Quest Diagnostics 2012 Annual Report Download - page 60

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Operating Costs and Expenses
2012 2011
Increase
(Decrease)
$
% Net
Revenue $
% Net
Revenue $
% Net
Revenue
(dollars in millions)
Cost of services $ 4,364.7 59.1% $ 4,362.9 59.0% $ 1.8 0.1 %
Selling, general and administrative expenses
(SG&A) 1,745.2 23.6 1,743.1 23.6 2.1 —
Amortization of intangible assets 74.7 1.0 61.2 0.8 13.5 0.2
Other operating (income) expense, net (2.9) — 238.1 3.2 (241.0) (3.2)
Total operating costs and expenses $ 6,181.7 83.7% $ 6,405.3 86.6% $ (223.6) (2.9)%
Bad debt expense (included in SG&A) $ 268.6 3.6% $ 279.5 3.8% $ (10.9) (0.2)%
Total Operating Costs and Expenses
For the year ended December 31, 2012, total operating costs and expenses were $224 million below the prior year
level, primarily due to the impact of the 2011 Medi-Cal charge and transaction costs associated with the acquisitions of Athena
and Celera in 2011, and savings associated with our Invigorate program realized in 2012. This decrease was partially offset by
higher costs associated with professional fees and workforce reductions associated with further restructuring and integrating
our business, costs incurred in connection with the succession of our prior CEO, and operating expenses associated with the
acquired operations of Athena, Celera and S.E.D.
The decrease in total operating expenses as a percentage of net revenues compared to the prior year is principally due
to the Medi-Cal charge recorded in 2011.
Results for the year ended December 31, 2012 included $106 million of pre-tax restructuring and integration charges
($51.5 million in cost of services and $54.5 million in selling, general and administrative expenses), primarily associated with
workforce reductions and professional fees incurred in connection with further restructuring and integrating our business. In
addition, $10.1 million of pre-tax charges, associated with separation costs and accelerated vesting of certain equity awards in
connection with the succession of our prior CEO, were recorded in selling, general and administrative expenses in 2012.
Results for the year ended December 31, 2011 included the Medi-Cal charge of $236 million recorded in connection
with the California Lawsuit. In addition, results for the year ended December 31, 2011 included $52 million of pre-tax charges
incurred in conjunction with further restructuring and integrating our business consisting of $42 million of pre-tax charges,
principally associated with workforce reductions, with the remainder principally professional fees. Of these costs, $22 million
and $30 million were included in cost of services and selling, general and administrative expenses, respectively. In addition,
$5.6 million of pre-tax charges, associated with severance and other separation benefits as well as accelerated vesting of certain
equity awards in connection with the succession of our prior CEO, were recorded in selling, general and administrative
expenses 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 of operating expenses were unfavorably impacted by approximately $6.2 million
associated with gains and losses on investments in our supplemental deferred compensation plans. Under our supplemental
deferred compensation plans, employee compensation deferrals, together with Company matching contributions, are invested
in a variety of investments held in trusts. Gains and losses associated with the investments are recorded in earnings within other
income, net. A corresponding and offsetting adjustment is also recorded to the deferred compensation obligation to reflect
investment gains and losses earned by the employee. Such adjustments to the deferred compensation obligation are recorded in
earnings principally within selling, general and administrative expenses and offset the amount of investment gains and losses
recorded in other income, net. Results for the years ended December 31, 2012 and 2011 included an increase in operating costs
of $6.5 million and $0.3 million, respectively, representing increases in the deferred compensation obligation to reflect
investment gains earned by employees participating in our deferred compensation plans.