Quest Diagnostics 2009 Annual Report Download - page 59

Year Ended December 31, 2009 Compared with Year Ended December 31, 2008
Continuing Operations
Income from continuing operations for the year ended December 31, 2009 was $730 million, or $3.88 per
diluted share, compared to $632 million, or $3.22 per diluted share, in 2008. The increase in income from
continuing operations was principally driven by improved operating performance and lower interest expense.
Results for the year ended December 31, 2009 include pre-tax charges of $20.4 million, or $0.07 per diluted
share, associated with the early extinguishment of debt and $7.0 million, or $0.02 per diluted share, associated
with the write-down of an investment. These charges were offset by a $15.5 million gain, or $0.05 per diluted
share, associated with an insurance settlement for storm-related losses and a benefit of $0.04 per diluted share
resulting from certain discrete tax benefits.
Results for the year ended December 31, 2008 include a third quarter charge of $8.9 million, or $0.03 per
diluted share, associated with the write-down of an equity investment and pre-tax charges of $16.2 million, or
$0.05 per diluted share, primarily associated with workforce reductions. These charges were offset by favorable
resolutions of various tax contingencies in 2008, which increased diluted earnings per share by $0.08. In addition,
we estimate the impact of hurricanes in the third quarter of 2008 adversely impacted operating income for the
year ended December 31, 2008 by approximately $8 million or $0.02 per diluted share.
Net Revenues
Net revenues for the year ended December 31, 2009 grew by 2.8% over the prior year level to $7.5 billion.
Changes in foreign exchange rates reduced revenue growth for the year ended December 31, 2009 by 0.4%.
For 2009, revenues of our clinical testing business, which accounts for over 90% of our net revenues, grew
3.2% above the prior year level. Declines in pre-employment drug testing, which is part of our clinical testing
business, reduced consolidated revenues by 0.7%. Clinical testing volume, measured by the number of
requisitions, decreased 0.7% for the year ended December 31, 2009. Pre-employment drug testing volume, which
accounted for approximately 5% of our total clinical testing volume in 2009, declined approximately 22% and
reduced consolidated volume by 1.5%. We believe the volume decrease in pre-employment drug testing continues
to be principally due to reduced hiring by employers served by this business. Our decision to exit certain
laboratory management agreements that did not meet our profitability thresholds also reduced volume by 0.4%.
Revenue per requisition increased 3.9% for the year ended December 31, 2009, with the increase primarily driven
by a positive test mix and a 4.5% increase in the Medicare laboratory fee which went into effect January 1, 2009
and contributed approximately a one-half percent increase in revenue per requisition.
Our businesses other than clinical testing accounted for approximately 8% of our net revenues in 2009.
These businesses include our risk assessment services business, our clinical trials testing business, our healthcare
information technology business and our diagnostic products business. These businesses contain most of our
international operations and, in the aggregate, reported revenues for 2009 were comparable to the prior year level,
despite the impact of foreign exchange which reduced the combined revenues of these businesses by
approximately 4%.
Operating Costs and Expenses
Total operating costs and expenses for the year ended December 31, 2009 increased $69 million from the
prior year period and decreased as a percentage of net revenues to 81.8% compared to 83.1% in 2008. Actions
we have taken to improve our operating efficiency and reduce the size of our workforce, and discrete cost
containment actions taken during 2009 have enabled us to realize modest cost increases on increased net
revenues. These efforts, coupled with higher revenue per requisition, served to reduce operating costs and
expenses as a percentage of net revenues. In addition, results for the year ended December 31, 2009 include a
$15.5 million second quarter gain related to an insurance settlement for storm-related losses while results for the
year ended December 31, 2008 include fourth quarter charges of $16.2 million, primarily associated with
workforce reductions ($7.7 million recorded in costs of services and $8.5 million included in selling, general and
administrative).
Also, year-over-year comparisons were adversely impacted by approximately $16 million associated with
investment gains and losses associated with investments in our supplemental deferred compensation plan. Under
our supplemental deferred compensation plan, employee compensation deferrals, together with Company matching
contributions, are invested in a variety of participant-directed investments held in a trust. Gains and losses
associated with the investments are recorded in earnings within “other expense, net.” A corresponding and
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