Quest Diagnostics 2010 Annual Report Download - page 58

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Operating Costs and Expenses
$
% Net
Revenues $
% Net
Revenues $
% Net
Revenues
2009 2008
Change
Increase
(decrease)
(dollars in millions)
Cost of services................................ $4,321.5 58.0% $4,256.2 58.7% $65.3 (0.7)%
Selling, general and administrative expenses
(SG&A) . . ................................... 1,747.6 23.4% 1,736.9 24.0% 10.7 (0.6)%
Amortization of intangible assets................ 37.0 0.5% 37.3 0.5% (0.3) —
Other operating expense (income), net. . . ........ (10.0) (0.1)% (3.3) (0.1)% (6.7) —
Total operating costs and expenses .............. $6,096.1 81.8% $6,027.1 83.1% $69.0 (1.3)%
Bad debt expense (included in SG&A) . . ........ $ 321.0 4.3% $ 326.2 4.5% $ (5.2) (0.2)%
Total Operating Costs and Expenses
Total operating costs and expenses for the year ended December 31, 2009 increased from the prior year and
decreased as a percentage of net revenues due to actions we have taken to improve our operating efficiency and
reduce the size of our workforce, along with discrete cost containment actions taken during 2009 which 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 included in cost of services
and $8.5 million included in selling, general and administrative).
Also, year-over-year comparisons were adversely impacted by approximately $18 million associated with
gains and losses on investments in our supplemental deferred compensation plans. The impact can fluctuate
significantly from year to year based on investment performance. Under our supplemental deferred compensation
plans, employee compensation deferrals, together with Company matching contributions, are invested in a variety
of participant-directed investments held in trusts. Gains and losses associated with the investments are recorded in
earnings within other income (expense), net. A corresponding and offsetting adjustment is also recorded to the
deferred compensation obligation to reflect investment gains and losses earned by employees. Such adjustments to
the deferred compensation obligation are recorded in earnings, principally within selling, general and
administrative expenses, and offset the amount of investment gains and losses recorded in other income
(expense), net. Results for 2009 included an increase in operating costs of $8.4 million, representing an increase
in the deferred compensation obligation to reflect investment gains earned by employees participating in our
deferred compensation plans. Results for 2008 included a reduction in operating costs of $9.9 million,
representing a decrease in the deferred compensation obligation to reflect investment losses incurred by
employees participating in our deferred compensation plans.
Cost of Services
Cost of services decreased as a percentage of net revenues for the year ended December 31, 2009 compared
to the prior year due to actions taken to reduce our cost structure and higher revenue per requisition.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased as a percentage of net revenues for the year ended
December 31, 2009 compared to prior year primarily due to actions taken to reduce our cost structure and higher
revenue per requisition. In addition, year-over-year comparisons of selling, general and administrative expenses as
a percentage of net revenues, were adversely impacted by 0.2% associated with investment gains and losses
earned by employees on assets held in trust under our supplemental 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 of our billing operations.
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