Quest Diagnostics 2011 Annual Report Download - page 9

integrated solutions to physicians, hospitals, clinics and retail customers for the testing methods that are
most appropriate for each patient and practice.
Shareholder Focus. We are focused on increasing shareholder returns and returns on invested capital
(“ROIC”) through a framework that encompasses improving operating performance and disciplined capital
deployment. To improve our operating performance, we are taking steps to accelerate organic revenue growth and
to reduce our operating costs. We have launched a program to reduce our operating costs by $500 million by the
end of 2014.
Our disciplined capital deployment framework includes dividends, share repurchases and investment in our
business and is intended to improve ROIC. The framework is grounded in maintaining an investment grade credit
rating. In 2012, the Company expects to use the majority of its free cash flow to reduce its outstanding debt and
achieve a debt/EBITDA ratio in the range of 2–2
1
⁄ 4 times. Upon achieving our targeted leverage ratio, we expect
to return to investors through a combination of dividends and share repurchases a majority of our free cash flow.
Consistent with that expectation, we increased our quarterly common stock dividend by 70%, from $0.10 per
share to $0.17 per share, in January 2012. We expect that the dividend will grow over time commensurate with
earnings and cash flows.
We will continue to invest in our business in a disciplined manner which should require significantly less
capital than in recent years. As a result of our 2011 acquisitions of Athena Diagnostics and Celera, we believe
that we have established a solid foundation of strategic assets and capabilities, and that it is unlikely that we will
complete any large strategic acquisitions in the near term. Our near-term investments are likely to focus on
smaller fold-in acquisitions; investments in science and innovation in the form of licensing, collaborations and
internal development; and investments in technology that will improve quality and efficiency in our laboratories
and in other parts of our business. We anticipate that selective acquisitions will enable us to add capabilities and
further strengthen our access and distribution.
BUSINESS OPERATIONS
Quest Diagnostics is the world’s leading provider of diagnostic testing, information and services, providing
insights that enable patients 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
scientific staff in the industry, including hundreds of M.D.s and Ph.D.s, primarily located in the United States,
many of whom are recognized leaders in their fields. We are the leading provider of clinical testing, including
gene-based and esoteric testing and anatomic pathology services, and the leading provider of risk assessment
services for the life insurance industry. We also are a leading provider of testing for clinical trials and testing for
drugs of abuse. Our diagnostics products business manufactures and markets diagnostic test kits and specialized
point-of-care testing. We empower healthcare organizations and clinicians with robust information technology
solutions. Our activities are described below.
Patients are at the center of everything that we do. We are leveraging our diagnostic testing capabilities and
our assets to serve multiple customer bases. Most of our services are provided in the United States; for the years
ended December 31, 2011, 2010 and 2009, we derived approximately 4%, 3% and 3%, respectively, of our
revenues from foreign operations and held approximately 6%, 7% and 7%, respectively, of our long-lived assets
outside the United States. The following chart shows the percentage of our 2011 net revenues generated by the
activities identified.
Activity
Approximate Percentage
of 2011 Net Revenues
Clinical testing................................................................ 91%
Routine clinical testing . . . ................................................ 50%
Anatomic pathology testing ............................................... 13%
Gene-based and esoteric testing ........................................... 25%
Drugs of abuse testing (employer services). . . .............................. 3%
Healthcare information technology, clinical trials testing, life insurer services and
diagnostic products ......................................................... 9%
Clinical Testing. We are the world’s largest commercial clinical testing company. Clinical testing is an
essential element in the delivery of healthcare services. Physicians use clinical tests to assist in the detection,
diagnosis, evaluation, monitoring and treatment of diseases and other medical conditions. Clinical testing is
generally categorized as clinical laboratory testing and anatomic pathology services. We offer customers the
broadest access to the most extensive test menu of clinical laboratory and anatomic pathology tests in the United
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