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37323
2011 FORM 10–K

Table of contents

  • Page 1
    2011 FORM 10-K

  • Page 2

  • Page 3
    ... 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, 2011 Commission File Number 001-12215 Quest Diagnostics Incorporated 3 Giralda Farms Madison, New Jersey 07940 (973) 520-2700 Delaware (State...

  • Page 4

  • Page 5
    ... ...Report of Management on Internal Control Over Financial Reporting...Report of Independent Registered Public Accounting Firm ...Consolidated Financial Statements and Related Notes...Supplementary Data: Quarterly Operating Results (unaudited) ...Schedule II - Valuation Accounts and Reserves...

  • Page 6

  • Page 7
    ... 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," "we" and...

  • Page 8
    ... sends email reminders to patients who require frequent testing, and Gazelle௡, a secure mobile health platform that allows users to receive their Quest Diagnostics laboratory results, manage their personal health information, find a Quest Diagnostics location and schedule appointments directly...

  • Page 9
    ... and physicians to make better healthcare decisions. We offer U.S. patients and physicians the broadest access to diagnostic testing services through our nationwide network of laboratories and Company-owned patient service centers. We provide interpretive consultation through the largest medical and...

  • Page 10
    ... 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. The majority of test results are delivered electronically. Routine tests measure various important bodily health...

  • Page 11
    ... use laboratory testing services based on Genomic Vision's molecular combing technique in the United States, India and Mexico. We expect to release laboratory developed tests based on molecular combing technology, and also may offer molecular combing-based laboratory testing services for new drug...

  • Page 12
    ...doctors care for their patients through better predisposition, screening, monitoring, diagnosis, prognosis and treatment choices. We also look for tests that are less invasive than currently available options, to increase the choices that physicians and patients have for the collection of diagnostic...

  • Page 13
    ... to other practitioners and secure, Web-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 smartphones or mobile devices. Care360 was named the top...

  • Page 14
    ...line lab results to life insurance applicants. We charge our life insurance customers on a fee-for-service basis, typically under multi-year agreements. Employer Services. We believe that we are a leading provider of testing to employers for the detection of employee use of drugs of abuse. Our Quest...

  • Page 15
    ... and offer the InSure௡ fecal immunochemical test (FITTM) for screening for colorectal cancer. International. We have laboratory facilities in Gurgaon, India; Heston, England; Mexico City, Mexico; and San Juan, Puerto Rico. These laboratories support clinical testing in their local markets, and...

  • Page 16
    ... coverage to patients, such as a health insurance plan, self-insured employer benefit fund, an accountable care organization, a patient centered medical home or the traditional Medicare or Medicaid program, (2) the patient or (3) the physician or other party (such as a hospital, another laboratory...

  • Page 17
    ... of test and service offering. Physicians also purchase and utilize our point-of-care tests. Hospitals. Hospitals generally maintain an on-site laboratory to perform the significant majority of clinical testing for their patients and refer less frequently needed and highly specialized procedures to...

  • Page 18
    ... 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 19
    ... 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 the licensing, credentialing, training and competence...

  • Page 20
    ...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 21
    ...'s fee schedule amount for covered services as payment in full. In addition, state Medicaid programs are prohibited from paying more (and in most instances, pay significantly less) than Medicare. Currently, Medicare does not require the beneficiary to pay a co-payment for clinical laboratory testing...

  • Page 22
    .... State laws also may require detailed review of our scientific validations and technical procedures for tests. Fraud and Abuse Rules. Federal anti-kickback laws and regulations prohibit making payments or furnishing other benefits to influence the referral of tests billed to Medicare, Medicaid or...

  • Page 23
    ... European Union, India and Mexico, regarding protecting the security and privacy of certain healthcare and personal information. These privacy and security laws include the federal Health Insurance Portability and Accountability Act, as amended, and the regulations thereunder (collectively, "HIPAA...

  • Page 24
    ... the Medicare and Medicaid programs. Reimbursement from traditional Medicare and Medicaid programs represented approximately 18% of our net revenues during 2011. We believe that, based on our experience with settlements and public announcements by various government officials, the federal and state...

  • Page 25
    ...joined the company in March 2009 and served as Chief Medical Officer until May 2011, when he also assumed responsibility for Hospital Services. He served as the Senior Advisor to New York Governor David Patterson from 2008 to 2009, where he was responsible for all policy and strategic planning. From...

  • Page 26
    ... Berkeley HeartLab, and driving its focus on personalizing disease management through diagnostic products and services. ˜ ez joined Quest Diagnostics with its acquisition of Celera in May 2011. She served as Chief Executive Ms. Ordon Officer of Celera and was a founder of Celera Diagnostics...

  • Page 27
    ... 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 physician...

  • Page 28
    .... We also provide physician services which are reimbursed by Medicare under a physician fee schedule, which is subject to adjustment on an annual basis. CMS changes add to our costs by increasing complexity and administrative requirements for billing. Medicaid reimbursement varies by state and is...

  • Page 29
    ... 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. Some healthcare plans also are considering steps such as requiring preauthorization of testing. There are also an increasing number of patients...

  • Page 30
    ... operations of other companies or businesses we may acquire in the future, we may not be able to realize all or any of the benefits that we expect to result from such integration, either in monetary terms or in a timely manner. We are subject to numerous legal and regulatory requirements governing...

  • Page 31
    ... testing services is extremely complicated and is subject to extensive and non-uniform rules and administrative requirements. Depending on the billing arrangement and applicable law, we bill various payers, such as patients, insurance companies, Medicare, Medicaid, physicians, hospitals and employer...

  • Page 32
    ...patients, or the internalization of testing by hospitals or physicians, could negatively impact our testing volume and revenues. Advances in technology may lead to the development of more cost-effective tests that can be performed outside of a commercial clinical laboratory such as (1) point-of-care...

  • Page 33
    ... by patients in their homes or by physicians in their offices. Although physicians operating in-office laboratories incur additional costs for CLIA compliance, manufacturers of laboratory equipment and test kits could seek to increase their sales by marketing to physicians point-of-care test...

  • Page 34
    ... our revenues 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 orders and test results, could require costly...

  • Page 35
    ... criminal activities. Such events may result in a temporary decline in the number of patients who seek clinical testing services or in our employees' ability to perform their job duties. In addition, such events may temporarily interrupt our ability to transport specimens, to receive materials from...

  • Page 36
    ...the right to participate in the Medicare and Medicaid programs, or the imposition of additional and costly compliance obligations. If the inquiries continue over a long period of time, they could divert the attention of management from the day-to-day operations of our business and impose significant...

  • Page 37
    ... 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 38
    ...to the development of more cost-effective tests such as (1) point-of-care tests that can be performed by physicians in their offices, (2) esoteric tests that can be performed by hospitals in their own laboratories or (3) home testing that can be carried out without requiring the services of clinical...

  • Page 39
    ... 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 40
    ... records related to the Company's compliance program, certain marketing materials, certain product offerings, and test ordering and other policies. The Company is cooperating with the request. In January 2012, a putative class action entitled Beery v. Quest Diagnostics Incorporated was filed...

  • Page 41
    ... the federal False Claims Act, allow private individuals to bring lawsuits against healthcare companies on behalf of government or private payers. The Company is aware of certain pending individual or class action lawsuits, and has received several subpoenas, related to billing practices filed under...

  • Page 42
    ... behalf of the Company of its common stock during the fourth quarter of 2011. 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 43
    .... The share repurchase authority has no set expiration or termination date. Performance Graph Set forth below is a line graph comparing the cumulative total shareholder return on Quest Diagnostics' common stock since December 31, 2006, based on the market price of the Company's common stock and...

  • Page 44
    ...of the Securities Exchange Act of 1934, as amended). Based upon that evaluation, our Chief Executive Officer and our 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...

  • Page 45
    ...governance website, www.QuestDiagnostics.com/governance. We will post any amendments 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...

  • Page 46
    ...Quarterly Operating Results (unaudited)...2. Financial Statement Schedule. Item F-1 F-2 F-3 F-4 F-5 F-6 F-43 Page Schedule II - Valuation Accounts and Reserves ...3. F-45 Exhibits An exhibit index has been filed as part of this Report beginning on page E-1 and is incorporated herein by reference...

  • Page 47
    ... 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 every act and...

  • Page 48
    ... the audited consolidated financial statements 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, 2010 2009 2008 (in thousands, except per share data...

  • Page 49
    ... applicable acquisition. (c) Operating income includes a pre-tax charge to earnings in the first quarter of 2011 of $236 million which represented the cost to resolve a previously disclosed civil lawsuit brought by a California competitor in which the State of California intervened (the "California...

  • Page 50
    ...$241 million related to the government investigation of NID. See Note 17 to the Consolidated Financial Statements. (p) Includes payments associated with the settlement of the California Lawsuit, restructuring and integration costs, and transaction costs associated with the acquisitions of Athena and...

  • Page 51
    ... the number of unemployed and uninsured, and design changes in healthcare plans can affect the number of physician office and hospital visits, and can impact the utilization of laboratory testing. The diagnostic testing industry is subject to seasonal fluctuations in operating results and cash flows...

  • Page 52
    ..., healthcare insurers, patients and the government. Physicians, hospitals and employers are typically billed on a fee-for-service basis based on negotiated fee schedules. Fees billed to healthcare insurers and patients are based on the laboratory's patient fee schedule, subject to any limitations on...

  • Page 53
    ... had limited their network of laboratory service providers, encouraged their members, and sometimes offered incentives, to utilize only contracted providers. Patients who use a non-contracted provider may have a higher co-insurance responsibility, which may result in physicians referring testing to...

  • Page 54
    ... our sales and marketing efforts, billing operations, bad debt expense, and general management and administrative support. In addition, performing diagnostic testing involves significant fixed costs for facilities and other infrastructure required to obtain, transport and test specimens. Therefore...

  • Page 55
    ... our clinical testing business during 2011 applicable to each payer group: % of Clinical Testing Revenues % of Volume Healthcare Insurers ...Traditional Medicare and Medicaid Programs ...Physicians, Hospitals, Employers and Other Monthly-Billed Clients ...Patients ...Healthcare insurers 45% 15...

  • Page 56
    .... Client payers Client payers include physicians, hospitals, employers and other commercial laboratories, and are billed based on a negotiated fee schedule. Receivables due from client payers represent approximately 36% of our clinical testing net accounts receivable. Credit risk and ability to pay...

  • Page 57
    ... 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 reported to the...

  • Page 58
    ...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. Acquisitions Acquisition of Athena Diagnostics On February 24, 2011, we signed a definitive agreement to acquire Athena Diagnostics ("Athena") from...

  • Page 59
    ... these matters for $241 million. On May 19, 2011, we finalized a settlement agreement and release with the California Department of Health Care Services, the California Attorney General's Office and the qui tam relator. We agreed to the settlement to resolve claims pertaining to the Comparable...

  • Page 60
    ...level. Revenue per requisition continues to benefit from an increased mix in gene-based and esoteric testing, particularly from the impact of the acquired operations of Athena and Celera. Offsetting this benefit was business and payor mix changes including: an increase in lower priced drugs-of-abuse...

  • Page 61
    ... higher costs associated with employee compensation and benefits, and investments we have made in our sales and service capabilities, as well the impact of the Athena and Celera acquisitions, served to increase total operating expenses as a percent of net revenues compared to the prior year. Results...

  • Page 62
    ... our CEO, and transaction costs related to the Athena and Celera acquisitions, served to decrease operating income as a percent of net revenues by 4.4%. For the year ended December 31, 2010, the impacts of severe weather, restructuring and integration related costs, and the settlement of employment...

  • Page 63
    ... Lawsuit (see Note 16 to the Consolidated Financial Statements), a portion for which a tax benefit has not been recorded. Income tax expense for the year ended December 31, 2011 included discrete income tax benefits of $18.2 million, primarily associated with certain state tax planning initiatives...

  • Page 64
    ... 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 65
    ...reflect investment gains earned by employees participating in our deferred compensation plans. Cost of Services 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, including the impact...

  • Page 66
    ... year. In addition, the year-over-year change in operating income as a percentage of net revenues was also adversely impacted by 0.2% associated with a $15.5 million gain recorded in 2009 related to an insurance settlement for storm-related losses. Interest Expense, net 2010 2009 Change: Increase...

  • Page 67
    ... our $750 million senior unsecured revolving credit facility as of December 31, 2011. We seek to mitigate the variability in cash outflows that result from changes in interest rates by maintaining a balanced mix of fixed-rate and variable-rate debt obligations. In order to achieve this objective, we...

  • Page 68
    ... 31, 2011, cash flows from operating activities included payments associated with the settlement of the California Lawsuit (see Note 16 to the Consolidated Financial Statements), restructuring and integration costs, and transaction costs associated with the acquisitions of Athena and Celera (see...

  • Page 69
    ...the second quarter of 2011, proceeds from the sale of short-term marketable securities acquired as part of the Celera acquisition totaling $214 million, together with cash on hand, were used to fund $500 million and $30 million of debt repayments under our secured receivables credit facility and our...

  • Page 70
    ... swap agreements, using the interest rates as of December 31, 2011 applied to the December 31, 2011 balances, which are assumed to remain outstanding through their maturity dates. A full description of the terms of our indebtedness and related debt service requirements and our future payments under...

  • Page 71
    ... operating costs, focus on delivering a superior patient experience and Six Sigma quality, as well as the investments we are making in sales, service, science and information technology will further differentiate us over the long-term and strengthen our industry leadership position. Our strong cash...

  • Page 72
    ... statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly...

  • Page 73
    ..., 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 74
    ... other comprehensive (loss) income ...Treasury stock, at cost; 57,187 shares and 43,456 shares at December 31, 2011 and 2010, respectively ...Total Quest Diagnostics stockholders' equity ...Noncontrolling interests ...Total stockholders' equity...Total liabilities and stockholders' equity ... $ 164...

  • Page 75
    ..., except per share data) 2011 2010 2009 Net revenues ...Operating costs and expenses: Cost of services ...Selling, general and administrative ...Amortization of intangible assets ...Other operating expense (income), net ...Total operating costs and expenses...Operating income ...Other income...

  • Page 76
    ... ...Accounts payable and accrued expenses ...Settlement of special charge ...Income taxes payable ...Other assets and liabilities, net ...Net cash provided by operating activities...Cash flows from investing activities: Business acquisitions, net of cash acquired ...Sale of securities acquired in...

  • Page 77
    ...benefit plans ...Stock-based compensation expense ...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 ...Other ...Balance, December 31, 2011...

  • Page 78
    ...to make better healthcare decisions. Quest Diagnostics offers patients and physicians the broadest access to diagnostic laboratory services through the Company's nationwide network of laboratories and patient service centers. The Company provides interpretive consultation through the largest medical...

  • Page 79
    ...and Medicaid programs in each of the years ended December 31, 2011, 2010 and 2009. 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 of...

  • Page 80
    ... represent a credit risk since the related healthcare programs are funded by federal and state governments, and payment is primarily dependent on submitting appropriate documentation. At both December 31, 2011 and 2010, receivables due from government payers under the Medicare and Medicaid programs...

  • Page 81
    ... other legal rights, or if it is separable. Intangible assets, principally representing the cost of customer related intangibles, non-competition agreements and technology acquired, are capitalized and amortized on the straight-line method over their expected useful life, which generally ranges from...

  • Page 82
    ...The Company accounts for investments in trading and available-for-sale equity securities, which are included in other assets in the consolidated balance sheets at fair value. Both realized and unrealized gains and losses for trading securities are recorded currently in earnings as a component of non...

  • Page 83
    ... trading equity securities represent participant-directed investments of deferred employee compensation and related Company matching contributions held in trusts pursuant to the Company's supplemental deferred compensation plans (see Note 14). The Company purchases life insurance policies, with the...

  • Page 84
    ... expense. The Company accounts for its derivatives as either an asset or liability measured at its fair value. The fair value is based upon quoted market prices obtained from third-party financial institutions and includes an adjustment for the credit risk of the obligor's non-performance. For...

  • Page 85
    ...Effect of dilutive securities: Stock options and performance share units ...Weighted average common shares outstanding - diluted ...Earnings per share attributable to Quest Diagnostics' common stockholders - basic: Income from continuing operations ...Loss from discontinued operations ...Net income...

  • Page 86
    ... of advanced diagnostic tests related to neurological conditions, and generated revenues of approximately $110 million in 2010. Through the acquisition, the Company acquired all of Athena's operations. The Company financed the allcash purchase price of $740 million and related transaction costs with...

  • Page 87
    ... May 4, 2011. Through the acquisition, the Company acquired all of Celera's operations. The Company financed the allcash purchase price of $670 million and related transaction costs with borrowings under its existing credit facilities and cash on hand. Of the total cash purchase price of $670...

  • Page 88
    ... Quoted Prices in Active Significant Markets for Significant Other Identical Unobservable Observable Assets/ Inputs Inputs Liabilities Level 1 Level 2 Level 3 December 31, 2011 Assets: Interest rate swaps ...Trading securities ...Cash surrender value of life insurance policies...Available-for-sale...

  • Page 89
    ...are derived principally from observable market data by correlation to the trading securities. The Company offers certain employees the opportunity to participate in a non-qualified deferred compensation program. A participant's deferrals, together with Company matching credits, are "invested" at the...

  • Page 90
    ... ...State and local income taxes, net of federal benefit ...Impact of foreign operations...Tax credits ...Charge associated with settlement of certain legal claims (see Note 16), a portion for which a tax benefit has not been recorded...Transaction costs associated with business acquisitions (see...

  • Page 91
    ... as follows: 2011 2010 Current deferred tax assets: Accounts receivable reserves...Liabilities not currently deductible ...Total current deferred tax assets ...Non-current deferred tax assets (liabilities): Liabilities not currently deductible ...Stock-based compensation ...Capitalized R&D expense...

  • Page 92
    ...payments beyond its recorded contingent liability reserves that may be required as a result of these tax audits. As of December 31, 2011, a summary of the tax years that remain subject to examination for the Company's major jurisdictions are: United States - federal ...United States - various states...

  • Page 93
    ...December 31, 2011 Accumulated Cost Amortization Net December 31, 2010 Accumulated Cost Amortization Net Amortizing intangible assets: Customer-related intangibles ...19 years $ 630,671 Non-compete agreements...4 years 45,798 Technology ...14 years 165,113 Other ...8 years 146,613 Total ...16 years...

  • Page 94
    ...Accrued settlement reserves ...Total ... $215,340 339,768 348,025 3,631 $906,764 $212,494 298,842 337,069 16,867 $865,272 11. DEBT Short-term borrowings and current portion of long-term debt at December 31, 2011 and 2010 consisted of the following: 2011 2010 Secured Receivables Credit Facility...

  • Page 95
    ... that resulted in pre-tax losses of $2.6 million and $9.4 million, respectively. The aggregate pre-tax loss of $12.1 million includes the write-off of $0.3 million of deferred financing fees and unamortized discounts, and cash payments of $11.8 million related to premiums and other costs to purchase...

  • Page 96
    ...purchase price and related transaction costs associated with its acquisition of Athena, which closed on April 4, 2011 (see Note 4), and $485 million of the net proceeds, together with $90 million of cash on hand, to repay outstanding indebtedness under the Company's senior unsecured revolving credit...

  • Page 97
    ... considering the discounts, the effective interest rates on the Senior Notes due 2010 and 2015 are 5.3% and 5.6%, respectively. The 2005 Senior Notes require semi-annual interest payments, which commenced on May 1, 2006. The 2005 Senior Notes are unsecured obligations of the Company and rank equally...

  • Page 98
    ... years ended December 31, 2011, 2010 and 2009 as a result of hedge ineffectiveness. Foreign Currency Forward Contracts The Company uses foreign exchange forward contracts to manage its risk associated with foreign currency denominated cash flows. As of December 31, 2011, the total notional amount of...

  • Page 99
    ... Other current liabilities 464 $14,546 13. 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...

  • Page 100
    ... of operations (see Note 2). The market valuations for 2011 and 2010 represented unrealized holding gains (losses), net of taxes. The net deferred loss on cash flow hedges represents deferred losses on the Company's interest rate related derivative financial instruments designated as cash flow...

  • Page 101
    ... the Company's common stock during a period following execution of the agreement. The total cost of the initial purchase was $250 million. The purchase price adjustment was settled in the first quarter of 2010 and resulted in an additional cash payment of $0.7 million, for a final purchase price of...

  • Page 102
    ... December 31, 2011, 2010 and 2009, grants under the DLTIP totaled 60 thousand shares, 77 thousand shares and 77 thousand shares, respectively. In general, the Company's practice has been to issue shares related to its stock-based compensation program from shares of its common stock held in treasury...

  • Page 103
    ... Stock Purchase Plan Under the Company's Employee Stock Purchase Plan ("ESPP"), 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...

  • Page 104
    ... and the Offering, GSK no longer beneficially owned any shares of Quest Diagnostics common stock. 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 105
    ... 19, 2011, the Company finalized a settlement of, a qui tam case filed by a competitor under the California False Claims Act in California state court (the "California Lawsuit") related to the Company's practices billing Medi-Cal, the California Medicaid program. While denying liability, in order to...

  • Page 106
    ...New Jersey. The plaintiffs filed an amended complaint that adds claims under ERISA. The Company filed a motion seeking to limit the application of the NJLAD to only those members of the purported class who worked in New Jersey. In 2010, a purported class action entitled In re Celera Corp. Securities...

  • Page 107
    ...'s pricing and billing practices as they relate to Michigan's Medicaid program. The Company cooperated with the requests. In January 2012, the State of Michigan intervened as a plaintiff in a civil lawsuit, Michigan ex rel. Hunter Laboratories LLC v. Quest Diagnostics Incorporated, et al., filed in...

  • Page 108
    .... The Company also entered into a five-year corporate integrity agreement with the Office of Inspector General for the United States Department of Health and Human Services. In addition, NID pled guilty to a single count of felony misbranding and paid a $40 million fine. These payments totaling $308...

  • Page 109
    ... related to the settlement of the California Lawsuit (see Note 16), are included in general corporate expenses below. The accounting policies of the segments are the same as those of the Company as set forth in Note 2. 2011 2010 2009 Net revenues: Clinical testing business ...All other operating...

  • Page 110
    ... receivables to collateralize borrowings under 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...

  • Page 111
    ... otherwise indicated) Condensed Consolidating Balance Sheet December 31, 2011 Parent Subsidiary Guarantors NonGuarantor Subsidiaries Eliminations Consolidated Assets Current assets: Cash and cash equivalents ...Accounts receivable, net ...Other current assets ...Total current assets ...Property...

  • Page 112
    ...: Cost of services...511,886 3,550,726 Selling, general and administrative ...111,530 1,245,050 Amortization of intangible assets...967 30,412 Royalty (income) expense ...(414,185) 414,185 Other operating expense, net...7,691 1,056 Total operating costs and expenses ...217,889 5,241,429 Operating...

  • Page 113
    ... For the Year Ended December 31, 2009 NonGuarantor Subsidiaries Parent Subsidiary Guarantors 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 of...

  • Page 114
    ... accounts ...5,986 Other, net ...(381,358) Changes in operating assets and liabilities ...228,809 Net cash provided by operating activities ...Net cash (used in) provided by investing activities...Net cash used in financing activities ...Net change in cash and cash equivalents ...Cash and cash...

  • Page 115
    QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES Quarterly Operating Results (unaudited) (in thousands, except per share data) First Quarter (b) Second Quarter (c)(d) Third Quarter (e) Fourth Quarter (f) Total Year 2011 (a) Net revenues...$1,821,577 Gross profit...724,579 Income (loss) from ...

  • Page 116
    ... included in cost of services and selling, general and administrative expenses, respectively. Results for the first quarter also includes $4.7 million of pre-tax transaction costs, associated with the acquisitions of Athena and Celera (see Note 4). Of these costs, $2.3 million, primarily related to...

  • Page 117
    QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES SCHEDULE II - VALUATION ACCOUNTS AND RESERVES (in thousands) Provision for Doubtful Accounts Balance at 1-1-11 Net Deductions and Other Balance at 12-31-11 Year ended December 31, 2011 Doubtful accounts and allowances ... $228,917 $279,592 ...

  • Page 118
    ... as of June 27, 2001, among the Company, the Subsidiary Guarantors, and The Bank of New York (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: June 27, 2001) and incorporated herein by reference) (Commission File Number 001-12215) Second Supplemental Indenture, dated...

  • Page 119
    ...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 Form 10-Q for the quarter ended March 31, 2003 and incorporated herein by reference) (Commission File Number 001...

  • Page 120
    ... Quest Diagnostics Incorporated Employee Long-Term Incentive Plan as amended April 15, 2009 (filed as an Exhibit to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 2009 and incorporated herein by reference) (Commission File Number 001-12215) Form of Non-Qualified Stock...

  • Page 121
    ... Group Holdings, Inc. 2006 Stock Option 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) (Commission File Number 001-12215) Profit Sharing Plan of Quest Diagnostics Incorporated, Amended and Restated as...

  • Page 122
    ... 101.CAL* 101.DEF* 101.LAB* 101.PRE* Amendment No. 4 to the Profit Sharing Plan of Quest Diagnostics Incorporated dated December 21, 2010 (filed as an Exhibit to the Company's 2010 annual report on Form 10-K and incorporated herein by reference) (Commission File Number 001-12215) Amendment No. 5 to...

  • Page 123
    RRD MI3035 SGS-SFICOC-US10/81462