Quest Diagnostics 2008 Annual Report Download

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2008 Annual Report
“ 2008 was a year of solid performance,
and our business is healthy and growing.
Despite the economic environment, we
generated strong revenues and earnings,
and we expect continued growth in 2009.”

Table of contents

  • Page 1
    "2008 was a year of solid performance, and our business is healthy and growing. Despite the economic environment, we generated strong revenues and earnings, and we expect continued growth in 2009." 2008 Annual Report

  • Page 2
    ... charges and reï¬,ects adjustments for the change in goodwill accounting. A reconciliation of these measures and the most directly comparable financial measures under generally accepted accounting principles can be found in the 2008 Annual Report on Form 10-K. $3.23 EARNINGS PER DILUTED SHARE*

  • Page 3
    ... healthcare service- diagnostic testing. We are differentiating ourselves from our competitors by implementing a strategy that emphasizes providing superior service to our patients; making continuous improvements in quality by applying Lean Six Sigma principles; prudently investing to drive science...

  • Page 4
    ...healthcare฀ plan calls for expanding access to screening tests for wellness and early detection of disease. •฀฀ E mployers฀ are฀ recognizing฀ the฀ value฀ of฀ early฀ detection and wellness when it comes to keeping their employees healthy and productive, as well as limiting their...

  • Page 5
    ...฀140,000฀physicians฀use฀our฀Care360฀suite฀ of connectivity solutions to order lab tests, prescribe drugs and share clinical information with other healthcare providers quickly and securely. By the end of 2008, the number of drug฀ prescriptions฀ ordered฀ through฀ Care360฀ more...

  • Page 6
    ... of healthcare services in India utilizing our quality diagnostics and technology expertise. New Markets, New Geographies Our business is changing and diversifying. As recently as eight years ago, routine testing, which includes complete blood counts and cholesterol tests, accounted for three...

  • Page 7
    2008 FOR M 10-K

  • Page 8

  • Page 9
    ... SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 2008 Commission File Number 001-12215 Quest Diagnostics Incorporated 3 Giralda Farms Madison, New Jersey...

  • Page 10

  • Page 11
    ...Our Strategy and Strengths ...Business Operations ...The United States Clinical Testing Market ...General ...Billing and Reimbursement ...Regulation ...Available Information...Executive Officers of the Company ...Item 1A. Risk Factors ...Cautionary Factors That May Affect Future Results ...Item 1B...

  • Page 12

  • Page 13
    ...and manage online their medical records and personal health information, including diagnostics laboratory data. • Continuously drive Six Sigma quality. We strive to provide the highest quality in all that we do, including: phlebotomy and specimen transport services; analytical testing processes in...

  • Page 14
    ... patient-centric view, information that includes physician's records and laboratory and hospital data. Our Care360â„¢ products, which can be accessed by more than 140,000 physicians, enable physicians to order diagnostic tests and review test results online. In addition, the Care360 Physician Portal...

  • Page 15
    ... an abbreviated menu of routine tests for customers that require rapid turnaround times. We also perform routine testing at hospital laboratories that we manage. We operate 24 hours a day, 365 days a year, performing and reporting most routine tests within 24 hours. The majority of test results are...

  • Page 16
    ... diagnostics, in our two world renowned Nichols Institute laboratory facilities (one on each U.S. coast), and in a number of other locations. Our esoteric laboratories provide reference testing services to physicians, large academic medical centers, hospitals and other commercial laboratories...

  • Page 17
    ... Our Focus Diagnostics subsidiary was the first CLIA-approved service laboratory in the United States to develop and introduce a test for detecting the mosquito-borne Chikungunya virus. Commercial availability of this molecular polymerase chain reaction (PCR) test enables physicians to test patients...

  • Page 18
    ...policies can affect the utilization of clinical testing and other services we provide to our insurance customers. Most of our specimen collections and paramedical examinations are performed at the applicant's home or workplace. We operate approximately 75 locations other than patient service centers...

  • Page 19
    ... point-of-care test and HemoCue hemoglobin, glucose, urine albumin and white blood cell tests, as well as tests performed by our laboratories, can be entered into our Care360â„¢ Physician Portal so that they all are available in one electronic medical record. We intend to offer additional data links...

  • Page 20
    ... to order diagnostic tests and review test results from Quest Diagnostics online. In addition, the Care360 Physician Portal enables physicians to electronically prescribe medication, view clinical and administrative information in a patient-centric record maintained in our repository and share...

  • Page 21
    ... providing health insurance coverage to patients, such as a health insurance plan, self-insured employer benefit fund, or the traditional Medicare or Medicaid program, (2) the patient or (3) the physician or other party (such as a hospital, another laboratory or an employer) who referred the testing...

  • Page 22
    ... testing business during 2008 applicable to each payer group: Net Revenues as % of Total Clinical Laboratory Testing Net Revenues Requisition Volume as % of Total Volume Traditional Medicare and Medicaid Programs ...Physicians, Hospitals, Employers and Other Monthly-Billed Clients...Health Plans...

  • Page 23
    ... that own physician practices generally require the physicians to refer tests to the hospital's affiliated laboratory. Hospitals can have greater leverage with health insurers than do commercial clinical laboratories, particularly hospitals that have a significant market share; hospitals thus are...

  • Page 24
    ... be performed by hospitals, which generally have affiliations with community physicians that refer testing to us. As a result of these affiliations, we compete against hospital-affiliated laboratories primarily on the basis of service capability and quality as well as other non-pricing factors. Our...

  • Page 25
    ...process to evaluate the growth potential and profitability of all accounts. Information Technology. Information systems are used extensively in virtually all aspects of our business, including clinical laboratory testing, test reporting, billing, customer service, logistics and management of medical...

  • Page 26
    ... coverage and information requirements among various payers; incomplete or inaccurate billing information provided by ordering physicians). We incur additional costs as a result of our participation in Medicare and Medicaid programs because clinical laboratory testing and anatomic pathology services...

  • Page 27
    ... Medicaid recipients to pay co-payment amounts for clinical laboratory testing. Medicare patients generally are required to make co-payments for anatomic pathology services. Federal law contains a Medicare fee schedule payment methodology for clinical testing services performed for patients covered...

  • Page 28
    ... and timely. The cost of compliance with CLIA makes it cost prohibitive for many physicians to operate clinical laboratories in their offices. However, manufacturers of laboratory equipment and test kits could seek to increase their sales by marketing point-of-care test equipment to physicians and...

  • Page 29
    ... drugs-of-abuse testing for employers, testing for blood bank purposes and testing of donors of human cells for purposes such as in vitro fertilization. A number of esoteric tests that are developed internally are first offered as laboratory-developed tests ("LDTs"). In the past, the FDA has claimed...

  • Page 30
    ...our operating costs including, but not limited to, those costs associated with performing clinical or anatomic pathology tests or manufacturing or distributing products, and administrative requirements related to billing; • decrease the amount of reimbursement related to testing services performed...

  • Page 31
    ..., at no cost, by contacting Investor Relations, 3 Giralda Farms, Madison, New Jersey 07940 (973-520-2700). The information on our website is not incorporated by reference into this Report. EXECUTIVE OFFICERS OF THE COMPANY The following persons serve as executive officers of the Company. Surya...

  • Page 32
    ...was named Senior Managing Director, Nichols Institute in 2002 and Vice President, Hospital Business in 2003. Since June 2007, Dr. Miller has overseen the Company's hospital services business, including its esoteric testing facilities, and its anatomic pathology services business, including AmeriPath...

  • Page 33
    ... generally require the physicians to refer tests to the hospital's laboratory. As a result of this affiliation between hospitals and community physicians, we compete against hospital-affiliated laboratories primarily based on quality of service. Our failure to provide a broad test menu or service...

  • Page 34
    ... testing services to their members through capitated payment arrangements. In addition, some healthcare plans have been willing to limit the PPO or POS laboratory network to only a single national laboratory to obtain improved fee-for-service pricing. There are also an increasing number of patients...

  • Page 35
    ... providing information, witnesses and business records of NID and the Company, including documents related to PTH tests and test kits, as well as other tests and test kits. In the second and third quarters of 2005, the FDA conducted an inspection of NID and issued a Form 483 listing the observations...

  • Page 36
    ...• the corporate practice of medicine; • operational, personnel and quality requirements intended to ensure that clinical testing services are accurate, reliable and timely; • physician fee splitting; • relationships with physicians and hospitals; • safety and health of laboratory employees...

  • Page 37
    ... companies, Medicare, Medicaid, physicians, hospitals and employer groups. Changes in laws and regulations could increase the complexity and cost of our billing process. Additionally, auditing for compliance with applicable laws and regulations as well as internal compliance policies and procedures...

  • Page 38
    ... make it cost prohibitive for many physicians to operate clinical laboratories in their offices, manufacturers of laboratory equipment and test kits could seek to increase their sales by marketing point-of-care test equipment to physicians. Diagnostic tests approved or cleared by the FDA for home...

  • Page 39
    ... or increase our expenses. Public and private initiatives to create healthcare information technology (HCIT) standards and to mandate standardized clinical coding systems for the electronic exchange of clinical information, including test results, could require costly modifications to our existing...

  • Page 40
    ... to persons or entities that should not have access to it, our business could be impaired and our reputation could suffer. We are subject to numerous political, legal, operational and other risks as a result of our international operations which could impact our business in many ways. Although...

  • Page 41
    ... arising in the ordinary course of business including, among other things, disputes as to intellectual property, professional liability and employee-related matters, as well as inquiries from governmental agencies and Medicare or Medicaid carriers regarding billing issues. Some of the proceedings...

  • Page 42
    ... capitated or fee-forservice payments by health insurers or other payers. (f) The impact upon our testing volume and collected revenue or general or administrative expenses resulting from our compliance with Medicare and Medicaid administrative policies and requirements of third party payers. These...

  • Page 43
    ... and/or marketing of new products or new uses of existing products. Item 1B. Unresolved Staff Comments There are no unresolved SEC comments that require disclosure. Item 2. Properties Our executive offices are located in Madison, New Jersey. We maintain clinical testing laboratories in major...

  • Page 44
    ... providing information, witnesses and business records of NID and the Company, including documents related to PTH tests and test kits, as well as other tests and test kits. In the second and third quarters of 2005, the FDA conducted an inspection of NID and issued a Form 483 listing the observations...

  • Page 45
    ... on blood, bone marrow and lymph node specimens. The inquiry sought to determine whether AmeriPath may have billed for laboratory tests that were not medically necessary. The Company cooperated fully with the inquiry. In December 2008, the government declined to intervene in the underlying qui tam...

  • Page 46
    ... holders of our common stock exceeds the number of record holders. The following table sets forth, for the periods indicated, the high and low sales price per share as reported on the New York Stock Exchange Consolidated Tape and dividend information. Common Stock Market Price High Low Dividends...

  • Page 47
    ... Index. Comparison of Cumulative Five Year Total Return $200 $150 $100 $50 $0 2003 2004 Quest Diagnostics, Inc. 2005 2006 2007 2008 S&P 500 Index S&P 500 Health Care Equipment & Services Index Date Closing DGX Price(1) DGX Total Shareholder Return S&P 500 S&P 500 H.C. DGX Performance...

  • Page 48
    ... Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report. Management's Report on Internal Control Over Financial Reporting See page 59. Changes in Internal Control During the fourth quarter of 2008, there...

  • Page 49
    ...at no cost, by contacting Investor Relations, 3 Giralda Farms, Madison, New Jersey 07940 (973-520-2700). Because our common stock is listed for trading on the New York Stock Exchange, in 2008 our Chief Executive Officer was required to make, and he made, an annual certification to the New York Stock...

  • Page 50
    ... Statements ...Supplementary Data: Quarterly Operating Results (unaudited) ...2. Financial Statement Schedule. Item F-1 F-2 F-3 F-4 F-5 F-6 F-44 Page Schedule II - Valuation Accounts and Reserves ...3. F-46 Exhibits An exhibit index has been filed as part of this Report beginning on page...

  • Page 51
    ... in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K filed with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and...

  • Page 52
    ... and related notes of our Company and management's discussion and analysis of financial condition and results of operations included elsewhere in this Annual Report on Form 10-K. 2008 Year Ended December 31, 2007(a) 2006(b) 2005(c) (in thousands, except per share data) 2004 Operations Data: Net...

  • Page 53
    ... the results of operations of LabOne subsequent to the closing of the acquisition. (d) For 2008, operating income includes $71 million of stock-based compensation expense recorded in accordance with SFAS 123R and $16.2 million of costs, primarily associated with workforce reductions recorded during...

  • Page 54
    ...In 2008, we estimate that hospital-affiliated laboratories accounted for approximately 60% of the market, commercial clinical laboratories approximately onethird and physician-office laboratories the balance. Orders for laboratory testing are generated from physician offices, hospitals and employers...

  • Page 55
    ... value of laboratory testing with healthcare plans and government payers at the federal and state level. Our Company Quest Diagnostics is the world's leading provider of diagnostic testing, information and services, providing insights that enable patients, physicians and others to make decisions to...

  • Page 56
    ... services in India utilizing our quality diagnostics and technology expertise. Six Sigma and Standardization Initiatives/Efforts to Improve Operating Efficiency The diagnostic testing industry is labor intensive. Employee compensation and benefits constitute approximately one-half of our total costs...

  • Page 57
    ... acquisition. HemoCue is the leading international provider in point-of-care testing for hemoglobin, with a growing share in professional glucose and microalbumin testing. Critical Accounting Policies The preparation of financial statements in conformity with accounting principles generally accepted...

  • Page 58
    ...from government payers, as well as the risk of non-collection, are substantially the same as those noted above for healthcare insurers under negotiated fee-for-service arrangements. Client payers Client payers include physicians, hospitals, employers and other commercial laboratories, and are billed...

  • Page 59
    ...regarding compliance operations. As an integral part of our compliance program, we investigate all reported or suspected failures to comply with federal and state healthcare reimbursement requirements. Any non-compliance that results in Medicare or Medicaid overpayments is reported to the government...

  • Page 60
    ... value considers publicly available information regarding the market capitalization of our Company, as well as (i) the financial projections and future prospects of our business, including its growth opportunities and likely operational improvements, and (ii) comparable sales prices, if available...

  • Page 61
    ... compensation plans, changes in the design of those plans, the price of our shares and the performance of our Company can all cause stock-based compensation expense to vary from period to period. Results of Operations Our clinical testing business currently represents our one reportable business...

  • Page 62
    ..., general and administrative), $4 million of in-process research and development costs associated with the acquisition of HemoCue, which was recorded in "other operating (income) expense, net", and costs associated with efforts to retain business and clarify for patients, physicians and employers...

  • Page 63
    ... costs in doing so. As a result of the agreement in principle in 2008, the Company recorded charges of $75 million in discontinued operations to increase its reserve for the settlement and related matters. As of December 31, 2008, the total reserve was $316 million. The Company has recorded...

  • Page 64
    ...sales force, billing operations, bad debt expense and general management and administrative support, were 24.1% of net revenues during the year ended December 31, 2007, compared to 22.5% in the prior year period. This increase was primarily due to lower volume levels in our clinical testing business...

  • Page 65
    ... due to lower volume levels in our clinical testing business, the various items which served to increase cost of services and selling, general and administrative expenses as a percentage of revenues, and the impact of the acquired operations of AmeriPath and HemoCue. These decreases were offset...

  • Page 66
    ... includes equity investments in publicly held companies that are classified as available-for-sale securities and other strategic equity holdings in privately held companies. These securities are exposed to price fluctuations and are generally concentrated in the life sciences industry. The carrying...

  • Page 67
    ... insured money market funds, including those that invest in U.S. Treasury securities. The Company has not suffered any losses associated with its cash and cash equivalents. Cash flows from operating activities in 2008 were $1.1 billion, which were used to fund investing and financing activities...

  • Page 68
    ... stock purchases represents 5.5 million shares of our common stock purchased at an average price of $46.09 per share. Net cash provided by financing activities in 2007 was $850 million, primarily associated with new borrowings and repayments related to the acquisitions of AmeriPath and HemoCue...

  • Page 69
    ... our existing operations, principally related to investments in information technology, equipment, and facility upgrades. During 2008, we continued to make investments in support of our plans to develop and deploy standard systems across both the AmeriPath practices and our clinical laboratories. We...

  • Page 70
    ...diagnostic testing, information and services, we believe we are well positioned to benefit from the growth expected in our industry. We believe our focus on delivering a superior patient experience and Six Sigma quality as well as the investments we are continuing to make in our distribution network...

  • Page 71
    ... of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the financial statements included in this annual report, audited the Company's internal control...

  • Page 72
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  • Page 73
    ... of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly...

  • Page 74
    QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2008 AND 2007 (in thousands, except per share data) 2008 2007 Assets Current assets: Cash and cash equivalents...Accounts receivable, net of allowance for doubtful accounts of $261,334 and $250,067 at December ...

  • Page 75
    QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006 (in thousands, except per share data) 2008 2007 2006 Net revenues ...Operating costs and expenses: Cost of services ...Selling, general and administrative ......

  • Page 76
    ......Purchases of treasury stock...Exercise of stock options...Excess tax benefits from stock-based compensation arrangements...Dividends paid ...Distributions to minority partners ...Financing costs paid ...Net cash (used in) provided by financing activities ...Net change in cash and cash equivalents...

  • Page 77
    ...Exercise of stock options ...Shares to cover employee payroll tax withholdings on stock issued under benefit plans...Tax benefits associated with stock-based compensation plans ...Purchases of treasury stock ...Balance, December 31, 2006 ...Net income ...Currency translation ...Market valuation, net...

  • Page 78
    ... that enable patients, physicians and others to make decisions to improve health. Quest Diagnostics offers patients and physicians the broadest access to diagnostic laboratory services through the Company's nationwide network of laboratories and owned patient service centers. The Company provides...

  • Page 79
    ... generated by Medicare and Medicaid programs. Under capitated arrangements with healthcare plans, the Company recognizes revenue based on a predetermined monthly reimbursement rate for each member of an insurer's health plan regardless of the number or cost of services provided by the Company. Taxes...

  • Page 80
    ... of accounting for stock-based employee compensation and the effect of the method used on reported results. In December 2004, the FASB issued SFAS No. 123, revised 2004, "Share-Based Payment" ("SFAS 123R"). SFAS 123R requires that companies recognize compensation cost relating to share-based payment...

  • Page 81
    ... Markets for Other Significant Identical Observable Unobservable Assets/ Inputs Inputs Liabilities Level 1 Level 2 Level 3 December 31, 2008 Assets: Trading securities ...Cash surrender value of life insurance policies ...Foreign currency forward contracts ...Available-for-sale securities ...Total...

  • Page 82
    ... program AmeriPath offers to certain employees. A participant's deferrals, together with Company matching credits, are "invested" at the direction of the employee in a hypothetical portfolio of investments which are tracked by an administrator. The Company purchases life insurance policies...

  • Page 83
    ... integral part of the estimation process related to allowances for doubtful accounts. In addition, the Company regularly assesses the state of its billing operations in order to identify issues which may impact the collectibility of these receivables or reserve estimates. Revisions to the allowances...

  • Page 84
    ...or other legal rights, or if it is separable. Intangible assets, principally representing the cost of customer relationships, customer lists and non-competition agreements acquired, are capitalized and amortized on the straight-line method over their expected useful life, which generally ranges from...

  • Page 85
    ... $60,053 Investments in available-for-sale equity securities consist of equity securities in public corporations. Investments in trading equity securities represent participant-directed investments of deferred employee compensation and related Company matching contributions held in a trust pursuant...

  • Page 86
    ... is based upon quoted market prices obtained from third-party institutions. For derivatives that have been formally designated as a cash flow hedge (interest rate swap agreements), the effective portion of changes in the fair value of the derivatives is recorded in "accumulated other comprehensive...

  • Page 87
    ... with subsequent remeasurements recorded in the results of operations. SFAS 141(R) also requires that costs for business restructuring and exit activities related to the acquired company will be included in the post-combination financial results of operations and also provides new guidance for the...

  • Page 88
    ... assumptions about cash flows and discount rates should be considered when measuring fair value when relevant market data does not exist, how observable market information in an inactive or dislocated market affects fair value measurements and how the use of broker and pricing service quotes should...

  • Page 89
    ... pathologists, operates 40 outpatient anatomic pathology testing locations and provides inpatient anatomic pathology and medical director services for approximately 200 hospitals throughout the United States. The Company financed the all-cash purchase price and related transaction costs, together...

  • Page 90
    ...infectious and immunologic disease testing and develops and markets diagnostic products. It offers its reference testing services and diagnostic products to large academic medical centers, hospitals and commercial laboratories. The Company financed the aggregate purchase price of $205 million, which...

  • Page 91
    ... to conform the acquired company's accounting policies and classification of certain costs and expenses to that of Quest Diagnostics. These adjustments had no impact on pro forma net income. Pro forma results for the year ended December 31, 2007 exclude transaction related costs of $44 million...

  • Page 92
    ...209,692) During 2008, the Company increased deferred tax assets related to accounts receivable reserves by approximately $32 million, with a corresponding decrease in goodwill, for changes in estimates regarding the realization of tax benefits associated with acquired reserve balances. At December...

  • Page 93
    ...2004-2008 2004-2008 In conjunction with its acquisition of SmithKline Beecham Clinical Laboratories, Inc. ("SBCL"), which operated the clinical testing business of SmithKline Beecham plc ("SmithKline Beecham"), the Company entered into a tax indemnification arrangement with SmithKline Beecham that...

  • Page 94
    ... Company's goodwill as of December 31, 2008 and December 31, 2007 was associated with its clinical testing business. For the year ended December 31, 2007, goodwill acquired during the year was primarily related to the acquisitions of AmeriPath and HemoCue, and other purchase accounting adjustments...

  • Page 95
    ... of the following: Weighted Average Amortization Period December 31, 2008 Accumulated Cost Amortization Net December 31, 2007 Accumulated Cost Amortization Net Amortizing intangible Customer-related intangibles ...Non-compete agreements ...Other ...Total ... assets: 19 years 5 years 13 years 19...

  • Page 96
    ... outstanding borrowings under the Credit Facility. The Company incurred $3.1 million of costs associated with the Credit Facility, which is being amortized over the term of the related debt. Secured Receivables Credit Facility In June 2008, the Company amended its existing receivables securitization...

  • Page 97
    ... million. The Company used the proceeds to finance the acquisition of AmeriPath, and related transaction costs, to repay substantially all of AmeriPath's outstanding debt and to repay the $450 million outstanding under an interim credit facility used to finance the acquisition of HemoCue and repay...

  • Page 98
    ...of 5.45% senior notes due November 2015 ("Senior Notes due 2015"). The Company used the net proceeds from the 2005 Senior Notes, together with cash on-hand, to pay the cash purchase price and transaction costs of the LabOne acquisition and to repay $127 million of LabOne's debt. The Senior Notes due...

  • Page 99
    ... 2015. Treasury Forward Agreements In June 2007, the Company entered into forward starting interest rate swap agreements with three financial institutions for a total notional amount of $300 million to lock the interest rate of a portion of the Company's offering of its debt securities in the second...

  • Page 100
    ...." The cash flow hedges were effective during 2008 and 2007. 11. PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY Series Preferred Stock Quest Diagnostics is authorized to issue up to 10 million shares of Series Preferred Stock, par value $1.00 per share. The Company's Board of Directors has the...

  • Page 101
    ... types of awards: (a) stock options, (b) stock appreciation rights and (c) stock awards. The ELTIP provides for the grant to eligible employees of either non-qualified or incentive stock options, or both, to purchase shares of Company common stock at a price of no less than the fair market value...

  • Page 102
    ... nonemployee directors of non-qualified stock options to purchase shares of Company common stock at a price of no less than the fair market value on the date of grant. The DLTIP also permits awards of restricted stock and restricted stock units to non-employee directors. The maximum number of shares...

  • Page 103
    ... all employees can elect to have up to 10% of their annual wages withheld to purchase Quest Diagnostics common stock. The purchase price of the stock is 85% of the market price of the Company's common stock on the last business day of each calendar month. Under the ESPP, the maximum number of shares...

  • Page 104
    ...13. RELATED PARTY TRANSACTIONS At December 31, 2008, GlaxoSmithKline plc ("GSK"), the parent company of SmithKline Beecham, beneficially owned approximately 19% of the outstanding shares of Quest Diagnostics common stock. Quest Diagnostics is the primary provider of testing to support GSK's clinical...

  • Page 105
    ... providing information, witnesses and business records of NID and the Company, including documents related to PTH tests and test kits, as well as other tests and test kits. In the second and third quarters of 2005, the FDA conducted an inspection of NID and issued a Form 483 listing the observations...

  • Page 106
    ... costs in doing so. As a result of the agreement in principle in 2008, the Company recorded charges of $75 million in discontinued operations to increase its reserve for the settlement and related matters. As of December 31, 2008, the total reserve was $316 million. The Company has recorded...

  • Page 107
    ... on blood, bone marrow and lymph node specimens. The inquiry sought to determine whether AmeriPath may have billed for laboratory tests that were not medically necessary. The Company cooperated fully with the inquiry. In December 2008, the government declined to intervene in the underlying qui tam...

  • Page 108
    ... regarding NID test kits and tests performed using those test kits. As a result of the agreement in principle in 2008, the Company recorded charges of $75 million in discontinued operations to increase its reserve for the settlement and related matters. As of December 31, 2008, the total reserve was...

  • Page 109
    ... information technology business, MedPlus and its diagnostics products businesses. The Company's risk assessment business provides underwriting support services to the life insurance industry including teleunderwriting, paramedical examinations, laboratory testing and medical record retrieval...

  • Page 110
    ...addition, results for 2006 also reflect pre-tax charges of $32 million, primarily related to the wind down of NID's operations. 2008 2007 2006 Depreciation and amortization: Clinical testing business...All other operating segments ...General corporate...Discontinued operations ...Total depreciation...

  • Page 111
    ... the Company's Secured Receivables Credit Facility. The Company and the Subsidiary Guarantors provide collection services to QDRI. QDRI uses cash collections principally to purchase new receivables from the Company and the Subsidiary Guarantors. The following condensed consolidating financial data...

  • Page 112
    ... Consolidating Balance Sheet December 31, 2008 Parent Subsidiary Guarantors NonGuarantor Subsidiaries Eliminations Consolidated Assets Current assets: Cash and cash equivalents ...$ 218,565 Accounts receivable, net ...4,426 Other current assets ...52,407 Total current assets ...275,398 Property...

  • Page 113
    ... For the Year Ended December 31, 2008 Parent Subsidiary Guarantors NonGuarantor Subsidiaries Eliminations Consolidated Net revenues ...$ 829,484 $5,999,552 Operating costs and expenses: Cost of services...486,922 3,527,559 Selling, general and administrative ...191,583 1,234,815 Amortization of...

  • Page 114
    ..., general and administrative ...147,862 1,020,774 Amortization of intangible assets...1,451 8,924 Royalty (income) expense ...(394,693) 394,693 Other operating (income) expense, net ...(3,358) 24,704 Total operating costs and expenses ...253,204 4,407,686 Operating income ...Non-operating (expense...

  • Page 115
    ... accounts ...5,934 Provision for restructuring and other special charges...Other, net ...(316,207) Changes in operating assets and liabilities . . 200,269 Net cash provided by operating activities ...Net cash used in investing activities...Net cash used in financing activities ...Net change in cash...

  • Page 116
    QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES (in thousands, except per share data) Quarterly Operating Results (unaudited) First Quarter Second Quarter Third Quarter Fourth Quarter Total Year 2008 (a) (b) Net revenue from continuing operations ...$1,784,637 Gross profit from continuing ...

  • Page 117
    ... of 2008, the Company recorded a charge of $73 million associated with the government's investigation in connection with NID (see Note 14). (h) In the first quarter of 2007, the Company recorded $10.7 million of costs associated with workforce reductions and a $4 million charge related to in-process...

  • Page 118
    QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES SCHEDULE II-VALUATION ACCOUNTS AND RESERVES (in thousands) Provision for Doubtful Accounts Balance at 1-1-08 Net Deductions and Other Balance at 12-31-08 Year ended December 31, 2008 Doubtful accounts and allowances ... $250,067 $326,228 Provision...

  • Page 119
    ...Bank of New York (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: April 1, 2002) and incorporated herein by reference) (Commission File Number 001-12215) Fourth Supplemental Indenture dated as of March 19, 2003, among Unilab Corporation (f/k/a Quest Diagnostics Newco...

  • Page 120
    ... herein by reference) (Commission File Number 001-12215) Amended and Restated Employee Stock Purchase Plan (filed as an Exhibit to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by reference) 1996 Employee Equity Participation Program, as...

  • Page 121
    ... to the Profit Sharing Plan of Quest Diagnostics Incorporated dated as of December 23, 2008 Amendment Dated as of August 17, 2007 to the AmeriPath Group Holdings, Inc. 2006 Stock Option Plan and Restricted Stock Purchase Plan (filed as an exhibit to the Company's 2007 Annual Report on Form 10-K and...

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    ... to their most comparable measure under generally accepted accounting principles. Year Ended December 31, 2008 2007 2006 2005 (in thousands, except per share data) $ 553,828 $ 553,828 $ 625,692 $ 625,692 $ 573,196 $ 573,196 2004 Income from continuing operations ...$ 632,184 Add: Amortization of...

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    ..., Forms 10-K and 10-Q and other information about the company, including locations of facilities, are available at Quest Diagnostics' web site at: www.QuestDiagnostics.com/investor Address all inquiries to: Investor Relations Department Quest Diagnostics Incorporated 3 Giralda Farms Madison, NJ...

  • Page 128
    ...Business Quest Diagnostics 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...