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Quest Diagnostics Earnings Per Share Increased 29% In Second Quarter 2003
PRNewswire-FirstCall
TETERBORO, N.J.

Quest Diagnostics Incorporated , the nation's leading provider of diagnostic testing, information and services, announced that for the second quarter ended June 30, 2003, net income increased to $120.4 million from $87.2 million in the second quarter of 2002. Earnings per diluted share increased 29% to $1.12 from $0.87 in 2002.

Second quarter revenues increased 14% 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 10%. Revenue per requisition increased 3.5% compared to the prior year, driven primarily by improvements in test and payer mix. The remainder of the revenue growth was generated by non-clinical testing businesses. On a pro forma basis for the second quarter, assuming that Unilab had been part of Quest Diagnostics since January 1, 2002, revenues increased 3.4%, revenue per requisition increased 5.1%, and clinical testing volume decreased 2.3%, compared to the prior year period.

"We had another strong quarter," said Kenneth W. Freeman, Chairman and Chief Executive Officer. "Earnings per share increased 29% and cash generation was excellent. EBITDA margins continued to expand, increasing by three percentage points as a result of revenue growth and efficiencies from our Six Sigma and standardization initiatives."

For the second quarter, earnings before interest, taxes, depreciation and amortization (EBITDA), were $259 million, or 21.2% of revenues, compared to $195 million, or 18.2% of revenues in 2002. Bad debt expense improved to 4.8% of revenues compared to 5.2% for the prior year period. Days sales outstanding improved to 47 days from 52 days a year ago and 49 days at the end of the first quarter. Cash flow from operations was $169 million compared to $165 million in 2002. During the quarter, the company repaid $86 million of debt, repurchased $10 million of its common stock and made capital expenditures of $38 million.

For the first half of 2003, net income increased to $208.4 million from $153.8 million in the prior year. Earnings per diluted share increased 29% to $1.98 from $1.54 in the prior year. Revenues increased 14.7% to $2.3 billion. EBITDA was $458 million, or 19.8% of revenues, compared to $350 million, or 17.4% of revenues in 2002. Capital expenditures were $76 million.

For the full year 2003, earnings are expected to increase between 24% and 27% to between $4.00 and $4.10 per diluted share, before charges associated with the Unilab acquisition. Revenues are expected to grow 14% to 15%. Volume is expected to grow 10% to 11% and revenue per requisition is expected to grow 3% to 4%. On a pro forma basis, assuming that the acquisitions of Unilab and American Medical Laboratories had been completed on January 1, 2002, volume is expected to decrease 1% to 2% and revenue per requisition is expected to increase 4% to 5%. EBITDA is expected to approximate 20% of revenues. Cash flow from operations is expected to exceed $600 million. Capital expenditures are expected to be between $170 million and $180 million.

For the third quarter, earnings are expected to increase to between $1.06 and $1.11 per diluted share, before charges associated with the Unilab acquisition. Revenues are expected to grow 13% to 15%, with volume growth of 10% to 11% and revenue per requisition increasing 3% to 4%. On a pro forma basis, assuming that Unilab had been part of Quest Diagnostics since January 1, 2002, volume is expected to decrease 1% to 2% and revenue per requisition is expected to increase 4% to 5%. EBITDA is expected to approximate 21% of revenues.

Quest Diagnostics will hold its second quarter conference call on July 22 at 8:30 A.M. Eastern Time. To hear a simulcast of the call over the Internet or a replay, registered analysts and investors 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 July 22 through 5 P.M. on August 31 to investors in the U.S. by dialing 800-664-4219. Investors outside the U.S. may dial 402-220-0260. 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 in the United States 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 also empowers healthcare organizations and clinicians with state-of-the-art connectivity solutions that improve patient care. Additional company information is available at: www.questdiagnostics.com. A copy of our earnings press release, together with any information that would be required under Regulation G, will be available in the "Press Room" section of our website.

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 and other factors described in the Quest Diagnostics Incorporated 2002 Form 10-K and subsequent filings.

                 Quest Diagnostics Incorporated and Subsidiaries

                      Consolidated Statements of Operations
            For the Three and Six Months Ended June 30, 2003 and 2002
                       (in millions, except per share data)

                                    Three Months Ended     Six Months Ended
                                        June 30,                June 30,
                                    2003        2002        2003       2002

  Net revenues                  $1,219.9    $1,068.8    $2,312.7   $2,015.6

  Costs and expenses:
   Cost of services                703.1       630.3     1,351.2    1,188.0
   Selling, general and
    administrative                 296.1       276.8       575.3      535.2
   Interest expense, net            16.8        14.9        30.7       27.6
   Amortization of intangible
    assets                           2.1         2.1         4.1        4.2
   Minority share of income          4.4         3.9         8.2        7.8
   Other, net                       (6.0)       (5.7)       (9.0)      (6.2)
       Total                     1,016.5       922.3     1,960.5    1,756.6

  Income before taxes              203.4       146.5       352.2      259.0
  Income tax expense                83.0        59.3       143.8      105.2
  Net income                      $120.4       $87.2      $208.4     $153.8

  Basic earnings per common share:
  Net income                       $1.15       $0.90       $2.03      $1.60


  Weighted average common shares
   outstanding - basic             105.0        96.4       102.5       95.9

  Diluted earnings per common share:
  Net income                       $1.12       $0.87       $1.98      $1.54


  Weighted average common shares
   outstanding - diluted           107.7       100.3       105.1       99.8


               Quest Diagnostics Incorporated and Subsidiaries

                         Consolidated Balance Sheets
                     June 30, 2003 and December 31, 2002
                    (in millions, except per share data)

                                                    June 30,    December 31,
                                                      2003           2002
  Assets
  Current assets:
  Cash and cash equivalents                          $88.1          $96.8
  Accounts receivable, net                           628.4          522.1
  Inventories                                         68.5           60.9
  Deferred income taxes                              117.5          102.7
  Prepaid expenses and other current assets           50.6           41.9
        Total current assets                         953.1          824.4
  Property, plant and equipment, net                 583.0          570.1
  Goodwill                                         2,519.3        1,788.9
  Intangible assets, net                              19.5           22.1
  Deferred income taxes                               66.8           29.8
  Other assets                                       102.3           88.9
  Total assets                                    $4,244.0       $3,324.2

  Liabilities and Stockholders' Equity
  Current liabilities:
  Accounts payable and accrued expenses             $594.4         $610.0
  Short-term borrowings and current portion of
   long-term debt                                     74.4           26.0
        Total current liabilities                    668.8          636.0

  Long-term debt                                   1,065.2          796.5
  Other liabilities                                  139.1          122.8
  Stockholders' equity:
   Common stock, par value $0.01 per share;
    300 shares authorized; 105.6 and 98.0 shares
     issued at June 30, 2003 and December 31, 2002,
      respectively                                     1.1            1.0
   Additional paid-in capital                      2,219.6        1,817.5
   Retained earnings (accumulated deficit)           167.7          (40.8)
   Unearned compensation                              (5.1)          (3.3)
   Accumulated other comprehensive loss               (2.3)          (5.5)
   Treasury stock, at cost; 0.2 shares at
    June 30, 2003                                    (10.1)            --
        Total stockholders' equity                 2,370.9        1,768.9

  Total liabilities and stockholders' equity      $4,244.0       $3,324.2

              Quest Diagnostics Incorporated and Subsidiaries

                   Consolidated Statements of Cash Flows
              For the Six Months Ended June 30, 2003 and 2002
                               (in millions)

                                                        Six Months Ended
                                                             June 30,

                                                      2003            2002

Cash flows from operating activities:

 Net income                                         $208.4          $153.8
 Adjustments to reconcile net income to net cash
  provided by operating activities:
     Depreciation and amortization                    75.0            63.8
     Provision for doubtful accounts                 113.5           110.5
     Deferred income tax provision                     5.9            17.6
     Minority share of income                          8.2             7.8
     Stock compensation expense                        2.9             5.0
     Tax benefits associated with stock-based
      compensation plans                               9.5            38.2
     Other, net                                        1.5            (2.1)
     Changes in operating assets and liabilities:
         Accounts receivable                        (158.0)         (136.8)
         Accounts payable and accrued expenses       (63.8)          (38.0)
         Integration, settlement and other
          special charges                             (9.3)          (12.7)
         Income taxes payable                         29.8             9.8
         Other assets and liabilities, net             4.1             1.0

  Net cash provided by operating activities          227.7           217.9


  Cash flows from investing activities:
  Business acquisitions, net of cash acquired       (237.4)         (333.5)
  Capital expenditures                               (75.8)          (83.4)
  Proceeds from disposition of assets                  3.4             1.0
  Increase in investments and other assets           (11.1)           (2.9)
  Collection of note receivable                         --            10.7

  Net cash used in investing activities             (320.9)         (408.1)


  Cash flows from financing activities:
  Proceeds from borrowings                           450.0           475.2
  Repayments of debt                                (354.5)         (333.2)
  Financing costs paid                                (4.2)             --
  Purchases of treasury stock                        (10.1)             --
  Exercise of stock options                            9.2            22.1
  Distributions to minority partners                  (6.3)           (6.3)
  Other                                                0.4            (0.1)
  Net cash provided by financing activities           84.5           157.7

  Net change in cash and cash equivalents             (8.7)          (32.5)

  Cash and cash equivalents, beginning of period      96.8           122.3

  Cash and cash equivalents, end of period           $88.1           $89.8

  Cash paid during the period for:
    Interest                                         $32.5           $30.5
    Income taxes                                    $100.6           $38.8

  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     Six Months Ended
                                        June 30,             June 30,
                                    2003       2002      2003      2002
                                    (in millions, except per share data)
  Net income
  Net income, as reported         $120.4      $87.2    $208.4    $153.8
  Add: Stock-based compensation
       under APB25                   1.4        2.5       2.9       5.0
  Deduct: Total stock-based
          compensation expense
          determined under fair value
          method for all awards, net
          of related tax effects   (13.2)     (12.5)    (27.9)    (22.9)
  Pro forma net income            $108.6      $77.2    $183.4    $135.9

  Earnings per common share
  Basic - as reported              $1.15      $0.90     $2.03     $1.60
  Basic - pro forma                $1.03      $0.80     $1.79     $1.42

  Diluted - as reported            $1.12      $0.87     $1.98     $1.54
  Diluted - pro forma              $1.02      $0.77     $1.77     $1.36

  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          Six Months Ended
                                     June 30,                  June 30,
                                2003         2002         2003         2002

  Dividend yield                0.0%         0.0%         0.0%         0.0%
  Risk-free interest rate       2.6%         4.3%         2.8%         4.2%
  Expected volatility          48.5%        45.2%        48.1%        45.2%
  Expected holding period,
   in years                       5            5            5            5


   2) Other, net, which represents income for each of the periods presented,
      includes equity earnings from our unconsolidated joint ventures and
      miscellaneous gains and losses.

   3) 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 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           Six Months Ended
                                    June 30,                   June 30,
                             2003           2002         2003          2002
                                  (in millions, except percentage data)

  Net revenues           $1,219.9       $1,068.8     $2,312.7      $2,015.6

  Net income               $120.4          $87.2       $208.4        $153.8
  Add:
   Interest expense, net     16.8           14.9         30.7          27.6
   Income tax expense        83.0           59.3        143.8         105.2
   Depreciation              36.2           31.4         70.9          59.6
   Amortization of
    intangible assets         2.1            2.1          4.1           4.2
  EBITDA                   $258.5         $194.9       $457.9        $350.4

  Net income as a percentage
    of net revenues A        9.9%           8.2%         9.0%          7.6%

  EBITDA as a percentage of
   net revenues B           21.2%          18.2%        19.8%         17.4%

   A. Calculated by dividing net income by net revenues.
   B. Calculated by dividing EBITDA by net revenues.

   4) 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:

                                                        Six Months Ended
                                                             June 30,
                                                      2003            2002
                                                          (in millions)


  Net cash provided by operating activities         $227.7          $217.9
  Less:  Capital expenditures                         75.8            83.4
  Free cash flow                                    $151.9          $134.5

   5) The following table presents management's estimates of various
      financial measures for the twelve months ended December 31, 2003 and
      the three months ended September 30, 2003 and excludes charges
      associated with the Unilab acquisition.  The table also reconciles
      estimated net income to estimated EBITDA and presents the calculation
      of each as a percentage of estimated net revenues:

                                           Twelve Months       Three Months
                                               Ended              Ended
                                            December 31,       September 30,
                                               2003                2003
                                          (in millions, except per share and
                                                     percentage data)

  Net revenues                            $4,685 - $4,725    $1,196 - $1,218

  Diluted earnings per common share        $4.00 -  $4.10     $1.06 -  $1.11
  Weighted average common shares outstanding
   - diluted                                     106                107
  Net income                                $424 -   $434      $113 -   $119


  Effective income tax rate                     40.8%              40.8%

  Reconciliation of net income to EBITDA
  Net income                                $424 -   $434      $113 -   $119

  Add:
   Interest expense, net                          60                 15
   Income tax expense                        292 -    299       78  -     82
   Depreciation                                  146                 37
   Amortization of intangible assets               8                  2

  EBITDA                                    $930 -   $947      $245  -  $255


  Net income as a percentage of net
   revenues A                                    9.1%               9.6%

  EBITDA as a percentage of net revenues B      19.9%              20.7%


   A. Calculated by dividing the mid-point of estimated net income by the
      mid-point of estimated net revenues.
   B. Calculated by dividing the mid-point of estimated EBITDA by the
      mid-point of estimated net revenues.

SOURCE: Quest Diagnostics Incorporated

CONTACT: Laure Park, Investors, +1-201-393-5030, or Gary Samuels, Media,
+1-201-393-5700, both of Quest Diagnostics

Web site: http://www.questdiagnostics.com/