Quest Diagnostics 2012 Annual Report Download - page 5

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talent acquisition and retention, and instill a winning culture. Our plan is that the combination of these elements will result in
physicians, hospitals, health plans, IDNs and employers more eager than ever to partner with Quest Diagnostics.
We plan to grow esoteric testing revenues through science and innovation focused on value creation for major clinical
opportunities, such as cardiovascular, cancer and neurology. Further, we plan to pursue opportunities to create value from the
integration of lab testing and clinical information. We also plan to provide holistic solutions centered on evidence-supported
standards of care, and to combine routine, guideline mandated testing with esoteric solutions.
In addition, we plan to grow by pursuing strategic partnerships with hospitals and IDNs. We believe that continued
price and utilization pressure will drive demand for our expertise in a range of strategic partnerships, including lab management
outsourcing, outreach acquisition and joint ventures. We can partner with hospitals to drive the success of accountable care
organizations, including by consolidating data and delivering insights, delivering test management solutions to improve care
and help control cost and by providing patient-focused programs to enable effective management of care. Our recent
agreement with UMass Memorial Medical Center is but one example of the kinds of opportunities we see.
We recently launched a multi-year initiative called Project Restore. Project Restore is designed to complement the
Invigorate program and will focus on identifying and implementing opportunities to drive profitable revenue growth across the
organization.
4. Simplify the organization to enable growth and productivity. We concluded that our organization was not structured
to align well with our objectives. Previously, the organization was too complex, and it failed to let the Company take
advantage of its scale and capabilities. We are simplifying and restructuring the organization, including reducing management
layers, so that we can better focus on our customers and speed decision-making. Our new organization is designed to align
around future growth opportunities, to align upstream and downstream units in our business for seamless execution and to
leverage our company-wide infrastructure to gain more capability, value and efficiency. The majority of the organizational
changes began on January 1, 2013. In connection with these changes the Company expects to eliminate three management
layers, and approximately 400 to 600 management positions, by the end of 2013.
The Company is made up of two businesses: Diagnostic Information Services and Diagnostic Solutions. Our
Diagnostic Information Services business develops and delivers diagnostic testing, information and services to patients,
physicians, health plans, hospitals, IDNs, employers and others. It is comprised of two parts. The value creation side of the
business focuses on customer solutions for the marketplace, including new test development and upstream marketing. It is
organized to focus on different clinical franchises, such as cardiovascular, infectious disease, cancer, neurology and general
health and wellness. The value delivery side includes sales and downstream marketing; routine and esoteric laboratory
operations; field operations; logistics and client services. Diagnostic Solutions includes our other businesses, including clinical
trials testing, life insurer services, diagnostic products and healthcare information technology.
5. Deliver disciplined capital deployment and strategically aligned accretive acquisitions. We are focused on
increasing shareholder returns and returns on invested capital (“ROIC”) through a framework that encompasses improving
operating performance and disciplined capital deployment.
Our disciplined capital deployment framework includes dividends, share repurchases and investment in our business
and is intended to improve ROIC. The framework is grounded in maintaining an investment grade credit rating. In 2012, the
Company used the majority of its free cash flow to reduce its outstanding debt and achieve a debt/EBITDA ratio in the range of
2 - 2¼ times. Having achieved our targeted leverage ratio, we expect to return to investors through a combination of dividends
and share repurchases a majority of our free cash flow. Consistent with that expectation, we increased our quarterly common
stock dividend by 76%, from $0.17 per common share to $0.30 per common share, in January 2013. This represents a three-
fold increase in the dividend since 2011. We believe that the dividend can grow over time. We also believe that opportunities
may arise to return incremental capital to shareholders from free cash flow as a result of portfolio actions.
We will continue to invest in our business in a disciplined manner. We believe that we have established a solid
foundation of strategic assets and capabilities, and that it is unlikely that we will complete any large strategic acquisitions in the
near term. Our near-term investments in growth are likely to focus on value-creating fold-in acquisitions using disciplined
investment criteria, investments in science and innovation in the form of licensing, collaborations and internal development to
grow esoteric testing, and tools to support commercial excellence. We will screen potential acquisitions using guidelines that
assess strategic fit and financial considerations, including value creation, ROIC and impact on our earnings. We also expect to
make investments to improve operational excellence, including, for example, systems standardization and automation, footprint
optimization and Project Invigorate.