QUEST DIAGNOSTICS INCORPORATED MADISON, N.J., Oct. 20, 2016 /PRNewswire/ -- Quest Diagnostics Incorporated (NYSE: DGX), the world's leading provider of diagnostic information services, announced today that for the third quarter ended September 30, 2016, reported net income was $192 million, or $1.34 per diluted share, compared to $342 million, or $2.35 per diluted share, in 2015.
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Adjusted net income was $182 million, compared to $172 million in 2015. Adjusted diluted EPS excluding amortization was $1.37 in the quarter, compared to $1.28 in 2015. In the third quarter of 2016, reported net income benefitted by $10 million after tax, or $0.07 per diluted share, principally associated with a gain on escrow recovery associated with an acquisition partially offset by restructuring and integration charges. In the third quarter of 2015, reported net income benefitted from the gain on the contribution to Q Squared Solutions, the clinical trials joint venture with Quintiles, totaling $189 million after tax, or $1.30 per diluted share. This benefit was partially offset by net charges of $19 million after tax, or $0.13 per diluted share, primarily related to restructuring and integration charges.
Third quarter 2016 revenues were $1.89 billion. Revenues grew 0.3% versus the prior year on a reported basis, and grew 2.1% on an equivalent basis. 2015 equivalent revenues exclude third quarter 2015 Celera and Focus Diagnostics products revenues. Diagnostic Information Services revenues grew 2.1% compared to a year ago. Volume, measured by the number of requisitions, grew 2.0% versus the prior year and revenue per requisition was flat.
"We grew reported revenues 0.3% in the third quarter and equivalent revenues were up by more than 2%, demonstrating good progress in 2016, driven in part by our expanding health system relationships," said Steve Rusckowski, President and CEO. "The relationships we've announced this year, including those with Optum, HCA, Safeway, Ancestry, IBM, and others, position us for continued accelerating growth and will help us drive operational excellence. Based on our results through the third quarter we are narrowing our EPS guidance range and are on track to meet our commitments for the year."
For the third quarter of 2016, reported operating income was $322 million, or 17.1% of revenues, compared to $631 million, or 33.6% of revenues, in 2015. Adjusted operating income was $320 million, or 17.0% of revenues, compared to $325 million, or 17.3% of revenues, in 2015. Third quarter 2015 reported operating income benefitted from the $334 million pre-tax gain on the contribution to the clinical trials joint venture. Cash provided by operations was $301 million in the third quarter of 2016, compared to $212 million in the third quarter of 2015.
Year to Date Performance
Revenues were $5.65 billion for the first nine months of 2016. Revenues grew 0.2% versus the prior year on a reported basis, and grew 2.8% on an equivalent basis. Reported net income for the first nine months of 2016 was $490 million, or $3.42 per diluted share, compared to $521 million, or $3.58 per diluted share, in 2015. Reported net income in 2016 was negatively impacted by charges of $19 million after tax, or $0.13 per diluted share, principally associated with expenses related to restructuring and integration activities and the early retirement of debt, partially offset by the gain on the sale of the company's Focus Diagnostics products business and a gain on escrow recovery associated with an acquisition. Reported net income in 2015 was favorably impacted by a net benefit of $38 million, or $0.27 per diluted share, due to the gain on the contribution to the clinical trials joint venture partially offset by charges associated with the early retirement of debt as well as restructuring and integration expenses. Adjusted net income was $509 million for the first nine months of 2016, compared to $483 million in 2015. Adjusted diluted EPS excluding amortization was $3.84 for the first nine months of 2016, compared to $3.58 in 2015.
On a reported basis, operating income was $1.0 billion, or 17.7% of revenues, compared to $1.16 billion, or 20.5% of revenues, in 2015. Adjusted operating income for the first nine months of 2016 was $925 million, or 16.4% of revenues, compared to $915 million, or 16.2% of revenues for 2015. Cash provided by operations for the nine months of 2016 was $765 million, compared to $549 million in 2015.
Outlook for Full-Year 2016
For 2016, the company estimates results, before special items, as follows:
-- Revenues to be approximately $7.51 billion, an increase of approximately
0.5% over 2015 on a reported basis, and an increase of approximately
2.5% over 2015 on an equivalent basis. This compares to previous
guidance of revenues between $7.47 billion and $7.54 billion. For
further details, see note 9 of the financial tables.
-- Revenues on an equivalent basis for full year 2015 were $7.32
billion. This represents the company's reported revenues, excluding
$85 million in 2015 clinical trials testing revenues and $84 million
in revenues representing all Celera products revenue for 2015 and
Focus Diagnostics products revenue subsequent to April 2015.
-- Reported diluted EPS to be between $4.47 and $4.52, compared to previous
guidance of $4.18 and $4.33. Adjusted diluted EPS excluding amortization
to be between $5.07 and $5.12, compared to $5.02 and $5.17 previously.
For further details, see note 8 of the financial tables.
-- Cash provided by operations to approximate $1 billion. This compares to
previous guidance of reported cash provided by operations to approximate
$880 million.
-- Capital expenditures to approximate $250 million, compared to previous
guidance of between $250 million and $300 million.
Note on Non-GAAP Financial Measures
As used in this press release the term "reported" refers to measures under the accounting principles generally accepted in the United States ("GAAP"). The term "adjusted" refers to non-GAAP measures as follows: (i) for the purpose of income measures the term "adjusted" refers to operating performance measures that exclude special items such as the gain on sale of the Focus Diagnostics products business, gain on the contribution to the clinical trials joint venture, retirement of debt and related refinancing charges, restructuring and integration charges, and other items; (ii) the term "adjusted diluted EPS excluding amortization" represents the company's diluted EPS before the impact of special items and amortization; and (iii) reference to "revenues on an equivalent basis" when comparing 2016 results to 2015 represents 2015 reported revenues excluding all clinical trials testing and Celera products revenues and Focus Diagnostics products revenues subsequent to April 2015.
Non-GAAP "adjusted" measures are presented because management believes those measures are useful adjuncts to GAAP results. Non-GAAP "adjusted" measures should not be considered as an alternative to the corresponding measures determined under GAAP. Management may use these non-GAAP measures to evaluate our performance period over period and relative to competitors, to analyze the underlying trends in our business, to establish operational budgets and forecasts or for incentive compensation purposes. We believe that these non-GAAP measures are useful to investors and analysts to evaluate our performance period over period and relative to competitors, as well as to analyze the underlying trends in our business and to assess our performance. The attached tables include reconciliations of adjusted measures to GAAP measures.
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 773-681-5898, 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 866-435-1319 for domestic callers or 203-369-1017 for international callers. Telephone replays will be available from 10:30 a.m. Eastern Time on October 20, 2016 until midnight Eastern Time on November 19, 2016. 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 empowers people to take action to improve health outcomes. Derived from the world's largest database of clinical lab results, our diagnostic insights reveal new avenues to identify and treat disease, inspire healthy behaviors and improve health care management. Quest annually serves one in three adult Americans and half the physicians and hospitals in the United States, and our 44,000 employees understand that, in the right hands and with the right context, our diagnostic insights can inspire actions that transform lives. 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 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 "Management's 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
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2016 and 2015
(in millions, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2016 2015 2016 2015
---- ---- ---- ----
Net revenues $1,885 $1,880 $5,654 $5,644
Operating costs, expenses and other income:
Cost of services 1,157 1,162 3,456 3,507
Selling, general and administrative 409 402 1,281 1,250
Amortization of intangible assets 18 20 54 61
Gain on disposition of business - (334) (118) (334)
Other operating income, net (21) (1) (20) -
--- --- --- ---
Total operating costs, expenses and other income, net 1,563 1,249 4,653 4,484
----- ----- ----- -----
Operating income 322 631 1,001 1,160
Other income (expense):
Interest expense, net (37) (35) (107) (117)
Other income (expense), net 4 (4) (50) (146)
Total non-operating expenses, net (33) (39) (157) (263)
--- --- ---- ----
Income before income taxes and equity in earnings of equity method investees 289 592 844 897
Income tax expense (95) (239) (345) (359)
Equity in earnings of equity method investees, net of taxes 11 1 30 15
--- --- --- ---
Net income 205 354 529 553
Less: Net income attributable to noncontrolling interests 13 12 39 32
Net income attributable to Quest Diagnostics $192 $342 $490 $521
---- ---- ---- ----
Earnings per share attributable to Quest Diagnostics' common stockholders:
Basic $1.37 $2.37 $3.46 $3.61
----- ----- ----- -----
Diluted $1.34 $2.35 $3.42 $3.58
----- ----- ----- -----
Weighted average common shares outstanding:
Basic 139 144 141 144
Diluted 142 145 143 145
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Balance Sheets
September 30, 2016 and December 31, 2015
(in millions, except per share data)
(unaudited)
September 30, December 31,
2016 2015
---- ----
Assets
------
Current assets:
Cash and cash equivalents $406 $133
Accounts receivable, net 966 901
Inventories 82 84
Prepaid expenses and other current assets 179 207
Assets held for sale 9 176
--- ---
Total current assets 1,642 1,501
Property, plant and equipment, net 952 925
Goodwill 6,000 5,905
Intangible assets, net 972 984
Investment in equity method investees 452 473
Other assets 155 174
Total assets $10,173 $9,962
------- ------
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $1,039 $1,014
Current portion of long-term debt 7 159
Total current liabilities 1,046 1,173
Long-term debt 3,815 3,492
Other liabilities 542 514
Redeemable noncontrolling interest 76 70
Stockholders' equity:
Quest Diagnostics stockholders' equity:
Common stock, par value $0.01 per share; 600 shares authorized at both September 30, 2016 2 2
and December 31, 2015; 216 shares issued at both September 30, 2016 and December 31, 2015
Additional paid-in capital 2,526 2,481
Retained earnings 6,520 6,199
Accumulated other comprehensive loss (61) (38)
Treasury stock, at cost; 77 shares and 73 shares at September 30, 2016 and December 31, 2015, respectively (4,324) (3,960)
------ ------
Total Quest Diagnostics stockholders' equity 4,663 4,684
Noncontrolling interests 31 29
--- ---
Total stockholders' equity 4,694 4,713
Total liabilities and stockholders' equity $10,173 $9,962
------- ------
Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2016 and 2015
(in millions)
(unaudited)
Nine Months Ended
September 30,
-------------
2016 2015
---- ----
Cash flows from operating activities:
Net income $529 $553
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 186 230
Provision for doubtful accounts 242 232
Deferred income tax provision 19 138
Stock-based compensation expense 52 39
Gain on disposition of business (118) (334)
Other, net (15) (4)
Changes in operating assets and liabilities:
Accounts receivable (316) (214)
Accounts payable and accrued expenses 43 (35)
Income taxes payable 74 (15)
Termination of interest rate swap agreements 54 -
Other assets and liabilities, net 15 (41)
Net cash provided by operating activities 765 549
--- ---
Cash flows from investing activities:
Business acquisitions, net of cash acquired (139) (41)
Proceeds from disposition of businesses 270 -
Capital expenditures (165) (169)
Investment in equity method investee - (37)
(Increase) decrease in investments and other assets (11) 10
Net cash used in investing activities (45) (237)
--- ----
Cash flows from financing activities:
Proceeds from borrowings 1,869 2,214
Repayments of debt (1,722) (2,235)
Purchases of treasury stock (440) (174)
Exercise of stock options 63 58
Employee payroll tax withholdings on stock issued under stock-based compensation plans (10) (6)
Dividends paid (168) (158)
Distributions to noncontrolling interests (31) (28)
Sale of noncontrolling interest in subsidiary - 51
Payment of deferred business acquisition consideration - (51)
Other financing activities, net (8) (52)
Net cash used in financing activities (447) (381)
---- ----
Net change in cash and cash equivalents 273 (69)
Cash and cash equivalents, beginning of period 133 192
--- ---
Cash and cash equivalents, end of period $406 $123
---- ----
Cash paid during the period for:
Interest $116 $151
Income taxes $262 $249
Notes to Financial Tables
1) The computation of basic and
diluted earnings per common
share is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2016 2015 2016 2015
---- ---- ---- ----
(in millions, except per share data)
Amounts attributable to Quest Diagnostics' common stockholders:
Net income attributable to Quest Diagnostics $192 $342 $490 $521
Less: earnings allocated to participating securities 2 2 3 3
Earnings available to Quest Diagnostics' common stockholders - basic and diluted $190 $340 $487 $518
---- ---- ---- ----
Weighted average common shares outstanding - basic 139 144 141 144
Effect of dilutive securities:
Stock options and performance share units 3 1 2 1
Weighted average common shares outstanding - diluted 142 145 143 145
--- --- --- ---
Earnings per share attributable to Quest Diagnostics' common stockholders:
Basic $1.37 $2.37 $3.46 $3.61
----- ----- ----- -----
Diluted $1.34 $2.35 $3.42 $3.58
----- ----- ----- -----
2) In the second quarter of 2016, the
company elected to early adopt the
accounting standard update that
simplifies several aspects of the
accounting for stock-based
compensation award transactions,
including the income tax consequences,
classification of awards as either
equity or liabilities, classification
on the statement of cash flows and
accounting for forfeitures, effective
January 1, 2016. As a result, certain
reclassifications have been made to
the prior period financial statements
to conform with the current period
presentation.
3) The following tables reconcile reported
GAAP results to non-GAAP adjusted
results:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2016 2015 2016 2015
---- ---- ---- ----
(dollars in millions, except per share data)
Adjusted operating income:
--------------------------
Operating income $322 $631 $1,001 $1,160
Gain on disposition of business (a) - (334) (118) (334)
Restructuring and integration charges (b) 18 29 55 83
Other (c) (20) (1) (13) 6
--- --- --- ---
Adjusted operating income $320 $325 $925 $915
---- ---- ---- ----
Adjusted operating income as a percentage of net revenues:
----------------------------------------------------------
Operating income as a percentage of net revenues 17.1% 33.6% 17.7% 20.5%
Gain on disposition of business (a) - (17.8) (2.1) (5.9)
Restructuring and integration charges (b) 1.0 1.5 1.0 1.5
Other (c) (1.1) - (0.2) 0.1
---- --- ---- ---
Adjusted operating income as a percentage of net revenues 17.0% 17.3% 16.4% 16.2%
---- ---- ---- ----
Adjusted net income:
--------------------
Net income attributable to Quest Diagnostics $192 $342 $490 $521
Gain on disposition of business (a) - (334) (118) (334)
Retirement of debt and related refinancing charges (d) - - 48 150
Restructuring and integration charges (b) 18 34 58 88
Other (c) (20) (1) (6) 6
Income tax expense (benefit) associated with the special items above (e) (8) 131 37 52
--- --- --- ---
Adjusted net income $182 $172 $509 $483
---- ---- ---- ----
Adjusted diluted EPS excluding amortization expense:
----------------------------------------------------
Diluted earnings per common share $1.34 $2.35 $3.42 $3.58
Gain on disposition of business (a) (e) - (1.30) (0.24) (1.30)
Retirement of debt and related refinancing charges (d) (e) - (0.01) 0.21 0.63
Restructuring and integration charges (b) (e) 0.08 0.14 0.25 0.37
Other (c) (e) (0.15) - (0.09) 0.03
Amortization expense (f) 0.10 0.10 0.29 0.27
---- ---- ---- ----
Adjusted diluted EPS excluding amortization expense $1.37 $1.28 $3.84 $3.58
----- ----- ----- -----
Revenue on an equivalent basis:
-------------------------------
Net revenues $1,885 $1,880 $5,654 $5,644
Excluded revenue (g) - (34) - (145)
--- --- --- ----
Revenue on an equivalent basis $1,885 $1,846 $5,654 $5,499
------ ------ ------ ------
(a) For the nine months ended
September 30, 2016, represents
the pre-tax gain on the sale of
our Focus Diagnostics products
business to DiaSorin S.p.A. for
$300 million in cash, or $293
million net of transaction costs
and working capital adjustments,
which includes $25 million of
proceeds held in escrow. For the
three and nine months ended
September 30, 2015, represents
the gain associated with the
contribution of our clinical
trials testing business to Q(2)
Solutions, the clinical trials
joint venture with Quintiles
Transnational Holdings Inc.
(b) For the three and nine months
ended September 30, 2016,
represents costs primarily
associated with systems
conversions and integration
incurred in connection with
further restructuring and
integrating our business. For the
three and nine months ended
September 30, 2015, represents
costs primarily associated with
workforce reductions and
professional fees incurred in
connection with further
restructuring and integrating our
business. The following table
summarizes the pre-tax impact of
restructuring and integration
charges on the company's
consolidated statements of
operations:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2016 2015 2016 2015
---- ---- ---- ----
(dollars in millions)
Cost of services $8 $20 $25 $51
Selling, general and administrative 10 9 30 32
--- --- --- ---
Operating income $18 $29 $55 $83
--- --- --- ---
Equity in earnings of equity method investees, net of taxes $ - $5 $3 $5
--- --- --- --- ---
(c) For the three months ended
September 30, 2016, primarily
represents a gain on escrow
recovery associated with an
acquisition. For the nine
months ended September 30, 2016,
primarily represents a gain on
escrow recovery associated with
an acquisition, partially offset
by costs associated with winding
down subsidiaries, non-cash
asset impairment charges and
costs incurred related to
certain legal matters. For the
nine months ended September 30,
2015, primarily represents non-
cash asset impairment charges
primarily associated with our
Celera products business and
costs incurred related to
certain legal matters, partially
offset by a gain of $13 million
associated with a decrease in
the fair value of the contingent
consideration accrual associated
with our Summit Health, Inc.
("Summit Health") acquisition.
The following table summarizes
the pre-tax impact of these
other items on the company's
consolidated statements of
operations:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2016 2015 2016 2015
---- ---- ---- ----
(dollars in millions)
Selling, general and administrative $ - $ - $6 $7
Other operating income, net (20) (1) (19) (1)
--- --- --- ---
Operating income $(20) $(1) $(13) $6
---- --- ---- ---
Other non-operating expense, net $ - $ - $7 $ -
--- --- --- --- --- --- ---
(d) For the nine months ended
September 30, 2016, represents
charges associated with the
March 2016 cash tender offer
where the company purchased $200
million of its 6.95% Senior
Notes due July 2037 and 5.75%
Senior Notes due January 2040.
For the nine months ended
September 30, 2015, represents:
charges associated with the
March 2015 cash tender offer
where the company purchased $250
million aggregate principal
amount of its 6.95% Senior Notes
due July 2037 and 5.75% Senior
Notes due January 2040; and
charges associated with the
April 2015 redemption where the
company redeemed all of its
5.45% Senior Notes due November
2015, $150 million of its 3.2%
Senior Notes due April 2016 and
all of its 6.4% Senior Notes due
July 2017. The following table
summarizes the pre-tax impact
of retirement of debt and
related refinancing charges on
the company's consolidated
statements of operations:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2016 2015 2016 2015
---- ---- ---- ----
(dollars in millions)
Interest
expense,
net $ - $ - $ - $6
Other
non-
operating
expense,
net - - 48 144
--- --- --- ---
$ - $ - $48 $150
--- --- --- --- --- ----
(e) For the nine months ended
September 30, 2016, for the
gain on disposition of
business, income tax expense
resulted in a combined tax rate
of 71.4%, which was
significantly in excess of the
combined statutory rate due to
a lower tax basis in the assets
sold, specifically the goodwill
associated with the
disposition. For the nine
months ended September 30,
2015, for the gain on
disposition of business, income
tax expense resulted in a
combined tax rate of 43.3%.
For the retirement of debt and
related refinancing charges,
income tax benefits were
calculated using a combined tax
rate of 38.9% and 40% for 2016
and 2015, respectively. For
the restructuring and
integration charges and other
items, income tax impacts,
where recorded, were calculated
using combined tax rate of
38.9% for both 2016 and 2015.
The following table summarizes
the income tax expense
(benefit) associated with the
special items:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2016 2015 2016 2015
---- ---- ---- ----
(dollars in millions)
Gain on disposition of business $ - $145 $84 $145
Retirement of debt and related refinancing charges - (2) (18) (58)
Restructuring and integration charges (8) (13) (23) (34)
Other - 1 (6) (1)
--- --- --- ---
$(8) $131 $37 $52
--- ---- --- ---
(f) Represents the impact of
amortization expense on
diluted earnings per common
share, net of the income tax
benefit. The income tax
benefit was primarily
calculated using a combined
tax rate of 38.9% for 2016
and 2015. The pre-tax
amortization expense that is
excluded from the calculation
of adjusted diluted EPS
excluding amortization
expense is recorded in the
company's statements of
operations as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2016 2015 2016 2015
---- ---- ---- ----
(dollars in millions)
Amortization of intangible assets $18 $20 $54 $61
Equity in earnings of equity method investees, net of taxes 4 4 12 4
--- --- --- ---
$22 $24 $66 $65
--- --- --- ---
(g) Effective July 1, 2015, the
company contributed its
clinical trials testing
business to the Q(2)
Solutions joint venture. In
2016, the company wound down
its Celera products business
and completed its exit from
the products business as a
result of the sale of Focus
Diagnostics products on May
13, 2016. For the three
months ended September 30,
2015, excluded revenue
represents Celera products
and Focus Diagnostics
products reported revenues.
Excluded revenue for the nine
months ended September 30,
2015, represents clinical
trials testing reported
revenues for the first and
second quarters of 2015,
Celera products reported
revenues for the first,
second and third quarters of
2015 and Focus Diagnostics
products revenues subsequent
to April 2015.
4) For the nine months ended September
30, 2016, the company recorded
income tax expense of $84 million
associated with the gain on sale of
our Focus Diagnostics products
business, consisting of $91 million
of current income tax expense and a
deferred income tax benefit of $7
million. In connection with the
gain associated with the
contribution of our clinical trial
testing business to the Q(2)
Solutions joint venture, the
company recorded a deferred income
tax liability of $145 million for
the three and nine months ended
September 30, 2015.
5) Other operating income, net includes
miscellaneous income and expense
items related to operating
activities. For the three and nine
months ended September 30, 2016,
other operating income, net
principally consists of a gain on
an escrow recovery associated with
an acquisition. Other operating
income, net for the nine months
ended September 30, 2015,
principally includes non-cash
asset impairment charges primarily
associated with our Celera products
business, essentially offset by a
gain of $13 million associated with
a decrease in the fair value of the
contingent consideration accrual
associated with our Summit Health
acquisition.
6) Other income (expense), net
represents miscellaneous income and
expense items related to non-
operating activities, such as gains
and losses associated with
investments, other non-operating
assets and early retirement of
debt. For the nine months ended
September 30, 2016, other income
(expense), net includes $48 million
of charges on the retirement of
debt associated with the March 2016
cash tender offer and non-cash
asset impairment charges associated
with certain investments of $7
million. Other income (expense),
net for the nine months ended
September 30, 2015 includes $144
million of charges on the
retirement of debt associated with
March 2015 tender offer and April
2015 redemption.
7) For the nine months ended September
30, 2016, the company repurchased
5.7 million shares of its common
stock for $440 million, including
3.1 million shares repurchased
under an accelerated share
repurchase agreement during the
second and third quarters of 2016
for $250 million.
At September 30, 2016, $532 million remained
available under the company's share repurchase
authorizations.
8) The outlook for adjusted diluted EPS
excluding amortization expense
represents management's estimates
for the full year 2016 before the
impact of special items and
amortization expense. Further
impacts to earnings related to
special items may be incurred
throughout the remainder of the
year. The following table
reconciles our 2016 outlook for
adjusted diluted EPS excluding
amortization expense to the
corresponding amounts determined
under GAAP:
Low High
--- ----
(dollars in millions,
except per share data)
Adjusted diluted EPS excluding
amortization expense:
------------------------------
Diluted earnings per common share $4.47 $4.52
Gain on disposition of business
(a) (0.24) (0.24)
Retirement of debt and related
refinancing charges (b) 0.21 0.21
Restructuring and integration
charges (c) 0.34 0.34
Other (d) (0.09) (0.09)
Amortization expense (e) 0.38 0.38
---- ----
Adjusted diluted EPS excluding
amortization expense $5.07 $5.12
----- -----
(a) Represents the pre-tax gain of $118
million on the sale of our Focus
Diagnostics products business.
(b) Represents pre-tax charges of $48
million associated with the
retirement of debt and related
refinancing charges in connection
with the March 2016 cash tender
offer.
(c) Represents estimated full year pre-
tax charges of $80 million
primarily associated with systems
conversions and integration costs
incurred in connection with further
restructuring and integrating our
business. Income tax benefits were
calculated using a combined tax
rate of 38.9%.
(d) Represents a net pre-tax gain of $6
million primarily associated with a
gain on escrow recovery associated
with an acquisition, partially
offset by costs associated with
winding down subsidiaries, non-
cash asset impairment charges and
costs incurred related to certain
legal matters through September 30,
2016.
(e) Represents the full year impact of
amortization expense on the
calculation of adjusted diluted EPS
excluding amortization expense.
Amortization expense used in the
calculation is as follows (dollars
in millions):
Amortization of intangible
assets $72
Amortization expense included in
equity in earnings of equity
method investees 17
---
Total pre-tax amortization
expense $89
---
Total amortization expense, net
of an estimated tax benefit $55
---
9) The updated outlook for 2.5% revenue
growth on an equivalent basis in
2016 represents management's
revenue estimates for 2016 versus
reported 2015 revenues adjusted to
exclude: the 2015 revenues from the
clinical trials testing and Celera
products businesses; and certain
2015 revenues from the Focus
Diagnostics products business. In
2015, the company contributed its
clinical trials testing business to
the Q(2) Solutions joint venture.
In 2016, the company wound down its
Celera products business and
completed its exit from the
products business as a result of
the sale of Focus Diagnostics
products on May 13, 2016. The
following table reconciles our 2015
net revenues determined under GAAP
with equivalent revenue for 2015:
Three Months Ended Year Ended
------------------ ----------
March 31, June 30, September 30, December 31, December 31,
2015 2015 2015 2015 2015
---- ---- ---- ---- ----
(dollars in millions)
2015 Revenue on an equivalent basis:
------------------------------------
Net revenues $1,839 $1,925 $1,880 $1,849 $7,493
Excluded revenue:
Clinical trials (a) (40) (45) - - (85)
Products (b) (7) (19) (34) (24) (84)
--- --- --- --- ---
2015 Revenue on an equivalent basis $1,792 $1,861 $1,846 $1,825 $7,324
------ ------ ------ ------ ------
2016 Revenue outlook:
---------------------
2015 Revenue on an equivalent basis $7,324
2016 Equivalent revenue growth 2.5%
---
2016 Revenue outlook $7,510
------
(a) Effective July 1, 2015, the
company contributed its
clinical trials testing
business to the Q(2)
Solutions joint venture.
Clinical trials testing
revenues reported in the
first and second quarters of
2015 are excluded to provide
2015 revenue on an equivalent
basis.
(b) Celera products revenues
reported during 2015 and
Focus Diagnostics products
revenues subsequent to April
2015 have been excluded to
provide 2015 revenue on an
equivalent basis.
Contacts:
Shawn Bevec (Investors):
973-520-2900
Dennis Moynihan (Media):
973-520-2800
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SOURCE Quest Diagnostics Incorporated
