|
2002 was another excellent year for Quest Diagnostics.
We reported improved financial results for the sixth consecutive
year and continued to invest in the bright future of the business.
Investments in Six Sigma quality generated positive financial returns
and tangible improvements in customer service. We expanded access
to vital laboratory testing, information and services. We continued
to distinguish ourselves by offering highly specialized esoteric
tests and unique ways for physicians and hospitals to use our services.
The theme of our Annual Report is “Committed
to YOU.” We are a business that is all about people caring
about and helping people. We strongly believe the way to create
long-term sustainable shareholder value is through a foundation
of satisfied customers and employees. On the pages that follow,
you will see how our more than 35,000 dedicated employees are committed
to meeting the needs of patients and their physicians.
We serve the diagnostic
testing needs of approximately one-half of America’s physicians
and hospitals. We are counted on to provide highly accurate diagnostic
test results and interpretations that influence the vast majority
of healthcare decisions. Every specimen represents a person in need
of vital information about his or her health, an awesome responsibility,
and one we accept with a strong sense of pride.
We set ourselves apart from the competition by providing
unparalleled quality—the ultimate differentiator. Quest Diagnostics
is the first major healthcare services company to pursue Six Sigma
quality, establishing a disciplined approach to reduce errors and
strive for perfection. We have been on the journey for more than
three years, and Six Sigma is dramatically changing the Quest Diagnostics
culture. We provide Six Sigma training for every employee and have
extensively trained approximately 800 Six Sigma experts, called
Black Belts and Green Belts, who are leading defect-reduction projects
across the company.
Driving change requires that senior leadership visibly
“walk the talk.” I am trained as a Black Belt, and am
personally driving the transformation through the leadership of
specific projects. The focus on Six Sigma is yielding improved quality
and process effectiveness, significant cost savings and enhanced
customer satisfaction.
The Six Sigma methodology starts with listening to
customers to understand their needs. Our customers want service
tailored to their specific requirements. Last year we expanded efforts
to better serve several important customer segments. We launched
a dedicated hospital testing sales and service team across the country
to build on our leadership position. We established full service
esoteric and gene-based testing capabilities in Chantilly, Virginia,
to complement Quest Diagnostics Nichols Institute in San Juan Capistrano,
California, enhancing convenience for specialist physicians and
hospital customers and speeding turnaround times.
We are committed to leading
through innovation, bringing new diagnostic tests and information
technology applications to customers.
Innovative electronic connectivity options make it
easier for customers to do business with us. The Internet is starting
to replace paper forms for physicians when they order diagnostic
tests and receive test results. Our physician portal, called eMaxx®,
enables physicians and other healthcare providers to share crucial
clinical patient data securely, and also to order lab tests and
verify insurance eligibility in real time. We strengthen managed
care relationships with our proprietary QuestNetTM laboratory network
management service. We are also devoting significant resources to
help ensure full compliance with new federal regulations protecting
the confidentiality of patient information.
We offer the most comprehensive test menus for high-growth
product categories and disease states, including cardiovascular
disease, cancer, infectious disease, and genetic disorders. In addition,
we enhanced our gene-based and esoteric testing sales capability
through a select group of highly trained experts who can readily
describe the benefits of the most sophisticated tests.
Our talented and committed employees share a collective
vision: “Dedicated people improving the health of patients
through unsurpassed diagnostic insights.” When Quest Diagnostics
became an independent company at the end of 1996, we established
a strong ethical foundation based on six core values, starting with
quality and integrity. We are committed to making Quest Diagnostics
one of the very best places to work.
Whether delivering accurate and timely test results
or reporting financial results, we insist on highly ethical behavior
from all employees. The very nature of our business demands it,
and we demand it of ourselves.
Our ongoing commitment to customer and employee
satisfaction yielded outstanding financial performance once again
in 2002. We increased net earnings per diluted share more than 40%
for the third consecutive year, to $3.23. Revenues increased 13%
to $4.1 billion. EBITDA, a measure of operating effectiveness, expanded
from 15.3% to 17.7% of revenues. Cash generated from operations
was almost $600 million.
We reliably generate substantial cash flows, which
we invest to drive future growth. Strong cash generation enables
us to pursue selective acquisitions such as American Medical Laboratories
(AML) and Unilab Corporation, while strengthening the balance sheet
and improving our credit profile. We repaid the entire $475 million
in debt from the acquisition of AML within nine months of completing
the transaction, and ended the year with nearly $100 million of
cash on hand. These acquisitions broaden our leadership position
to additional geographies, including California, Nevada, Washington,
D.C., and Virginia, and their impact can be seen in the expanded
number of patient service centers, rapid response laboratories,
employees, and patient encounters that are cited throughout the
Annual Report.
Our commitment to you is for today, and tomorrow.
We manage the company for long-term, sustainable growth. The population
is growing and aging, requiring more diagnostic tests. The genomics
and proteomics revolution is spurring an unprecedented development
effort, and our industry is the initial beneficiary. Rapid advances
in information technology enable us to interact more effectively
and efficiently with customers, improving customer satisfaction
and loyalty.
Quest Diagnostics is well positioned to provide superior
financial performance in 2003 and beyond. We are the leader across
the various facets of diagnostic testing, from routine testing to
the most sophisticated esoteric and gene-based tests, as well as
drugs of abuse testing. We will continue to grow through two approaches:
organically, through a relentless focus on Six Sigma quality and
on meeting customer requirements; and through selective strategic
acquisitions in an industry that remains highly fragmented. At the
same time, we will continue to expand profit margins by further
standardizing operations to fully realize the economies of scale
available to us.
I am extremely proud of the commitment of every employee
to our values and to placing the patient at the center of everything
we do. Through our strong commitment to customers and employees,
we improve the health of tens of millions of patients served by
Quest Diagnostics each year, and enhance shareholder value. Thank
you for your continued trust and support.
Kenneth W. Freeman
Chairman and Chief Executive Officer |
