Quest Diagnostics 2013 Annual Report Download - page 7

3
excellence; procurement excellence; service excellence; lab excellence; billing excellence; and business process excellence.
Invigorate delivered more than $250 million in realized savings in 2013. We also exited 2013 with run-rate savings of more
than $500 million, compared to 2011, surpassing the original Invigorate goal established in 2011 a year earlier than planned.
This positions the Company to exceed our $600 million goal in run-rate savings by the end of 2014, compared to 2011. We
now anticipate run-rate savings approaching $700 million, compared to 2011. We also are pursuing opportunities to increase
this total to $1 billion beyond 2014.
3. Simplify the organization to enable growth and productivity. In 2012, 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. In 2013, we revised our senior management team; it now is composed of both
executives who joined the Company prior to our current President and Chief Executive Officer and several executives who
joined thereafter. We also restructured our organization to eliminate silos in our core business and provide for leadership in
defined geographies. These changes included the elimination of three management layers and over 500 management positions.
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.
In 2013, we also introduced new behaviors to make us more agile, transparent, customer-focused, collaborative and
performance oriented. We continue to simplify the organization to better focus on our customers, speed decision-making and to
empower employees.
The Company is made up of two businesses: Diagnostic Information Services and Diagnostic Solutions. Our
Diagnostic Information Services business, comprised of two parts, develops and delivers diagnostic testing, information and
services to patients, physicians, health plans, hospitals, IDNs, employers and others. The value creation side of the business,
organized by clinical franchise, focuses on customer solutions for the marketplace, including new test development and
upstream marketing. 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 central
laboratory testing for pharmaceutical and medical device clinical trials, life insurer services, diagnostic products and healthcare
information technology.
4. Refocus on diagnostic information services. We are refocusing on diagnostic information services. We retained
pathology services and our international assets and are evaluating options with respect to the Celera Corporation ("Celera")
drug assets and the Celera products businesses. As 2012 concluded, we sold our OralDNA salivary diagnostics business. In
2013, we sold our HemoCue and Enterix diagnostic products businesses and the ibrutinib royalty rights.
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. Our target
debt/EBITDA ratio is in the range of 2 - 2¼ times. 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, in January 2014 we announced that we
increased our quarterly common stock dividend by 10%, from $0.30 per common share to $0.33 per common share. This
represents our third 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. In
2013, we returned more than $1 billion to stockholders through repurchases of our common stock, including approximately
$800 million of proceeds from our portfolio actions, including the sales of HemoCue, Enterix, OralDNA and the ibrutinib
royalty rights.
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. We expect to generate 1 to 2 percent revenue growth per year through value-
creating, strategically-aligned acquisitions using disciplined investment criteria. We screen potential acquisitions using
guidelines that assess strategic fit and financial considerations, including value creation, ROIC and impact on our earnings. In
2013, we closed acquisitions of the laboratory assets of UMass Memorial Medical Center, Dignity Health, Advanced
Toxicology Network and ConVerge Diagnostics Services.
Our additional near-term investments in growth are likely to focus on 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 also expect to make investments to improve operational excellence, including, for example, systems standardization and