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Quest Diagnostics Reports Third Quarter 2011 Financial Results

October 25, 2011

MADISON, N.J., Oct. 25, 2011 /PRNewswire/ — Quest Diagnostics Incorporated (NYSE: DGX), the world’s leading provider of diagnostic testing, information and services, announced today that for the third quarter ended September 30, 2011, adjusted income from continuing operations was $189 million, or $1.18 per diluted share. For the third quarter of 2010, reported income from continuing operations was $198 million, or $1.13 per diluted share. Income from continuing operations in the third quarter of 2011 was reduced by $0.10 per share in charges, principally related to restructuring and integration activities. Including these items, reported income from continuing operations was $172 million, or $1.08 per diluted share. Third quarter results include a benefit of $0.05 per share in 2011 and $0.08 per share in 2010, primarily associated with the favorable resolution of tax contingencies.

Revenues increased 2.2% to $1.9 billion for the third quarter. The acquisitions of Athena and Celera contributed 3.0% to revenue growth. Clinical testing revenues increased approximately 1%, with revenue per requisition up 2.1% and volume, measured by the number of requisitions, down 1.2%.

For the third quarter of 2011, adjusted operating income was $349 million or 18.3% of revenues. For the third quarter of 2010, reported operating income was $337 million, or 18.1% of revenues. Including the impact of restructuring and integration costs, reported operating income was $322 million, or 16.9% of revenues, in 2011. Cash flow from operations was $338 million, compared to $330 million in 2010. During the third quarter, the company repurchased $50 million of its common shares.

“During the third quarter, revenues grew 2.2%, adjusted earnings per share increased 4%, and we generated strong cash flow . While there are signs of progress in a number of areas, there is still much work to be done,” said Surya N. Mohapatra, Ph.D., Chairman and CEO. “We remain focused on increasing shareholder value and improving returns on capital. We are taking a series of actions to improve our performance by driving organic growth and significantly reducing our cost structure.”

Dr. Mohapatra continued: “In addition, with key strategic capabilities now in place as a result of recent acquisitions, we plan to return the majority of our future cash flow to shareholders. This morning we announced a 70% increase in our dividend, demonstrating confidence in our continued ability to generate strong cash flow. Together, we believe these actions, over time, will be successful in unlocking significant shareholder value.”

Year-to-Date Performance

Revenues of $5.6 billion increased 1.6% from 2010. For the first nine months of 2011, adjusted income from continuing operations was $532 million, or $3.30 per diluted share, compared to adjusted income from continuing operations of $575 million, or $3.20 per diluted share, in 2010. On a reported basis, income from continuing operations was $282 million, or $1.75 per diluted share in 2011, compared to $556 million, or $3.09 per diluted share, in 2010.

Adjusted operating income for the first nine months of 2011 was $988 million, or 17.5% of revenues, compared to adjusted operating income of $1.0 billion, or 18.6% of revenues, for 2010. On a reported basis, operating income was $670 million, or 11.9% of revenues, in 2011, compared to $1.0 billion, or 18.1% in 2010. Cash provided by operations was $558 million and was reduced by the Medi-Cal settlement payment, restructuring, transaction and integration costs, totaling $244 million. Before these items, cash flow was $802 million, compared to $778 million in 2010. During the first nine months of 2011, the company repurchased $885 million of its common shares.

Outlook for 2011

For the full-year 2011, the company estimates results from continuing operations, before future special items, as follows:

  • Revenues to grow 1.5%, unchanged from previous guidance;
  • Earnings per share to be between $4.30 and $4.35 on an adjusted basis and between $2.74 and $2.79 on a reported basis, compared to previous guidance of between $4.25 to $4.35 on an adjusted basis and between $2.81 and $2.91 on a reported basis.
  • Operating income as a percentage of revenues to be 17.5% on an adjusted basis, unchanged from previous guidance, and 13.3% on a reported basis;
  • Cash from operations to approximate $1.1 billion before the effect of the Medi-Cal settlement payment, restructuring, transaction and integration costs, and to approximate $900 million after these items, unchanged from previous guidance; and
  • Capital expenditures to approximate $190 million, compared to $200 million previously.

Conference Call Information

Quest Diagnostics will hold its third quarter conference call on October 25, 2011 at 8:30 a.m. Eastern Time. The public may access the conference call through a live audio webcast available on Quest Diagnostics’ Investor Relations Internet site at www.QuestDiagnostics.com/investor. 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. Registered analysts may access the call at: www.streetevents.com. In addition, a replay of the call may be accessed online at www.QuestDiagnostics.com/investor or by phone in the U.S. at 888-673-3567 for domestic callers, or 402-220-6430 for international callers. No access code will be required. Telephone replays will be available until midnight Eastern Time on November 22, 2011.

About Quest Diagnostics

Quest Diagnostics Incorporated (NYSE: DGX) is the world’s leading provider of diagnostic testing, information and services that patients and doctors need to make better healthcare decisions. The company offers the broadest access to diagnostic testing services through its network of laboratories and patient service centers, and provides interpretive consultation through its extensive medical and scientific staff. Quest Diagnostics is a pioneer in developing innovative new diagnostic tests and advanced healthcare information technology solutions that help improve patient care. Additional company information is available at: www.QuestDiagnostics.com.

The statements in this press release which are not historical facts may be forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date that they are made and which reflect management’s current estimates, projections, expectations or beliefs and which involve risks and uncertainties that could cause actual results and outcomes to be materially different. Risks and uncertainties that may affect the future results of the company include, but are not limited to, adverse results from pending or future government investigations, lawsuits or private actions, the competitive environment, changes in government regulations, changing relationships with customers, payers, suppliers and strategic partners and other factors discussed in “Business,” “Risk Factors,” “Cautionary Factors that May Affect Future Results,” “Legal Proceedings,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Quantitative and Qualitative Disclosures About Market Risk” in the company’s 2010 Annual Report on Form 10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk” and “Risk Factors” in the company’s quarterly reports on Form 10-Q and other items throughout the Form 10-K and the company’s 2011 quarterly reports on Form 10-Q and Current Reports on Form 8-K.

This earnings release, including the attached financial tables, is available online in the Newsroom section at www.QuestDiagnostics.com.

Note on Non-GAAP Financial Measures

As used in this press release, the term adjusted refers to the operating performance measures that exclude the estimated impact of severe weather, restructuring charges, the Medi-Cal settlement and costs associated with the Athena Diagnostics and Celera transactions. 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.

TABLES FOLLOW


                       Quest Diagnostics Incorporated and Subsidiaries
                            Consolidated Statements of Operations
                    For the Three and Nine Months Ended September 30, 2011
                                           and 2010
                     (in millions, except per share and percentage data)
                                         (unaudited)

                                          Three Months Ended                  Nine Months Ended
                                            September 30,                      September 30,
                                            -------------                      -------------

                                           2011            2010             2011            2010
                                           ----            ----             ----            ----

    Net
     revenues                          $1,906.4        $1,864.7         $5,631.2        $5,544.9

     Operating
     costs
     and
     expenses:
    Cost
     of
     services                           1,116.6         1,091.5          3,318.0         3,236.8
     Selling,
     general
     and
     administrative                       446.5           426.6          1,357.2         1,276.7
     Amortization
     of
     intangible
     assets                                19.4             9.9             47.8            28.5
    Other
     operating
     expense
     (income),
     net                                    1.8          (0.1)        238.3           1.6
                                            ---            ----            -----             ---
       Total
        operating
        costs
        and
        expenses                        1,584.3       1,527.9       4,961.3       4,543.6
                                        -------         -------          -------         -------

     Operating
     income                               322.1           336.8            669.9         1,001.3

    Other
     income
     (expense):
     Interest
     expense,
     net                                  (43.4)          (36.2)          (127.9)         (108.5)
    Equity
     earnings
     in
     unconsolidated
     joint
     ventures                               7.3           7.2          22.9          22.5
    Other
     (expense)
     income,
     net                                   (2.8)            3.2             (0.9)            2.1
                                           ----             ---             ----             ---
       Total
        non-
        operating
        expenses,
        net                               (38.9)        (25.8)       (105.9)        (83.9)
                                          -----           -----           ------           -----

    Income
     from
     continuing
     operations
     before
     taxes                                283.2         311.0         564.0         917.4
    Income
     tax
     expense                              101.1           102.9            256.1           333.9
                                          -----           -----            -----           -----
    Income
     from
     continuing
     operations                           182.1           208.1            307.9           583.5
    Loss
     from
     discontinued
     operations,
     net
     of
     taxes                                 (0.3)         (0.4)         (1.2)         (0.7)
                                           ----            ----             ----            ----
    Net
     income                               181.8           207.7            306.7           582.8
    Less:
     Net
     income
     attributable
     to
     noncontrolling
     interests                             10.0           9.7          25.6          27.7
                                           ----             ---             ----            ----
    Net
     income
     attributable
     to
     Quest
     Diagnostics                         $171.8        $198.0        $281.1        $555.1
                                         ======          ======           ======          ======

       Amounts
       attributable
       to
       Quest
       Diagnostics'
    common
     stockholders:
    Income
     from
     continuing
     operations                          $172.1          $198.4           $282.3          $555.8
    Loss
     from
     discontinued
     operations,
     net
     of
     taxes                                 (0.3)         (0.4)         (1.2)         (0.7)
                                           ----            ----             ----            ----
    Net
     income                              $171.8          $198.0           $281.1          $555.1
                                         ======          ======           ======          ======

     Earnings
     per
     share
     attributable
     to
     Quest
     Diagnostics'
     common
     stockholders
     -
     basic:
    Income
     from
     continuing
     operations                           $1.08           $1.14            $1.76           $3.12
    Loss
     from
     discontinued
     operations                               -               -            (0.01)              -
                                            ---             ---            -----             ---
    Net
     income                               $1.08           $1.14            $1.75           $3.12
                                          =====           =====            =====           =====

     Earnings
     per
     share
     attributable
     to
     Quest
     Diagnostics'
     common
     stockholders
     -
     diluted:
    Income
     from
     continuing
     operations                           $1.08           $1.13            $1.75           $3.09
    Loss
     from
     discontinued
     operations                           (0.01)              -            (0.01)              -
                                          -----             ---            -----             ---
    Net
     income                               $1.07           $1.13            $1.74           $3.09
                                          =====           =====            =====           =====

     Weighted
     average
     common
     shares
     outstanding:
    Basic                                 157.8           173.2            159.0           177.5
    Diluted                               159.0           174.3            160.5           179.2

     Operating
     income
     as a
     percentage
     of
     net
     revenues                              16.9%         18.1%         11.9%         18.1%


                 Quest Diagnostics Incorporated and Subsidiaries
                           Consolidated Balance Sheets
                    September 30, 2011 and December 31, 2010
                      (in millions, except per share data)

                                                    September
                                                       30,       December 31,
                                                   ----------    ------------
                                                          2011           2010
                                                           ---            ---
                                                  (unaudited)

    Assets
    ------
    Current assets:
    Cash and cash equivalents                           $110.8         $449.3
    Accounts receivable, net                             936.3          845.3
    Inventories                                           85.0           76.6
    Deferred income taxes                                166.9          142.5
    Prepaid expenses and other current
     assets                                               97.3           91.7
                                                          ----           ----
      Total current assets                             1,396.3        1,605.4
    Property, plant and equipment, net                   806.0          834.4
    Goodwill                                           5,796.2        5,101.9
    Intangible assets, net                             1,054.6          796.4
    Other assets                                         273.4          189.5
                                                         -----          -----
    Total assets                                      $9,326.5       $8,527.6
                                                      ========       ========

    Liabilities and Stockholders' Equity
    ------------------------------------
    Current liabilities:
    Accounts payable and accrued expenses               $928.2         $865.3
    Short-term borrowings and current
     portion of long-term debt                           835.9          349.0
                                                         -----          -----
      Total current liabilities                        1,764.1        1,214.3
    Long-term debt                                     3,367.8        2,641.2
    Other liabilities                                    649.6          618.1
    Stockholders' equity:
    Quest Diagnostics stockholders' equity:
      Common stock, par value $0.01 per
       share; 600 shares                                   2.1            2.1
    authorized at both September 30, 2011
     and December 31,
    2010; 214.6 shares and 214.2 shares
     issued at September
    30, 2011 and December 31, 2010, respectively
      Additional paid-in capital                       2,331.1        2,311.4
      Retained earnings                                4,101.1        3,867.4
      Accumulated other comprehensive (loss)
       income                                             (5.4)          10.6
      Treasury stock, at cost; 57.2 shares
       and 43.5 shares at                             (2,906.5)      (2,158.1)
    September 30, 2011 and December 31,
     2010, respectively                               --------       --------
    Total Quest Diagnostics stockholders'
     equity                                            3,522.4        4,033.4
    Noncontrolling interests                              22.6           20.6
                                                          ----           ----
      Total stockholders' equity                       3,545.0        4,054.0
                                                       -------        -------
    Total liabilities and stockholders'
     equity                                           $9,326.5       $8,527.6
                                                      ========       ========


                 Quest Diagnostics Incorporated and Subsidiaries
                      Consolidated Statements of Cash Flows
              For the Nine Months Ended September 30, 2011 and 2010
                                  (in millions)
                                   (unaudited)

                                                      Nine Months Ended
                                                        September 30,
                                                        -------------
                                                      2011             2010
                                                      ----             ----

            Cash flows from operating activities:
    Net income                                      $306.7           $582.8
    Adjustments to reconcile net income to net cash
     provided by operating activities:
    Depreciation and amortization                    209.4            190.4
    Provision for doubtful accounts                  214.4            222.9
    Deferred income tax provision (benefit)            3.3             (4.7)
    Stock-based compensation expense                  50.8             45.0
    Excess tax benefits from stock-based
     compensation arrangements                        (4.6)               -
    Provision for special charge                     236.0                -
    Other, net                                         5.7             14.3
    Changes in operating assets and liabilities:
      Accounts receivable                           (271.1)          (279.9)
      Accounts payable and accrued expenses          (84.4)           (26.6)
      Settlement of special charge                  (241.0)               -
      Income taxes payable                           122.1             19.1
      Other assets and liabilities, net               10.4             15.2
                                                      ----             ----
    Net cash provided by operating activities        557.7            778.5
                                                     -----            -----

    Cash flows from investing activities:
    Business acquisitions, net of cash
     acquired                                     (1,298.5)               -
    Sale of securities acquired in business
     acquisition                                     213.5                -
    Capital expenditures                            (117.9)          (136.3)
    Decrease (increase) in investments and
     other assets                                      0.8             (3.5)
                                                       ---             ----
    Net cash used in investing activities         (1,202.1)          (139.8)
                                                  --------           ------

    Cash flows from financing activities:
    Proceeds from borrowings                       2,658.3                -
    Repayments of debt                            (1,495.1)            (2.6)
    Purchases of treasury stock                     (885.0)          (750.0)
    Exercise of stock options                        104.0             40.8
    Excess tax benefits from stock-based
     compensation arrangements                         4.6                -
    Dividends paid                                   (48.8)           (54.2)
    Distributions to noncontrolling interests        (25.8)           (25.6)
    Other financing activities, net                   (6.3)           (12.1)
                                                      ----            -----
    Net cash provided by (used in) financing
     activities                                      305.9           (803.7)
                                                     -----           ------

    Net change in cash and cash equivalents         (338.5)          (165.0)

    Cash and cash equivalents, beginning of
     period                                          449.3            534.3
                                                     -----            -----

    Cash and cash equivalents, end of period        $110.8           $369.3
                                                    ======           ======

    Cash paid during the period for:
    Interest                                        $128.3           $118.5
    Income taxes                                    $132.7           $324.4


    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,
                                                       -------------                   -------------
                                                      2011          2010            2011          2010
                                                      ----          ----            ----          ----
                                                           (in millions, except per share data)
    Amounts
     attributable
     to Quest
     Diagnostics'
     common
     stockholders:
    Income
     from
     continuing
     operations                                     $172.1        $198.4          $282.3        $555.8
    Loss from
     discontinued
     operations,
     net of
     taxes                                          (0.3)       (0.4)       (1.2)       (0.7)
                                                      ----          ----            ----          ----
    Net income
     available
     to common
     stockholders                                   $171.8        $198.0          $281.1        $555.1
                                                    ======        ======          ======        ======

    Income
     from
     continuing
     operations                                     $172.1        $198.4          $282.3        $555.8
    Less:
     Earnings
     allocated
     to
     participating
     securities                                      0.9         0.9         1.9         2.5
                                                       ---           ---             ---           ---
    Earnings
     available
     to Quest
     Diagnostics'
     common
     stockholders
     - basic
     and
     diluted                                      $171.2      $197.5      $280.4      $553.3
                                                    ======        ======          ======        ======

    Weighted
     average
     common
     shares
     outstanding
     - basic                                       157.8       173.2       159.0       177.5

    Effect of
     dilutive
     securities:
    Stock
     options
     and
     performance
     share
     units                                           1.2         1.1         1.5         1.7
                                                       ---           ---             ---           ---

    Weighted
     average
     common
     shares
     outstanding
     - diluted                                     159.0       174.3       160.5       179.2
                                                     =====         =====           =====         =====

    Earnings
     per share
     attributable
     to Quest
     Diagnostics'
     common
     stockholders
     -basic:
    Income
     from
     continuing
     operations                                      $1.08         $1.14           $1.76         $3.12
    Loss from
     discontinued
     operations                                          -             -           (0.01)            -
                                                       ---           ---           -----           ---
    Net income                                       $1.08         $1.14           $1.75         $3.12
                                                     =====         =====           =====         =====

    Earnings
     per share
     attributable
     to Quest
     Diagnostics'
     common
     stockholders
     -
     diluted:
    Income
     from
     continuing
     operations                                      $1.08         $1.13           $1.75         $3.09
    Loss from
     discontinued
     operations                                      (0.01)            -           (0.01)            -
                                                     -----           ---           -----           ---
    Net income                                       $1.07         $1.13           $1.74         $3.09
                                                     =====         =====           =====         =====


    (2) Adjusted amounts for operating income, operating income as a
     percentage of net revenues, income from continuing operations, and
     diluted earnings per common share represent the Company's results
     before the impact of the Medi-Cal charge, restructuring charges,
     transaction and integration costs related to the acquisitions of
     Athena Diagnostics and Celera Corporation, and the estimated impact
     of severe weather in the first quarter of 2011.  Adjusted measures
     are presented because management believes those measures are useful
     adjuncts to reported results under accounting principles generally
     accepted in the United States of America 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 September 30, 2011
                              -------------------------------------
                              (dollars in millions, except per share
                                              data)
                             ---------------------------------------
                             As                                        As
                         Reported    Restructuring   Integration   Adjusted
                        ---------       Charges         Costs     ---------
                                           (a)           (b)
                                           ---           ---
    Operating income        $322.1           $26.0          $1.3      $349.4
    Operating income as
     a % of net
     revenues                 16.9%            1.4%           -%       18.3%
    Income from
     continuing
     operations (c)          172.1            15.8           0.9       188.8
    Diluted earnings
     per common share         1.08            0.10             -        1.18


    (a)  Results for the three months ended September 30, 2011 include $26.0
     million of pre-tax restructuring charges, or $0.10 per diluted share,
     principally associated with workforce reductions.  Of these costs,
     $15.9 million and $10.1 million were included in cost of services and
     selling, general and administrative expenses, respectively.

    (b)  Results for the three months ended September 30, 2011 include $1.3
     million of pre-tax integration related costs associated with the
     acquisitions of Athena Diagnostics and Celera Corporation.   These
     costs were recorded in selling, general, and administrative expenses.

    (c)  Income tax expense of $10.2 million and $0.4 million associated
     with restructuring charges and integration related costs, respectively,
     was calculated using a combined federal and state rate of 39%.


                                    Nine months ended September 30, 2011
                                    ------------------------------------
                                (dollars in millions, except per share data)
                                --------------------------------------------
                        As     Medi-Cal    Restructuring   Transaction    Severe       As
                    Reported   --------       Charges           and       ------   Adjusted
                    --------     Charge       -------      Integration   Weather   --------
                                 ------         (e)           Costs      -------
                                  (d)           ---           -----        (g)
                                  ---                           (f)        ---
                                                                ---
    Operating
     income            $669.9     $236.0           $39.3         $24.0      $18.5     $987.7
    Operating
     income as a %
     of net
     revenues            11.9%       4.2%            0.7%          0.4%       0.3%      17.5%
    Income from
     continuing
     operations (h)     282.3      194.7            23.9          19.5       11.3      531.7
    Diluted
     earnings per
     common share        1.75       1.21            0.15          0.12       0.07       3.30


    (d)  Represents the first quarter 2011 pre-tax charge of $236 million
     associated with the agreement in principle related to Medi-Cal.  The
     terms of the final settlement, which was subsequently reached in the
     second quarter, were consistent with the agreement in principle and
     resulted in no additional charge.

    (e)  Results for the nine months ended September 30, 2011 include $39.3
     million of pre-tax restructuring charges, or $0.15 per diluted share,
     principally associated with workforce reductions.  Of these costs,
     $24.9 million and $14.4 million were included in cost of services and
     selling, general and administrative expenses, respectively.

    (f)  Results for the nine months ended September 30, 2011 include $27.1
     million of pre-tax transaction and integration costs, or $0.12 per
     diluted share, associated with the acquisitions of Athena Diagnostics
     and Celera Corporation.  Of these costs, $24.0 million, primarily
     related to professional fees and integration charges, was recorded in
     selling, general, and administrative expenses and $3.1 million of
     financing related costs were recorded in interest expense, net.

    (g)  Represents an estimate of the impact of severe weather in the first
     quarter of 2011.

    (h)  Income tax expense of $41.3 million associated with the Medi-Cal
     charge was calculated by applying a combined federal and the applicable
     state tax rate of 36% to the portion of the settlement for which a tax
     benefit has been recorded.  Income tax expense of $7.6 million
     associated with transaction and integration costs was calculated by
     applying a combined federal and state rate of 39% to those costs for
     which a tax benefit has been recorded. For the estimated impact of
     severe weather and the impact of restructuring charges, income tax
     expense of $7.2 million and $15.4 million, respectively, was calculated
     using a combined federal and state rate of 39%.


                       Nine months ended September
                                30, 2010
                       ---------------------------
                          (dollars in millions,
                       except per share data) (i)
                      ---------------------------
                       As      Severe    Restructuring      As
                    Reported   Weather      Charges      Adjusted
                    --------   -------      -------      --------
                                 (j)          (k)
                                 ---          ---

    Operating
     income         $1,001.3     $14.1           $17.3   $1,032.7
    Operating
     income as a
     % of net
     revenues           18.1%      0.2%            0.3%      18.6%
    Income from
     continuing
     operations
     (l)               555.8       8.6            10.6      575.0
    Diluted
     earnings per
     common share       3.09      0.05            0.06       3.20


    (i)  As adjusted results for the three months ended September 30, 2010
     have not been presented because there were no special items that
     impacted operating results in that quarter.

    (j)  Represents an estimate of the impact of severe weather in the first
     quarter of 2010.

    (k)  Results for the nine months ended September 30, 2010 include $17.3
     million of pre-tax restructuring charges, or $0.06 per diluted share,
     principally associated with workforce reductions in the first quarter
     of 2010. Of these costs, $4.5 million and $12.8 million were included
     in cost of services and selling, general and administrative expenses,
     respectively.

    (l)  For the estimated impact of severe weather and the impact of
     restructuring charges, income tax expense of $5.5 million and $6.7
     million, respectively, was calculated using a combined federal and
     state rate of 39%.


    (3) The following table summarizes the
     impact to the year over year comparisons
     for the Medi-Cal charge, transaction
     and integration costs, restructuring
     charges, and the estimated impact of
     severe weather on certain reported
     results for the nine months ended
     September 30, 2011 and 2010 (in
     millions, except per share data).
     Comparisons for the three months ended
     September 30, 2011 and 2010 have not
     been presented because there were no
     special items that impacted operating
     results in the third quarter of 2010.


                                                  Transaction
                                                      and
                           Medi-Cal                               Integration
                            Charge                                   Costs
                              --------              -----------
                      2011  2010   Better      2011   2010   Better
                      ----  ----   (Worse)     ----   ----   (Worse)
                                   -------                   -------

    Net revenues        $-    $-        $-       $-     $-        $-
    Cost of
     services            -     -         -        -      -         -
    Selling,
     general and
     administrative      -     -         -     24.0      -     (24.0)
    Operating
     income          236.0     -    (236.0)    24.0      -     (24.0)
    Net income       194.7     -    (194.7)    19.5      -     (19.5)
    Diluted
     earnings per
     common share     1.21     -     (1.21)    0.12      -     (0.12)


                        Restructuring               Severe
                           Charges                 Weather
                          -------------            -------
                     2011  2010   Better       2011   2010   Better
                     ----  ----   (Worse)      ----   ----   (Worse)
                                  -------                    -------

    Net revenues       $-    $-        $-     $25.7  $19.4     $(6.3)
    Cost of
     services        24.9   4.5     (20.4)        *      *         *
    Selling,
     general and
     administrative  14.4  12.8      (1.6)        *      *         *
    Operating
     income          39.3  17.3     (22.0)     18.5   14.1      (4.4)
    Net income       23.9  10.6     (13.3)     11.3    8.6      (2.7)
    Diluted
     earnings per
     common share    0.15  0.06     (0.09)     0.07   0.05     (0.02)


    * The estimated impact on operating costs of severe weather
     predominantly affects cost of services; with a lesser impact on
     selling, general, and administrative expenses.

      (4) Other operating expense (income), net includes special charges, and
       miscellaneous income and expense items related to operating activities.
       For the nine months ended September 30, 2011, other operating expense
       (income), net included a first quarter 2011 pre-tax charge of $236
       million associated with the agreement in principle related to Medi-
       Cal.

     (5) Results for the three and nine months ended September 30, 2011 and
      2010 include benefits of $0.05 and $0.08 per diluted share,
      respectively, primarily associated with the resolution of certain tax
      contingencies.

     (6) Other (expense) 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 and nine months ended September 30, 2011, other (expense)
      income, net includes a pre-tax gain of $3.2 million associated with
      the sale of an investment.  For the three and nine months ended
      September 30, 2011, other (expense) income, net also includes losses of
      $5.9 million and $3.5 million, respectively, associated with
      investments held in trusts pursuant to our supplemental deferred
      compensation plans. For the three and nine months ended September 30,
      2010, other (expense) income, net includes gains of $3.8 million and
      $2.4 million, respectively, associated with investments held in trusts
      pursuant to our supplemental deferred compensation plans.

     (7) In January 2011, our Board of Directors authorized $750 million of
      additional share repurchases, bringing the total available under share
      repurchase authorizations at that date to $1 billion.  For the three
      months ended September 30, 2011, the Company repurchased 1.0 million
      shares of its common stock at a price of $47.79 per share for $50
      million.  For the nine months ended September 30, 2011, the Company
      repurchased 16.4 million shares of its common at a price of $53.89 per
      share for $885 million, including 15.4 million shares of its common
      stock at a price of $54.30 per share for $835 million from SB Holdings
      Capital Inc., a wholly-owned subsidiary of GlaxoSmithKline plc.  For
      the three and nine months ended September 30, 2011, the Company
      reissued 0.2 million shares and 2.7 million shares, respectively, for
      employee benefit plans.  As of September 30, 2011, the Company had $115
      million remaining under share repurchase authorizations.

     (8) The outlook for adjusted diluted earnings per common share, adjusted
      operating income as a percentage of net revenues, and adjusted cash
      flows from operations represent management's estimates for the full
      year 2011 before the impact of the Medi-Cal charge, restructuring
      charges, transaction and integration costs related to the acquisitions
      of Athena Diagnostics and Celera Corporation, and the estimated impact
      of severe weather in the first quarter of 2011. These measures are
      presented because management believes they are useful adjuncts to the
      corresponding amounts determined under accounting principles generally
      accepted in the United States since they are meaningful to evaluate the
      Company's ongoing operating performance and are on a basis consistent
      with previous estimates of diluted earnings per common share, operating
      income as a percentage of net revenues, and cash flows from operations.
      Adjusted diluted earnings per common share, adjusted operating income
      as a percentage of net revenues, and adjusted cash flows from
      operations 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 amounts determined
      under accounting principles generally accepted in the United States.


    The following table reconciles our 2011 outlook, on an adjusted basis,
     to the corresponding amounts determined under accounting principles
     generally accepted in the United States.  The outlook, on an adjusted
     basis, excludes the impact of the Medi-Cal charge, restructuring
     charges, costs associated with the Athena and Celera transactions, and
     the estimated impact of severe weather in the first quarter of 2011.


                         Outlook for 2011 Before Future Special Items
                                   Medi-    Restructuring    Transaction
                          As         Cal        Charges           and      Severe        As
                         ---      ------    --------------   Integration   ------       ---
                      Reported    Charge          (b)           Costs     Weather    Adjusted
                      --------    ------          ---           -----     -------    --------
                                    (a)                          (c)        (d)
                                    ---                          ---        ---
    Diluted earnings
     per common
     share           $2.74-$2.79    $1.22            $0.15         $0.12     $0.07  $4.30-$4.35
    Operating income
     as a % of net
     revenues               13.3%     3.2%             0.5%          0.3%      0.2%        17.5%
    Cash flows from
     operations (in
     millions)          ~$900        $147              $24           $28    (e)       ~$1,100


    (a)  Represents the first quarter 2011 pre-tax charge of $236 million
     related to the Medi-Cal settlement.

    (b) Represents pre-tax restructuring charges of $39.3 million,
     principally associated with workforce reductions.

    (c)  Represents $27.1 million of pre-tax transaction costs associated
     with the acquisitions of Athena Diagnostics and Celera Corporation.
     Of these costs, $24.0 million, primarily related to professional fees
     and integration charges, was recorded in selling, general, and
     administrative expenses and $3.1 million of financing related costs was
     recorded in interest expense, net.  In addition to the after-tax
     impact of the transaction costs noted above, cash flows from operations
     also include the after-tax impact of pre-merger transaction costs
     that were accrued in Celera's opening balance sheet and paid by the
     Company.

    (d) Represents an estimate of the impact of severe weather in the first
     quarter of 2011.

    (e)  Not significant to the outlook for cash flows from operations.

For Quest Diagnostics: Kathleen Valentine (Investors), +1-973-520-2900,
or Gary Samuels (Media), +1-973-520-2800

SOURCE Quest Diagnostics Incorporated


Source: PR Newswire