.06 | 1.02 | 1.03 | 4.00 | ||||||||||||||
Amortization expense (d) | 0.07 | 0.08 | 0.08 | 0.08 | 0.32 | ||||||||||||||
Adjusted diluted EPS excluding amortization expense | $ | 0.96 | $ | 1.14 | $ | 1.10 | $ | 1.11 | $ | 4.32 | |||||||||
Three Months Ended | Year Ended | ||||||||||||||||||
March 31, 2012 | June 30, 2012 | September 30, 2012 | December 31, 2012 | December 31, 2012 | |||||||||||||||
(dollars in millions, except per share data) | |||||||||||||||||||
Amortization expense (e) | $ | 19 | $ | 19 | $ | 18 | $ | 19 | $ | 75 | |||||||||
Adjusted Diluted EPS Excluding Amortization Expense: | |||||||||||||||||||
Diluted earnings per common share - as reported (f) | $ | 0.97 | $ | 1.09 | $ | 0.98 | $ | 0.87 | $ | 3.92 | |||||||||
Restructuring and integration charges (b) | 0.05 | 0.05 | 0.17 | 0.14 | 0.40 | ||||||||||||||
CEO succession costs (g) | 0.03 | 0.01 | 0.04 | ||||||||||||||||
Adjusted diluted EPS | 1.05 | 1.15 | 1.15 | 1.01 | 4.36 | ||||||||||||||
Amortization expense (d) | 0.07 | 0.07 | 0.07 | 0.07 | 0.28 | ||||||||||||||
Adjusted diluted EPS excluding amortization expense | $ | 1.12 | $ | 1.22 | $ | 1.22 | $ | 1.08 | $ | 4.64 | |||||||||
(a) | Represents amortization expense from continuing operations and diluted earnings per common share from continuing operations as reported in the Consolidated Statement of Operations included in the Company's Form 10-Q for the quarters ended March 31, 2014, June 30, 2014 and September 30, 2014. For the quarter and year ended December 31, 2014, represents amortization expense from continuing operations and diluted earnings per common share from continuing operations as reported in the Consolidated Statement of Operations included in Exhibit 99.1 to the Company's 8-K filed on January 29, 2015. |
(b) | Represents costs primarily associated with workforce reductions and professional fees incurred in connection with further restructuring and integrating our business. |
(c) | For the quarters ended March 31, 2014, June 30, 2014 and September 30, 2014, principally represents costs incurred related to legal matters. For the quarter ended December 31, 2014, principally represents a gain of $9 million associated with a decrease in the fair value of the contingent consideration accrual associated with the Summit Health acquisition, partially offset by costs incurred related to legal matters. |
(d) | Represents the impact of amortization expense, net of an estimated tax benefit, on diluted EPS. |
(e) | Represents amortization expense from continuing operations as reported in the Consolidated Statement of Operations included in the Company's form 10-Q for the quarters ended March 31, 2013, June 30, 2013 and September 30, 2013. For the quarter ended December 31, 2013 and 2012, represents amortization expense from continuing operations as reported in the Consolidated Statement of Operations included in Exhibit 99.1 to the Company's 8-K filed on January 30, 2014. For the year ended December 31, 2013 and 2012, represents amortization expense from continuing operations as reported in the Consolidated Statement of Operations on Form 10-K for the fiscal year ended December 31, 2013. |
(f) | Represents the quarterly diluted earnings per common share from continuing operations as reported in the Quarterly Operating Results (unaudited) included in the Company's Form 10-K for the fiscal year ended December 31, 2013. For the year ended December 31, 2013 and 2012, represents diluted earnings per common share from continuing operations as reported in the Consolidated Statement of Operations on Form 10-K for the fiscal year ended December 31, 2013. |
(g) | Principally represents severance and accelerated vesting of equity awards in connection with the succession of our prior CEO. |