Quest Diagnostics 2010 Annual Report Download

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2010 FORM 10–K

Table of contents

  • Page 1
    2010 FORM 10-K

  • Page 2
    ..., 2010 Commission File Number 001-12215 Quest Diagnostics Incorporated 3 Giralda Farms Madison, New Jersey 07940 (973) 520-2700 Delaware (State of Incorporation) 16-1387862 (I.R.S. Employer Identification Number) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Common...

  • Page 3
    ... Business...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...

  • Page 4
    ... business through our headquarters in Madison, New Jersey, and our laboratories, patient service centers, offices and other facilities around the United States and in selected locations outside the United States. Unless the context otherwise requires, the terms "Quest Diagnostics," the "Company...

  • Page 5
    ... personal health records offerings. • 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 our laboratories; accurate and timely lab reports; and accurate and timely...

  • Page 6
    ...the United States and in select international markets. We anticipate that acquisitions will enable us to expand our capabilities, further leverage our assets and differentiate our Company from our competition, diversify our revenues and accelerate our growth. BUSINESS OPERATIONS Quest Diagnostics is...

  • Page 7
    ... menu of routine tests for customers that require rapid turnaround times. We also perform routine testing at hospital laboratories that we manage. We operate laboratories 24 hours a day, 365 days a year, performing and reporting most routine tests within 24 hours. The majority of test results...

  • Page 8
    ... the collection of diagnostic samples. With these priorities in mind, we recently introduced a number of new or enhanced tests, including those discussed below. • Cancer. - In 2010, we introduced our Lung Cancer Mutation assays, designed to aid treatment selection for lung cancer patients. These...

  • Page 9
    ... our Care360 Labs and Meds, enable physicians electronically to order diagnostic tests and review test results from Quest Diagnostics and electronically to prescribe medication. Since December 2009, the number of medications written through Care360 ePrescribing has grown to an annualized rate...

  • Page 10
    ...-based laboratory results to their patients' personal health records. Physicians also take advantage of our new Care360 Mobile application that lets them review results and order medications using their Apple௡ iPhone௡ or iPad௡. In December 2010, the Care360 EHR solution received ONC-ATCB 2011...

  • Page 11
    ... testing to employers for the detection of employee use of drugs-of-abuse. Our Quest Diagnostics Drug Testing IndexTM, which is an annual report of our aggregate drug testing results, is used by employers, the federal government and the media to help identify and quantify drug abuse among the nation...

  • Page 12
    ..., federal healthcare reform legislation adopted in 2010 encourages the formation of "accountable care organizations" and requires implementation of health insurance exchanges, which may result in changes in the way that some healthcare services are purchased and delivered in the United States...

  • Page 13
    ...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 to us. Health Plans. Health...

  • Page 14
    ...service capability and quality; • accuracy, timeliness and consistency in reporting test results; • patient insurance coverage; • number and type of tests performed; • pricing; • number, convenience and geographic coverage of patient service centers; • reputation in the medical community...

  • Page 15
    ... 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. In addition, recent market activity...

  • Page 16
    ... analytic and post-analytic processes, including positive patient identification of specimens, report accuracy, proficiency testing, reference range relevance, process audits, statistical process control and personnel training for all of our laboratories and patient service centers. We also focus on...

  • Page 17
    ...on a claim-by-claim basis. Billing for clinical testing services is very complicated, and we maintain compliance policies and procedures for our billing. Patients, insurance companies, Medicare, Medicaid, physicians, hospitals and employer groups all have different billing requirements. Some billing...

  • Page 18
    ... of health insurance plans offering Medicare Advantage programs and of beneficiary enrollment in these plans. In recent years, in an effort to control costs, states also have increasingly mandated that Medicaid beneficiaries enroll in private managed care arrangements. The 2010 federal healthcare...

  • Page 19
    ... trials), 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 we develop internally are first offered as laboratory-developed tests ("LDTs"). The FDA has claimed regulatory...

  • Page 20
    ... personal or a patient's protected health information. We have implemented practices to meet applicable requirements. Drug Testing; Controlled Substances. All U.S. laboratories that perform drug testing for public sector employees and employees of certain federally regulated businesses are required...

  • Page 21
    ... a long-standing and well-established compliance program. The Quality, Safety & Compliance Committee of our Board of Directors oversees our compliance program and requires periodic management reports regarding our compliance program. Our program includes detailed policies and procedures and training...

  • Page 22
    ... • Corporate Governance Guidelines • Charters for the following committees of our Board of Directors: Audit and Finance; Compensation; Executive; Governance; and Quality, Safety and Compliance • Certificate of Incorporation • Bylaws EXECUTIVE OFFICERS OF THE COMPANY The following persons...

  • Page 23
    ... practices generally require the practices 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 and scope of service. Increased hospital acquisitions of...

  • Page 24
    ... efforts by government payers to reduce utilization and reimbursement for clinical testing services. From time to time, Congress has legislated reductions in, or frozen updates to, the Medicare Clinical Laboratory Fee Schedule. In addition, CMS has adopted policies limiting or excluding coverage for...

  • Page 25
    ...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 enrolling in consumer driven products and high deductible plans that involve greater patient cost-sharing. The increased...

  • Page 26
    ...• 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 27
    ..., insurance 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...

  • Page 28
    ... offices. Although CLIA compliance costs 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...

  • Page 29
    ... test orders and test results, could require costly modifications to our existing HCIT systems. While we do not expect HCIT standards to be adopted or implemented without adequate time to comply, if we fail to adopt or delay in implementing HCIT standards, we could lose customers and business...

  • Page 30
    ... to expand further our international operations, through acquisition or otherwise, which would increase these risks. As a result of these risks, our financial condition or results of operations could be materially adversely affected. Our medical diagnostic products business is subject to numerous...

  • Page 31
    ... in federal healthcare programs and substantial monetary penalties. As part of a settlement with the U.S. Department of Justice and other federal government agencies, in April 2009 we entered into a five-year Corporate Integrity Agreement with the U.S. Department of Health and Human Services Office...

  • Page 32
    ... 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 include: (1) the requirements of Medicare carriers to provide diagnosis codes for many commonly ordered tests...

  • Page 33
    ... trials testing laboratory at locations throughout the United States. In addition, we maintain offices, manufacturing facilities, patient service centers and clinical laboratories in locations outside the United States, including in Sweden, Puerto Rico, Mexico, the United Kingdom, India, Ireland...

  • Page 34
    ... Laboratories, LLC v. Quest Diagnostics Incorporated, et al. (the "California Lawsuit"), filed in California Superior Court against a number of clinical laboratories, including the Company and several of its subsidiaries. The complaint was originally filed by a competitor laboratory in California...

  • Page 35
    ...'s pricing of laboratory services. The complaint seeks damages for alleged false claims associated with laboratory tests reimbursed by government payors, treble damages and civil penalties. In June 2009, a shareholder plaintiff filed a purported derivative action in the Superior Court of New Jersey...

  • Page 36
    ... state agencies in five states and from the Office of Inspector General of the U.S. Department of Health and Human Services which seek documents relating to the Company's billing practices. The Company is cooperating with the requests. The federal or state governments may bring claims based on new...

  • Page 37
    ... behalf of the Company of its common stock during the fourth quarter of 2010. ISSUER PURCHASES OF EQUITY SECURITIES Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands...

  • Page 38
    ... 2011, the Company's remaining share repurchase authorization totaled $165 million. Performance Graph Set forth below is a line graph comparing the cumulative total shareholder return on Quest Diagnostics' common stock since December 31, 2005, based on the market price of the Company's common stock...

  • Page 39
    ... 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 63. Changes in Internal Control During the fourth quarter of 2010, there...

  • Page 40
    ... to the Code of Business Ethics, and any waivers that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange, on our website. Information regarding the Company's executive officers is contained in Part I, Item 1 of this Report under "Executive Officers of the...

  • Page 41
    ...are earned based on maximum rather than target levels). (7) After giving effect to shares issued in January 2011 for the December 2010 payroll under the Employee Stock Purchase Plan. Information regarding security ownership of certain beneficial owners and management appearing in our Proxy Statement...

  • Page 42
    ...Quarterly Operating Results (unaudited)...2. Financial Statement Schedule. Item F-1 F-2 F-3 F-4 F-5 F-6 F-41 Page Schedule II - Valuation Accounts and Reserves ...3. F-43 Exhibits An exhibit index has been filed as part of this Report beginning on page E-1 and is incorporated herein by reference...

  • Page 43
    ..., on February 16, 2011. QUEST DIAGNOSTICS INCORPORATED (Registrant) By: /s/ Surya N. Mohapatra, Ph.D. Surya N. Mohapatra, Ph.D. Chairman of the Board, President and Chief Executive Officer Each individual whose signature appears below constitutes and appoints Michael E. Prevoznik and William...

  • Page 44
    ...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. Year Ended December 31, 2009 2008 2007(a) (in thousands, except per share data) 2010 2006 Operations Data: Net revenues...

  • Page 45
    ...results of operations of HemoCue and AmeriPath subsequent to the closing of the applicable acquisition. (b) Operating income includes $27.0 million of costs principally associated with workforce reductions and $9.6 million of costs associated with the settlement of employee litigation. (c) Operating...

  • Page 46
    ... the balance. Orders for laboratory testing are generated from physician offices, hospitals and employers and can be affected by a number of factors. For example, changes in the United States economy can affect the number of unemployed and uninsured, and design changes in healthcare plans can affect...

  • Page 47
    ... health insurance reforms and expands coverage for approximately 32 million previously uninsured Americans, which will result in expanded access to healthcare. In addition, the legislation eliminates patient cost-sharing for certain prevention and wellness benefits for health insurance plans...

  • Page 48
    ... insurers and government payers at the federal and state level. Six Sigma as a Means to Improve Quality and Operating Efficiency The diagnostic testing industry is labor intensive. Employee compensation and benefits constitute approximately one-half of our total costs and expenses. Cost of services...

  • Page 49
    ...-of-care testing and international markets will diversify our revenue base, and provide increased access to fast growing markets. Critical Accounting Policies The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires...

  • Page 50
    ... testing business during 2010 applicable to each payer group: Net Revenues as % of Total Clinical Laboratory Testing Net Revenues Requisition Volume as % of Total Volume Healthcare Insurers ...Traditional Medicare and Medicaid Programs ...Physicians, Hospitals, Employers and Other Monthly-Billed...

  • Page 51
    ... of our Board of Directors 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...

  • Page 52
    ... which requires management to make certain assumptions regarding: (i) the expected volatility in the market price of the Company's common stock; (ii) dividend yield; (iii) risk-free interest rates; and (iv) the period of time employees are expected to hold the award prior to exercise (referred to...

  • Page 53
    ... 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 segment. The clinical testing business for...

  • Page 54
    ... in the number of tests ordered per requisition. Offsetting these benefits were a 1.9% Medicare fee schedule decrease, which went into effect on January 1, 2010 and served to reduce revenue per requisition by 0.4%; business and payer mix changes, including an increase in lower priced drugs-of-abuse...

  • Page 55
    ... deferred compensation plans. Cost of Services Cost of services includes the costs of obtaining, transporting and testing specimens. For the year ended December 31, 2010, cost of services increased, as a percentage of revenue, primarily as a result of lower revenues in our clinical testing business...

  • Page 56
    ... from discontinued operations, net of taxes, for the year ended December 31, 2010 was $1.8 million, or $0.01 per diluted share, compared to $1.2 million, or $0.01 per diluted share, in 2009. On April 15, 2009, the Company entered into a final settlement agreement with the federal government and paid...

  • Page 57
    ... decrease in pre-employment drug testing continued 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...

  • Page 58
    ...deferred compensation plans discussed earlier. Days sales outstanding decreased to 43 days at December 31, 2009 compared to 44 days at December 31, 2008. Continued progress in our billing and collection processes has resulted in stable bad debt and improvements in days sales outstanding and the cost...

  • Page 59
    ... revenue per requisition and progress we are making with our cost reduction program, as well as discrete cost containment actions we took during 2009. Operating income for the year ended December 31, 2009 also includes a $15.5 million gain associated with an insurance settlement for storm-related...

  • Page 60
    ...federal government investigation of NID, a test kit subsidiary voluntarily closed in 2006. As a result of the agreement in principle, during 2008, the Company recorded charges of $75 million in discontinued operations to increase its reserves for the settlement and related matters. On April 15, 2009...

  • Page 61
    .... This decrease was primarily driven by the timing of payments for variable compensation and accrued expenses. Days sales outstanding, a measure of billing and collection efficiency, increased to 44 days at December 31, 2010 compared to 43 days at December 31, 2009. This increase is primarily due to...

  • Page 62
    ... million related to the receipt of a payment from an escrow fund established at the time of an acquisition in 2007. Cash Flows from Financing Activities Net cash used in financing activities in 2010 was $986 million, consisting primarily of debt repayment of $169 million, purchases of treasury stock...

  • Page 63
    ... ended December 31, 2010 and 2009, we reissued 2.1 million shares and 3.0 million shares, respectively, for employee benefit plans. Since the inception of our share repurchase program in May 2003, we have repurchased approximately 74 million shares of our common stock at an average price of $47.13...

  • Page 64
    ... provider of 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 making in sales, service, science...

  • Page 65
    Impact of New Accounting Standards In October 2009, the Financial Accounting Standards Board ("FASB") issued an amendment to the accounting standards related to the accounting for revenue in arrangements with multiple deliverables, and an amendment to the accounting standards related to certain ...

  • Page 66
    ...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 over financial reporting as of December...

  • Page 67
    ..., and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable...

  • Page 68
    ......Long-term debt ...Other liabilities ...Commitments and contingencies Stockholders' equity: Quest Diagnostics stockholders' equity: Common stock, par value $0.01 per share; 600,000 shares authorized at both December 31, 2010 and 2009; 214,173 shares and 214,110 shares issued at December 31, 2010...

  • Page 69
    QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008 (in thousands, except per share data) 2010 2009 2008 Net revenues ...Operating costs and expenses: Cost of services ...Selling, general and administrative ......

  • Page 70
    ... ...Deferred income tax (benefit) provision ...Stock-based compensation expense...Excess tax benefits from stock-based compensation arrangements...Other, net ...Changes in operating assets and liabilities: Accounts receivable ...Accounts payable and accrued expenses ...Settlement and other special...

  • Page 71
    ... ...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, 2009 ...Net income ...Currency translation ...Market valuation...

  • Page 72
    ... for drugs-of-abuse in the United States, and the leading provider of risk assessment services for the life insurance industry in North America. The Company is also a leading provider of testing for clinical trials. The Company's diagnostics products business manufactures and markets diagnostic test...

  • Page 73
    ... and Medicaid programs in each of the years ending December 31, 2010, 2009 and 2008. Under capitated arrangements with healthcare insurers, 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...

  • Page 74
    ...) number of performance share units expected to be earned is recognized as compensation cost in earnings in the period of the revision. The Company recognizes stock-based compensation expense related to the Company's Amended Employee Stock Purchase Plan ("ESPP") based on the 15% discount at purchase...

  • Page 75
    ... or the remaining life of the building or lease, as applicable; and computer software developed or obtained for internal use, ranging from three to seven years. Goodwill Goodwill arising from acquisitions completed prior to January 1, 2009 represents the cost of acquired businesses in excess of...

  • Page 76
    ...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 77
    ... securities represent participant-directed investments of deferred employee compensation and related Company matching contributions held in a trust pursuant to the Company's supplemental deferred compensation plan (see Note 13). The Company purchases life insurance policies, with the Company named...

  • Page 78
    ... is to achieve the lowest overall cost of funding while managing the variability in cash outflows within an acceptable range. In order to achieve these objectives, the Company has entered into interest rate swaps. Interest rate swaps involve the periodic exchange of payments without the exchange of...

  • Page 79
    ... for the years ended December 31, 2010, 2009 and 2008, respectively. New Accounting Standards In October 2009, the Financial Accounting Standards Board ("FASB") issued an amendment to the accounting standards related to the accounting for revenue in arrangements with multiple deliverables including...

  • Page 80
    ... FASB issued an amendment related to the accounting for business combinations to address diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations. This standard will become effective for the Company on January 1, 2011 and...

  • Page 81
    ... 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, with the Company named as beneficiary of the policies, for the purpose of funding the program...

  • Page 82
    ... settlement or maturity or that the changes in fair value will have a material effect on its results of operations, liquidity and capital resources. Investments in available-for-sale equity securities consist of the revaluation of an existing investment in unregistered common shares of a publicly...

  • Page 83
    ... A reconciliation of the federal statutory rate to the Company's effective tax rate for 2010, 2009 and 2008 was as follows: 2010 2009 2008 Tax provision at statutory rate ...State and local income taxes, net of federal benefit ...Impact of foreign operations...Tax credits ...Non-deductible expenses...

  • Page 84
    ... the Company's federal income tax returns for its 2006 and 2007 tax years, and has issued their related revenue agent report. In addition, certain state tax authorities are conducting audits for various years between 2000 and 2009. In December 2008, the Company reached a settlement agreement to pay...

  • Page 85
    ... 31, 2009, other purchase accounting adjustments were primarily related to a payment received from an escrow fund established at the time of the HemoCue acquisition in 2007. Approximately 90% of the Company's goodwill as of December 31, 2010 and 2009 was associated with its clinical testing business...

  • Page 86
    ... following: Weighted Average Amortization Period December 31, 2010 Accumulated Cost Amortization Net December 31, 2009 Accumulated Cost Amortization Net Amortizing intangible assets: Customer-related intangibles ...19 years $ 603,203 Non-compete agreements ...5 years 54,886 Other ...11 years 75...

  • Page 87
    ... deferred financing fees and unamortized discounts and cash payments of $11.8 million related to premiums and other costs to purchase the 5.125% Senior Notes due 2010 and the 7.50% Senior Notes due 2011 and is included in other income (expense), net. The November 2009 Debt Tender Offer was financed...

  • Page 88
    ...which is calculated by reference to the prime rate or federal funds rate. As of December 31, 2010 and 2009, the Company's borrowing rate for LIBOR-based loans under the Credit Facility was LIBOR (0.3% and 0.2% at December 31, 2010 and 2009, respectively) plus 0.40%. The Credit Facility is guaranteed...

  • Page 89
    ...Secured Receivables Credit Facility. In April 2009, the Company borrowed $310 million under its Secured Receivables Credit Facility primarily to fund payments totaling $314 million in connection with the previously disclosed settlement of the federal government investigation related to NID (see Note...

  • Page 90
    ... forecasted new debt issuances related to the refinancing of certain debt maturing through 2011. In connection with the issuance of our 2009 Senior Notes, the Forward Starting Interest Rate Swap Agreements were terminated and the Company paid $10.5 million, representing the losses on the settlement...

  • Page 91
    ...,352 12. 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 authority to issue such shares without stockholder approval...

  • Page 92
    ...'s Board of Directors declared a quarterly cash dividend of $0.10 per common share. Share Repurchases For the year ended December 31, 2010, the Company repurchased 14.7 million shares of its common stock at an average price of $51.04 per share for $750 million, including 4.5 million shares purchased...

  • Page 93
    ... stock options, or both, to purchase shares of Company common stock at a price of no less than the fair market value on the date of grant. The stock options are subject to forfeiture if employment terminates prior to the end of the vesting period prescribed by the Board of Directors. Grants of stock...

  • Page 94
    ... 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. Stock options granted under the DLTIP expire on the date designated by the Board...

  • Page 95
    ... at the 2006 Annual Meeting of Shareholders, substantially 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...

  • Page 96
    ... beneficially owns any shares of Quest Diagnostics common stock. See Note 18 for further details. Quest Diagnostics is the primary provider of testing to support GSK's clinical trials testing requirements under a worldwide agreement (the "Clinical Trials Agreement"). Net revenues, primarily derived...

  • Page 97
    ... Medicaid program. The Company cooperated with the government's requests. Subsequently, the State of California intervened as plaintiff in a civil lawsuit, California ex rel. Hunter Laboratories, LLC v. Quest Diagnostics Incorporated, et al. (the "California Lawsuit"), filed in California Superior...

  • Page 98
    ...'s pricing of laboratory services. The complaint seeks damages for alleged false claims associated with laboratory tests reimbursed by government payors, treble damages and civil penalties. In June 2009, a shareholder plaintiff filed a purported derivative action in the Superior Court of New Jersey...

  • Page 99
    ... state agencies in five states and from the Office of Inspector General of the U.S. Department of Health and Human Services which seek documents relating to the Company's billing practices. The Company is cooperating with the requests. The federal or state governments may bring claims based on new...

  • Page 100
    ... with generally accepted accounting principles, reflected in discontinued operations, of $241 million in connection with these claims. During the third quarter of 2008, the Company and NID reached an agreement in principle with the United States Attorney's Office to settle the federal government...

  • Page 101
    ... Company's diagnostics products business manufactures and markets products that enable healthcare professionals to make healthcare diagnoses, including products for point-of-care testing for the professional market. On April 19, 2006, the Company decided to discontinue NID's operations and results...

  • Page 102
    QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (dollars in thousands unless otherwise indicated) 18. SUBSEQUENT EVENTS In January 2011, the Company's Board of Directors authorized $750 million of additional share repurchases, bringing the total...

  • Page 103
    ...Accounts payable and accrued expenses ...Current portion of long-term debt ...Total current liabilities ...Long-term debt...Other liabilities ...Stockholders' equity: Quest Diagnostics...14,870) $ 888,705 165,661 2,436 2,410 - 170,507 807,625 241,853 24,604 (14,870) 1,059,212 2,430,806 146,556 359,430 ...

  • Page 104
    ... For the Year Ended December 31, 2009 Subsidiary Guarantors NonGuarantor Subsidiaries Parent Eliminations Consolidated Net revenues ...$ 877,940 $6,140,346 Operating costs and expenses: Cost of services...518,958 3,550,414 Selling, general and administrative ...171,724 1,232,366 Amortization...

  • Page 105
    ... interests ...Net income attributable to Quest Diagnostics ...$ Condensed Consolidating Statement of Cash Flows For the Year Ended December 31, 2010 NonGuarantor Subsidiaries Parent Subsidiary Guarantors Eliminations Consolidated Cash flows from operating activities: Net income ...$ 720,894...

  • Page 106
    QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (dollars in thousands unless otherwise indicated) Condensed Consolidating Statement of Cash Flows For the Year Ended December 31, 2009 Parent Subsidiary Guarantors NonGuarantor Subsidiaries ...

  • Page 107
    QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES Quarterly Operating Results (unaudited) (in thousands, except per share data) First Quarter Second Quarter Third Quarter Fourth Quarter Total Year 2010 (a) Net revenues...$1,805,503(b) $1,874,727 Gross profit...739,130(b) 795,756 Income from ...

  • Page 108
    ...fourth quarter of 2010, the Company recorded $9.6 million of charges, primarily related to workforce reductions. In additon, the Company recorded $9.6 million of charges associated with the settlement of employee litigation. Results for the fourth quarter of 2010 also included income tax benefits of...

  • Page 109
    QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES SCHEDULE II - VALUATION ACCOUNTS AND RESERVES (in thousands) Provision for Doubtful Accounts Balance at 1-1-10 Net Deductions and Other Balance at 12-31-10 Year ended December 31, 2010 Doubtful accounts and allowances ... $238,206 $291,737 ...

  • Page 110
    ...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 Incorporated), the Company, The Bank of New York, and the Subsidiary Guarantors (filed as an Exhibit to the Company's quarterly report on...

  • Page 111
    ... Bank of TokyoMitsubishi, UFJ, Ltd., New York Branch, as Administrative Agent (filed as an Exhibit to the Company's 2009 annual report on Form 10-K and incorporated herein by reference) Amendment No. 3 dated as of December 10, 2010 to Fourth Amended and Restated Credit and Security Agreement dated...

  • Page 112
    ... File Number 001-12215) Performance Share Award Agreement, dated as of February 12, 2007, between the Company and Surya N. Mohapatra (filed as an Exhibit to the Company's 2007 annual report on Form 10-K and incorporated herein by reference) Amended and Restated Quest Diagnostics Incorporated Long...

  • Page 113
    ... Plan and Restricted Stock Purchase Plan (filed as an Exhibit to the Company's 2007 Annual Report on Form 10-K and incorporated herein by reference) Confirmation between Quest Diagnostics Incorporated and Barclays Bank plc acting through its agent Barclays Capital, Inc. dated January 28, 2010 (filed...

  • Page 114
    Fidelity 3.QU-C-799A.102 RRD MI2817 BV-SFICOC-US09000076