Quest Diagnostics 2012 Annual Report Download

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2012 FORM 10–K

Table of contents

  • Page 1
    2012 FORM 10-K

  • Page 2
    ...AND EXCHANGE COMMISSION 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, 2012 Commission File Number 001-12215 Quest Diagnostics Incorporated 3 Giralda Farms Madison, New Jersey 07940 (973) 520...

  • Page 3
    ... Data of Our Company Management's Discussion and Analysis of Financial Condition and Results of Operations Report of Management on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Consolidated Financial Statements and Related Notes Supplementary Data...

  • Page 4
    ... 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 "our" mean...

  • Page 5
    ... clinical franchises, such as cardiovascular, infectious disease, cancer, neurology and general health and wellness. The value delivery side includes sales and downstream marketing; routine and esoteric laboratory operations; field operations; logistics and client services. Diagnostic Solutions...

  • Page 6
    ... management system for hospitals. These solutions offer access to a large national healthcare provider network using Quest Diagnostics' Care360 connectivity products. The Care360 products, including Care360 Labs and Meds, enable physicians electronically to order diagnostic testing and review test...

  • Page 7
    ... testing, as well as related services and insights. We offer patients, physicians, hospitals, IDNs, health plans, employers and others the broadest access in the United States to diagnostic information services through our nationwide network of laboratories and Company-owned patient service centers...

  • Page 8
    ... the detection of employee use of drugs of abuse, offering a full range of solutions, including urine, hair, blood and oral fluid tests. Our Quest Diagnostics Drug Testing Index,TM which is an annual report of our aggregate drug testing results, is cited by employers, the federal government and the...

  • Page 9
    ... can quickly perform an abbreviated menu of routine tests for customers that require rapid turnaround times. We conduct complex and specialized testing, including molecular diagnostics, in our world renowned Quest Diagnostics Nichols Institute laboratory facilities and in other facilities, including...

  • Page 10
    ... around time and cost compared to alternative tests. This test was developed and validated by Quest Diagnostics and was based on collaboration with Viiv Pharmaceuticals, and represents the first advanced sequencing laboratory test for HIV by a national laboratory in the U.S. Cardiovascular Disease...

  • Page 11
    ... forms of multiple sclerosis. Women's Health. - We further enhanced our SureSwab® Vaginosis/Vaginitis Plus test by expanding the organisms and sample types in the offering. - We also delivered Spinal Muscular Atrophy (SMA) testing to all Quest Diagnostics customers along with Cystic Fibrosis...

  • Page 12
    ... held for sale. Accordingly, HemoCue is reported as discontinued operations in our consolidated financial statements. In February 2013, we entered into an agreement to sell HemoCue. Celera offers a number of market-leading high complexity molecular diagnostic products in segments such as HIV-1 drug...

  • Page 13
    ...function. In addition, we will be entitled to royalty payments in the single digits based on annual sales of any drugs commercialized from the three programs, if any. We have not received any royalty payments related to these programs. We have no direct control over the amount or timing of resources...

  • Page 14
    ... 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 15
    ...in a health plan network; quality; price; and depth and breadth of test and service offering. 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 16
    ... also offer employers our Blueprint for Wellness® program, providing wellness screening and analytic services to help employers and their employees manage increasing healthcare costs and capitalize on trends in personalized health. Other Laboratories and Other Customers. We also provide diagnostic...

  • Page 17
    ... analytic and post-analytic processes, including positive 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...

  • Page 18
    ... Billing for diagnostic information services is very complicated, and we maintain compliance policies and procedures for our billing. Patients, insurance companies, Medicare, Medicaid, physicians, hospitals, IDNs and employer groups all have different billing requirements. Some billing arrangements...

  • Page 19
    ..., Medicare does not require the beneficiary to pay a co-payment for diagnostic information services reimbursed under the Clinical Laboratory Fee Schedule, but generally does require co-payments for anatomic pathology services. Certain Medicaid programs require Medicaid recipients to pay co-payment...

  • Page 20
    ... of health insurance plans offering Medicare Advantage programs and of beneficiary enrollment in these plans. In recent years, in an effort to control costs, states also have increasingly mandated that Medicaid beneficiaries enroll in private managed care arrangements. The 2010 federal healthcare...

  • Page 21
    ... used by clinical laboratories to perform diagnostic testing in the United States. The FDA also regulates clinical trials (and, therefore, may conduct inspections related to testing that we perform for sponsors of those trials), drugs of abuse testing for employers, testing for blood bank purposes...

  • Page 22
    ... maintained policies and practices designed to meet applicable requirements, and plan to update them to address the new regulations. Drug Testing; Controlled Substances. All U.S. laboratories that perform drug testing for certain public sector employees and employees of certain federally regulated...

  • Page 23
    ... Ethics Integrity Commitment Values Corporate Governance Guidelines Charters for the following committees of our Board of Directors: Audit and Finance; Compensation; Executive; Governance; and Quality, Safety and Compliance Certificate of Incorporation Bylaws EXECUTIVE OFFICERS OF THE COMPANY...

  • Page 24
    ... leading Celera, including Berkeley HeartLab, and for driving the Company's focus on personalizing disease management through diagnostic products and services. Ms. Ordoñez served as Chief Executive Officer of Celera and was a founder of Celera Diagnostics. Prior to joining Celera's parent company...

  • Page 25
    ... sale of certain medical devices in the United States, including those purchased and used by laboratories, beginning in 2013. The legislation establishes the Independent Payment Advisory Board, which will be responsible, beginning in 2014, annually to submit proposals aimed at reducing Medicare cost...

  • Page 26
    ... by government payers to reduce utilization and reimbursement for diagnostic information services. From time to time, Congress has legislated reductions in, or frozen updates to, the Medicare Clinical Laboratory Fee Schedule. In addition, CMS has adopted policies limiting or excluding coverage for...

  • Page 27
    ... health plans implemented them in 2012. The adoption of analyte specific codes will allow payers to better determine tests being performed. This could lead to limited coverage decisions or payment denials. Further, in late 2012, CMS delegated the payment level determination for the new codes...

  • Page 28
    ... and quality requirements intended to ensure that clinical testing services are accurate, reliable and timely; physician fee splitting; relationships with physicians and hospitals; safety and health of laboratory employees; and handling, transportation and disposal of medical specimens, infectious...

  • Page 29
    ..., insurance companies, Medicare, Medicaid, physicians, hospitals and employer groups. Changes in laws and regulations could increase the complexity and cost of our billing process. Additionally, auditing for compliance with applicable laws and regulations as well as internal compliance policies and...

  • Page 30
    ... additional costs for CLIA compliance, manufacturers of laboratory equipment and test kits seek to increase their sales by marketing to physicians point-of-care test equipment and test kits that require minimal regulatory oversight. Further, diagnostic tests approved or cleared by the FDA for home...

  • Page 31
    ... resource. The supply of qualified personnel may be limited and competition for qualified employees is strong. If we were to lose, or to fail to attract and retain, key management personnel, or qualified skilled technical or professional employees at our clinical laboratories, research centers...

  • Page 32
    ... rights; changes in local laws or regulations; and potentially longer payment and collection cycles. International operations also require us to devote significant management resources to implement our controls and systems in new markets, to comply with the U.S. Foreign Corrupt Practices Act and...

  • Page 33
    ... health plans implemented them in 2012. The adoption of analyte specific codes will allow payers to better determine tests being performed. This could lead to limited coverage decisions or payment denials. Further, in late 2012, CMS delegated the payment level determination for the new codes...

  • Page 34
    ... penalties. As part of a settlement with the U.S. Department of Justice and other federal government agencies, in April 2009 we entered into a five-year Corporate Integrity Agreement with the U.S. Department of Health and Human Services Office of Inspector General. If we fail to comply with our...

  • Page 35
    ... 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 36
    ...new strategic plan. (cc) Inability to adapt to diverse and dynamic non-U.S. markets. Item 1B. Unresolved Staff Comments There are no unresolved SEC comments that require disclosure. Item 2. Properties Our executive offices are located in Madison, New Jersey. We maintain clinical testing laboratories...

  • Page 37
    ... indicated, the high and low sales price per share as reported on the New York Stock Exchange Consolidated Tape and dividend information. Common Stock Market Price High Low Dividends Declared 2011 First Quarter Second Quarter Third Quarter Fourth Quarter 2012 First Quarter Second Quarter Third...

  • Page 38
    ... of the exercise price and/or tax withholding obligations by holders of stock options (granted under the Company's Amended and Restated Employee Long-Term Incentive Plan and its Amended and Restated Director Long-Term Incentive Plan, collectively the "Stock Compensation Plans") who exercised options...

  • Page 39
    ... Quest Diagnostics' common stock since December 31, 2007, based on the market price of the Company's common stock and assuming reinvestment of dividends, with the cumulative total shareholder return of companies on the Standard & Poor's 500 Stock Index and the S&P 500 Healthcare Equipment & Services...

  • Page 40
    ... 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 Control Over Financial Reporting See page 70. Changes in Internal Control During the fourth quarter of 2012, there...

  • Page 41
    ... Corporate Controller. You can find our Code of Business Ethics on our corporate 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...

  • Page 42
    ... 6 F- 7 F- 45 Item Schedule II - Valuation Accounts and Reserves 3. Exhibits Page F- 48 An exhibit index has been filed as part of this Report beginning on page E-1 and is incorporated herein by reference. (b) Exhibits filed as part of this Report. An exhibit index has been filed as part of this...

  • Page 43
    ... 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 44
    ...Stephen H. Rusckowski Director, President and Chief Executive Officer (Principal Executive Officer) Senior Vice President and Chief Financial Officer (Principal Financial Officer) Vice President, Corporate Controller and Chief Accounting Officer (Principal Accounting Officer) /s/Robert A. Hagemann...

  • Page 45
    ... 2012 from the audited consolidated financial statements of our Company. During the fourth quarter of 2012, we sold our OralDNA salivary diagnostics business, and committed to a plan to sell our HemoCue diagnostic products business. In February 2013, we entered into an agreement to sell HemoCue...

  • Page 46
    ..., 2012 Operations Data: Net revenues Operating income Income from continuing operations Income (loss) from discontinued operations, net of taxes Net income Less: Net income attributable to noncontrolling interests Net income attributable to Quest Diagnostics Amounts attributable to Quest Diagnostics...

  • Page 47
    ... On April 4, 2011, we completed the acquisition of Athena Diagnostics ("Athena"). On May 17, 2011, we completed the acquisition of Celera Corporation ("Celera"). Consolidated operating results for 2011 include the results of operations of Athena and Celera subsequent to the closing of the applicable...

  • Page 48
    ... from the termination of certain interest rate swap agreements. (q) Includes payments associated with the settlement of the California Lawsuit, restructuring and integration costs, and transaction costs associated with the acquisitions of Athena and Celera totaling $320 million, or $202 million net...

  • Page 49
    ... testing for clinical trials. Our diagnostics products business manufactures and markets diagnostic products. In addition, we offer healthcare organizations and clinicians robust information technology solutions. Recent Developments Our New Quest In 2012, we announced a refresh of our vision, goals...

  • Page 50
    ... and testing specimens. Selling, general and administrative expenses consist principally of the costs associated with our sales and marketing efforts, billing operations, bad debt expense and general management and administrative support. In addition, performing diagnostic testing involves...

  • Page 51
    ... the balance. Orders for laboratory testing are generated from physician offices, hospitals and employers and can be affected by a number of factors. For example, changes in the United States economy can affect the number of unemployed and uninsured, and design changes in healthcare plans can affect...

  • Page 52
    ... to the evolving healthcare environment and related market forces. Reimbursement for Services Payments for diagnostic testing services are made by physicians, hospitals, employers, healthcare insurers, patients and governmental authorities. Physicians, hospitals and employers are typically billed on...

  • Page 53
    ... importance of laboratory testing in assessing and managing the health of patients. We continue to emphasize the importance and the high value of laboratory testing with healthcare insurers and government payers at the federal and state level. Shareholder Focus As part of our five-point strategy we...

  • Page 54
    of our total costs and expenses consist of employee compensation and benefits. Due to the nature of our business, several of our accounting policies involve significant estimates and judgments revenues and accounts receivable associated with DIS; reserves for general and professional liability ...

  • Page 55
    .... Government payers Payments for diagnostic testing services made by the government are based on fee schedules set by governmental authorities. Receivables due from government payers under the Medicare and Medicaid programs represent approximately 16% of our DIS net accounts receivable. Collection...

  • Page 56
    ... settlement agreements with various government and private payers relating to industry-wide billing and marketing practices that had been substantially discontinued. The federal or state governments may bring additional claims based on new theories as to our practices which management believes...

  • Page 57
    ...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 58
    ...agreed to resolve 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...

  • Page 59
    ... the impact of the acquired operations of Athena and Celera and an increase in the number of tests ordered per requisition. Offsetting these benefits were reimbursement changes, and business and payer mix changes including an increase in lower priced drugs-of-abuse testing, and a decrease in higher...

  • Page 60
    ... in the fourth quarter of 2011. Selling, general and administrative expenses for the year ended December 31, 2011 also included $16.9 million of pre-tax transaction costs, primarily related to professional fees associated with the acquisitions of Athena and Celera. Also, year-over-year comparisons...

  • Page 61
    ... and integration activities and higher costs associated with employee compensation and benefits, which served to increase the percentage were offset by actions we have taken to reduce our cost structure under our Invigorate program. Selling, General and Administrative Expenses Selling, general and...

  • Page 62
    ... to lower average outstanding debt balances in 2012 and the financing commitment fees incurred in 2011 related to the acquisition of Celera. Other Income, net Other income, net represents miscellaneous income and expense items related to non-operating activities, such as gains and losses associated...

  • Page 63
    ... ended December 31, 2011 also included pre-tax transaction costs of $20 million, or $0.09 per diluted share, associated with the acquisitions of Athena and Celera. Of these costs, $16.9 million, primarily related to professional fees, were recorded in selling, general and administrative expenses and...

  • Page 64
    ... from the diagnostics products operations acquired as part of the Celera acquisition. Operating Costs and Expenses Increase (Decrease) % Net $ Revenue 87.4 84.3 28.1 229.0 428.8 (11.9) 0.1 % 0.8 0.3 3.1 4.3 % (0.2)% 2011 $ Cost of services $ 4,362.9 Selling, general and administrative expenses (SG...

  • Page 65
    ... our deferred compensation plans. Cost of Services The increase in cost of services as a percentage of revenues for the year ended December 31, 2011 compared to the prior year reflects the impact of actions we took to reduce our cost structure and the acquired operations of Athena and Celera, which...

  • Page 66
    ... our prior CEO, and transaction costs related to the Athena and Celera acquisitions, served to decrease operating income as a percent of net revenues by 4.1%. For the year ended December 31, 2010, the impact of restructuring and integration related costs, and the settlement of employment litigation...

  • Page 67
    ... at approximately $3.8 billion and $4.4 billion, respectively, using quoted active market prices and yields for the same or similar types of borrowings, taking into account the underlying terms of the debt instruments. At December 31, 2012 and 2011, the estimated fair value exceeded the carrying...

  • Page 68
    ... cash inflows from continuing operations or through liquidity events such as initial public offerings, mergers or private sales. Liquidity and Capital Resources Cash and Cash Equivalents Cash and cash equivalents at December 31, 2012 totaled $296 million, compared to $165 million at December 31...

  • Page 69
    ...certain interest rate swap agreements. For the year ended December 31, 2011, cash flows from operating activities included the second quarter payment to Medi-Cal, the California Medicaid program. Days sales outstanding, a measure of billing and collection efficiency, was 47 days at December 31, 2012...

  • Page 70
    ... unsecured revolving credit facility, respectively, together with cash on hand, were used to fund the acquisition of Celera in May 2011. During the second quarter of 2011, proceeds from the sale of short-term marketable securities acquired as part of the Celera acquisition totaling $214 million...

  • Page 71
    ... and their operations. Requirements and Capital Resources We estimate that we will invest approximately $250 million during 2013 for capital expenditures to support and expand our existing operations, principally related to investments in information technology, laboratory equipment and facilities...

  • Page 72
    ...2012, the Financial Accounting Standards Board ("FASB") issued an amendment to the accounting standards related to the testing of indefinite-lived intangible assets, other than goodwill, for impairment. In February 2013, the FASB issued a new accounting standard that adds new disclosure requirements...

  • Page 73
    ... of compliance with the policies or procedures may deteriorate. PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the financial statements included in this annual report, audited the Company's internal control over financial reporting as of December 31, 2012...

  • Page 74
    ...statement schedule, 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...

  • Page 75
    ... (loss) Treasury stock, at cost; 56,744 shares and 57,187 shares at December 31, 2012 and 2011, respectively Total Quest Diagnostics stockholders' equity Noncontrolling interests Total stockholders' equity Total liabilities and stockholders' equity $ The accompanying notes are an integral part of...

  • Page 76
    ... STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010 (in thousands, except per share data) 2012 Net revenues Operating costs and expenses: Cost of services Selling, general and administrative Amortization of intangible assets Other operating (income) expense, net...

  • Page 77
    QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010 (in thousands) 2012 Net income Other comprehensive income (loss): Currency translation Market valuation, net of tax Net deferred loss on cash flow ...

  • Page 78
    ... Accounts payable and accrued expenses Settlement of special charge Income taxes payable Termination of interest rate swap agreements Other assets and liabilities, net Net cash provided by operating activities Cash flows from investing activities: Business acquisitions, net of cash acquired Sale...

  • Page 79
    ... common stock under 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, 2012...

  • Page 80
    ..., hospitals, integrated delivery networks, health plans, employers and others to make better healthcare decisions. The Company offers the broadest access in the United States to diagnostic information services through its nationwide network of laboratories and Company-owned patient service centers...

  • Page 81
    ... 31, 2010. 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 services provided by the Company. In 2012, 2011 and 2010, approximately...

  • Page 82
    ... number of performance share units expected to be earned is recognized as compensation cost in earnings in the period of the revision. The Company recognizes stock-based compensation expense related to the Company's Amended Employee Stock Purchase Plan ("ESPP") based on the 15% discount at purchase...

  • Page 83
    ... governmental agencies, the Company does not believe that such receivables 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 December 31, 2012 and 2011, receivables...

  • Page 84
    ... or if it is separable. Intangible assets, principally representing the cost of customer related intangibles, noncompetition agreements and technology acquired, are capitalized and amortized on the straight-line method over their expected useful life, which generally ranges from five to twenty years...

  • Page 85
    ... 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 15). The Company purchases life insurance policies, with the Company named...

  • Page 86
    ... is to achieve the lowest overall cost of funding while managing the variability in cash outflows within an acceptable range. In order to achieve this objective, the Company has entered into interest rate swaps. Interest rate swaps involve the periodic exchange of payments without the exchange of...

  • Page 87
    ... for the Company for annual and interim impairment tests performed on or after January 1, 2013 and is not expected to have a material impact on the Company's consolidated financial statements. In February 2013, the FASB issued a new accounting standard that adds new disclosure requirements for...

  • Page 88
    ...of 2012, the Company committed to a course of action related to a multi-year program called Invigorate which is designed to reduce its cost structure. The Invigorate program is intended to address continued reimbursement pressures and labor and benefit cost increases, free up additional resources to...

  • Page 89
    ... December 31, 2012; with the remainder representing costs related to the integration of recently acquired companies with the Company's operations. 5. BUSINESS ACQUISITIONS Acquisition of Athena Diagnostics On April 4, 2011, the Company completed its acquisition of Athena Diagnostics ("Athena") in an...

  • Page 90
    ... to the closing of the acquisition which are not material to the Company's consolidated results of operations. The following table summarizes the consideration paid for Athena and the amounts of assets acquired and liabilities assumed at the acquisition date: Fair Values as of April 4, 2011 Cash and...

  • Page 91
    ... accounted for the acquisition of Celera as a single transaction, effective May 4, 2011. Through the acquisition, the Company acquired all of Celera's operations. The Company financed the all-cash purchase price of $670 million and related transaction costs with borrowings under its existing credit...

  • Page 92
    ...the total goodwill acquired in connection with the Celera acquisition, approximately $104 million has been allocated to the Company's DIS business, with the remainder allocated to the Company's Diagnostics Solutions ("DS") business. The goodwill recorded as part of the Athena and Celera acquisitions...

  • Page 93
    ... unless otherwise indicated) Other Acquisition On January 6, 2012, the Company completed the acquisition of S.E.D. Medical Laboratories ("S.E.D.") for approximately $50.5 million. Of the all-cash purchase price, approximately $28 million and $19 million, respectively, represented goodwill, which is...

  • Page 94
    ... deferred compensation program. A participant's deferrals, together with Company matching credits, are "invested" at the direction of the employee in a hypothetical portfolio of investments which are tracked by an administrator. The Company purchases life insurance policies, with the Company named...

  • Page 95
    ...Value Measurements Quoted Prices in Active Markets for Significant Identical Other Significant Assets / Observable Unobservable Liabilities Inputs Inputs Level 1 Level 2 Level 3 $ - $ 311,734 $ - $ Total Loss 77,951 In connection with the Company's agreement to sell HemoCue and upon classification...

  • Page 96
    ...as follows: 2012 Tax provision at statutory rate 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 17), a portion for which a tax benefit has not been recorded Transaction costs associated...

  • Page 97
    ... examinations of the Company's income tax filings and the Company generally remains subject to examination until the statute of limitations expires for the respective jurisdiction. The Internal Revenue Service ("IRS") has completed its examinations of the Company's consolidated federal income tax...

  • Page 98
    ... flow data for the years ended December 31, 2012, 2011 and 2010 is as follows: 2012 Depreciation expense Amortization expense Interest paid Income taxes paid Assets acquired under capital leases Businesses acquired: Fair value of assets acquired Fair value of liabilities assumed Fair value of net...

  • Page 99
    ... For the year ended December 31, 2011, goodwill acquired was principally associated with the Athena and Celera acquisitions. See Note 5 for further details. For the year ended December 31, 2012, goodwill impairment was associated with the agreement to sell HemoCue and the write-off of goodwill was...

  • Page 100
    ... unless otherwise indicated) Intangible assets at December 31, 2012 and 2011 consisted of the following: Weighted Average Amortization Period (Years) Cost Amortizing intangible assets: Customer-related intangibles Non-compete agreements Technology Other Total 19 4 14 8 16 $ 566,701 38,551 131...

  • Page 101
    ... debt at December 31, 2012 and 2011 consisted of the following: 2012 Secured Receivables Credit Facility Current portion of long-term debt Total short-term borrowings and current portion of long-term debt Short-term weighted average interest rates $ $ - 9,404 9,404 0.98% $ $ 2011 85,000 569,395 654...

  • Page 102
    .... None of the Company's senior notes have a sinking fund requirement. The Company used $750 million of the net proceeds from the 2011 Senior Notes to fund the purchase price and related transaction costs associated with its acquisition of Athena, which closed on April 4, 2011 (see Note 5), and...

  • Page 103
    ... 31, 2013 is as follows: Year Ending December 31, 2014 2015 2016 2017 2018 Thereafter Total maturities of long-term debt Unamortized discount Fair value basis adjustments attributable to hedged debt Total long-term debt, net of current portion 13. FINANCIAL INSTRUMENTS Interest Rate Derivatives...

  • Page 104
    ... LIBOR plus 2.3% and one-month LIBOR plus 3.6%. During the fourth quarter of 2012, the Company entered into additional fixed-to-variable interest rate swap agreements with an aggregate notional amount of $400 million and variable interest rates based on one-month LIBOR plus a spread ranging from...

  • Page 105
    ... represents deferred losses on the Company's interest rate related derivative financial instruments designated as cash flow hedges, net of amounts reclassified to interest expense (see Note 13). For the years ended December 31, 2012, 2011 and 2010, the tax effects related to the market valuation...

  • Page 106
    ...purchase price of $251 million, or $56.21 per share. For the years ended December 31, 2012, 2011 and 2010 the Company reissued 3.9 million shares, 3.6 million shares and 2.1 million shares, respectively, for employee benefit plans. 15. STOCK OWNERSHIP AND COMPENSATION PLANS Employee and Non-employee...

  • Page 107
    ...qualified stock options to purchase shares of Company common stock at an exercise price no less than the fair market value of the Company's common stock on the date of grant. The DLTIP also permits awards of restricted stock and restricted stock units to non-employee directors. Stock options granted...

  • Page 108
    ... fair market value of the Company's common stock. Total intrinsic value of options exercised in 2012, 2011 and 2010 was $45 million, $43 million and $22 million, respectively. As of December 31, 2012, there was $10 million of unrecognized stock-based compensation cost related to stock options which...

  • Page 109
    ... Quest Diagnostics common stock. The purchase price of the stock is 85% of the market price of the Company's common stock on the last business day of each calendar month. Under the ESPP, the maximum number of shares of Quest Diagnostics common stock which may be purchased by eligible employees...

  • Page 110
    ... credit with a financial institution totaling $85 million for the issuance of letters of credit (the "Letter of Credit Line"). The Letter of Credit Line, which is renewed annually, matures on November 18, 2013. In support of its risk management program, to ensure the Company's performance or payment...

  • Page 111
    ..., 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 billing practices to Medi-Cal, the California Medicaid program. While denying liability, in order to...

  • Page 112
    ... 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 in the United...

  • Page 113
    ... quarter of 2012, the Company committed to a plan to sell HemoCue. In February 2013, the Company entered into an agreement to sell HemoCue for approximately $300 million plus estimated cash on hand at closing and other customary working capital adjustments. The Company completed the sale of OralDNA...

  • Page 114
    ... settlement agreement with the federal government. In the second quarter of 2009, the Company paid $268 million to settle the civil allegations. The Company also entered into a five-year corporate integrity agreement with the Office of Inspector General for the United States Department of Health...

  • Page 115
    ...assets held for sale Liabilities held for sale: Accounts payable and accrued expenses Short-term borrowings and current portion of long-term debt Deferred income taxes Total current liabilities held for sale Long-term debt Other liabilities Total non-current liabilities held for sale Continuing cash...

  • Page 116
    ...life insurance industry including electronic data collection, specimen collection and paramedical examinations, laboratory testing, medical record retrieval, case management, motor vehicle reports, telephone inspections, prescription histories and credit checks. The Company's clinical trials testing...

  • Page 117
    ..., are included in discontinued operations for all periods presented. 20. SUBSEQUENT EVENTS On January 2, 2013, the Company completed the acquisition of the clinical and anatomic pathology outreach laboratory businesses of UMass Memorial Medical Center, a member of UMass Memorial Health Care. F- 44

  • Page 118
    ...) 2012 (a) Net revenues Gross profit Income from continuing operations Income (loss) from discontinued operations, net of taxes Net income Less: Net income attributable to noncontrolling interests Net income attributable to Quest Diagnostics Amounts attributable to Quest Diagnostics' stockholders...

  • Page 119
    ... and integrating the Company. Of these costs, $4.0 million and $9.1 million were included in cost of services and selling, general and administrative expenses, respectively. Also includes pre-tax charges of $7.1 million, principally representing severance and other separation benefits as...

  • Page 120
    ... acquisitions of Athena and Celera (see Note 5). Of these costs, $2.3 million, primarily related to professional and filing fees, was recorded in selling, general and administrative expenses and $2.4 million of financing related costs were recorded in interest expense, net. In addition, management...

  • Page 121
    QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES SCHEDULE II - VALUATION ACCOUNTS AND RESERVES (in thousands) Provision for Doubtful Accounts Net Deductions and Other 270,207 (a) Balance at 1-1-12 Year Ended December 31, 2012 Doubtful accounts and allowances $ Balance at 12-31-12 $ 235,747 237,339...

  • Page 122
    ... Unilab Acquisition Corporation (d/b/a FNA Clinics of America), 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, 2004 and incorporated herein by reference) (Commission File Number 001...

  • Page 123
    ...Ltd., New York Branch as Administrative Agent (filed as an Exhibit to the Company's 2011 annual report on Form 10-K and incorporated herein by reference) (Commission File Number 001-12215) Amendment No. 5 dated as of December 7, 2012 to Fourth Amended and Restated Credit and Security Agreement dated...

  • Page 124
    ...1, 2012 401(k) Savings Plan of Quest Diagnostics Incorporated, Amended and Restated effective as of January 1, 2012 Form of Non-Employee Director Equity Award Agreement (filed as an Exhibit to the Company's 2011 Annual Report on Form 10-K and incorporated herein by reference) (Commission File Number...

  • Page 125
    ...the Company's Schedule TO on March 28, 2011 and incorporated herein by reference) (Commission File Number 001-12215) Employment Agreement between Stephen H. Rusckowski and the Company, dated April 3, 2012 (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: April 9, 2012...

  • Page 126
    10% RRD MI3284 SFI-01054 The SFI label applies to the text stock