Quest Diagnostics 2011 Annual Report Download - page 64

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cost structure, reduced costs for performance-based compensation, improved experience associated with
professional liability claims and continued progress in reducing bad debt expense served to partially mitigate the
impact to earnings from lower revenues. Lower outstanding share counts, resulting from share repurchases,
contributed $0.23 to the earnings per share improvement.
Results for the year ended December 31, 2010 included $27 million of pre-tax charges, or $0.09 per diluted
share, principally associated with workforce reductions in the first and fourth quarters. Results for the year ended
December 31, 2010 also included a $9.6 million fourth quarter pre-tax charge, or $0.03 per diluted share,
associated with the settlement of employment litigation and discrete income tax benefits of $0.12 per diluted
share, primarily associated with the favorable resolution of certain tax contingencies. In addition, we estimate that
the impact of severe weather in the first quarter of 2010 adversely affected the full year comparison of operating
income to the prior year by $14.3 million, or $0.05 per diluted share.
Results for the year ended December 31, 2009 included 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.
Net Revenues
The decrease in net revenues from the prior year was principally related to lower revenues from our clinical
testing business. For the year ended December 31, 2010, revenues from our clinical testing business, which
accounts for over 90% of our net revenues, were 1.3% below the prior year level.
Clinical testing volume, measured by the number of requisitions, decreased 1.0% in 2010. We believe that
clinical testing volume was adversely affected by a general slowdown in physician office visits compared to the
prior year, and severe weather in the first quarter of 2010. Published survey data estimates that physician office
visits declined approximately 5% in 2010 compared to 2009.
Revenue per requisition decreased 0.2% for the year ended December 31, 2010. Revenue per requisition
benefitted from an increased mix of gene-based and esoteric testing and an increase 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 testing and a decrease in higher priced anatomic pathology
testing; and pricing changes in connection with several large contract extensions entered into in 2009 and in the
first half of 2010.
Our businesses other than clinical laboratory testing accounted for approximately 9% of our net revenues in
2010 and 2009. These businesses contain most of our international operations and include our risk assessment
services, clinical trials testing, healthcare information technology, and diagnostic products businesses. For the year
ended December 31, 2010, aggregate revenues for these businesses approximated the prior year level.
Operating Costs and Expenses
$
% Net
Revenues $
% Net
Revenues $
% Net
Revenues
2010 2009
Change:
Increase
(Decrease)
(dollars in millions)
Cost of services . .............................. $4,317.2 58.6% $4,321.5 58.0% $ (4.3) 0.6%
Selling, general and administrative expenses
(SG&A) .................................... 1,707.7 23.2% 1,747.6 23.4% (39.9) (0.2)%
Amortization of intangible assets ............... 39.2 0.5% 37.0 0.5% 2.2 —
Other operating expense (income), net .......... 9.3 0.1% (10.0) (0.1)% 19.3 0.2%
Total operating costs and expenses . . ........... $6,073.4 82.4% $6,096.1 81.8% $(22.7) 0.6%
Bad debt expense (included in SG&A) ......... $ 291.7 4.0% $ 321.0 4.3% $(29.3) (0.3)%
58