Quest Diagnostics 2011 Annual Report Download - page 65

Total Operating Costs and Expenses
Lower revenues in our clinical testing business, including the impact of severe weather in the first quarter of
2010, and charges associated with actions we took to adjust our cost structure, partially offset by reduced costs
for performance-based compensation, improved experience associated with professional liability claims and
continued progress in reducing bad debt expense, served to increase total operating costs as a percentage of net
revenues for the year ended December 31, 2010. During the year ended December 31, 2010, we recorded $27
million of pre-tax charges, principally associated with workforce reductions, of which $6.4 million was recorded
in cost of services and $20.6 million was recorded in selling, general and administrative expenses. Operating
costs for the year ended December 31, 2010 also included a $9.6 million fourth quarter charge associated with
the settlement of employment litigation.
Operating costs for the year ended December 31, 2009 included a $15.5 million gain related to an insurance
settlement for storm related losses, which served to decrease total operating costs as a percentage of net revenues
for the year ended December 31, 2009.
Also, year-over-year comparisons for the year ended December 31, 2010 were favorably impacted by $2.7
million associated with gains and losses on investments in our supplemental deferred compensation plans. Results
for the years ended December 31, 2010 and 2009 included increases in operating costs of $5.7 million and $8.4
million, respectively, representing increases in the deferred compensation obligation to 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 of severe weather in the first
quarter of 2010, and charges associated with workforce reductions in response to lower testing volume, partially
offset by actions taken to reduce our cost structure, reduced performance-based compensation and improved
experience associated with professional liability claims.
Selling, General and Administrative Expenses
For the year ended December 31, 2010, selling, general and administrative expenses decreased as a
percentage of revenue from the prior year primarily as a result of reduced bad debt expense. In addition,
activities in 2010 to adjust our cost structure in response to lower testing volume and reduced performance-based
compensation, partially offset by charges principally associated with workforce reductions, reduced selling,
general and administrative expenses as a percentage of revenues. Continued progress in our billing and collection
processes resulted in improvements in bad debt and the cost of our billing operation.
Other Operating Expense (Income), net
Other operating expense (income), net represents miscellaneous income and expense items related to
operating activities and for the years ended December 31, 2010 and 2009, consisted of the following:
2010 2009
Change:
Increase (Decrease)
(dollars in millions)
Insurance settlement for storm-related losses ............................... $ — $(15.5) $15.5
Settlement of employment litigation . . . .................................... 9.6 — 9.6
Foreign currency transaction losses, net.................................... 1.9 2.1 (0.2)
Other operating (income) expense items, net ............................... (2.2) 3.4 (5.6)
Total other operating expense (income), net ............................... $ 9.3 $(10.0) $19.3
Operating Income
$
% Net
Revenues $
% Net
Revenues $
% Net
Revenues
2010 2009
Change:
Increase (Decrease)
(dollars in millions)
Operating income............................. $1,295.5 17.6% $1,359.1 18.2% $(63.6) (0.6)%
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