Quest Diagnostics 2012 Annual Report Download - page 64

61
Net Revenues
Net revenues for the year ended December 31, 2011 were 1.8% above the prior year level with the Athena and Celera
acquisitions contributing 2.2% to consolidated revenue growth.
DIS revenue grew 1.1%. The acquisitions of Athena and Celera contributed about 1.8% to DIS revenue growth for the
year ended December 31, 2011. DIS volume, measured by the number of requisitions, was essentially unchanged compared to
the prior year period. The DIS volume contributed by the Athena and Celera acquisitions had an insignificant positive impact
for the year ended December 31, 2011. We believe that DIS 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 2011. Drugs of abuse testing volume
grew about 6% during the year ended December 31, 2011.
Revenue per requisition for the year ended December 31, 2011 was 1.0% above the prior year level. Revenue per
requisition continued to benefit from an increased mix in gene-based and esoteric testing, particularly from the impact of the
acquired operations of Athena and Celera. Offsetting this benefit was business and payer mix changes including: an increase in
lower priced drugs-of-abuse testing and a decrease in higher priced anatomic pathology testing; price changes in connection
with several large contract extensions executed in the first half of 2010; and the 1.75% Medicare fee schedule decrease, which
went into effect January 1, 2011.
Our DS business accounted for approximately 8% and 7% of our net revenues for the years ended December 31, 2011
and 2010, respectively. For the year ended December 31, 2011, revenue in our DS businesses grew by approximately 11% with
greater than half of the growth from the diagnostics products operations acquired as part of the Celera acquisition.
Operating Costs and Expenses
2011 2010
Increase
(Decrease)
$
% Net
Revenue $
% Net
Revenue $
% Net
Revenue
(dollars in millions)
Cost of services $ 4,362.9 59.0% $ 4,275.5 58.9% $ 87.4 0.1 %
Selling, general and administrative expenses
(SG&A) 1,743.1 23.6 1,658.8 22.8 84.3 0.8
Amortization of intangible assets 61.2 0.8 33.1 0.5 28.1 0.3
Other operating expense, net 238.1 3.2 9.1 0.1 229.0 3.1
Total operating costs and expenses $ 6,405.3 86.6% $ 5,976.5 82.3% $ 428.8 4.3 %
Bad debt expense (included in SG&A) $ 279.5 3.8% $ 291.4 4.0% $ (11.9) (0.2)%
Total Operating Costs and Expenses
For the year ended December 31, 2011, the impacts of the Medi-Cal charge, costs associated with actions we took to
adjust our cost structure, higher costs associated with employee compensation and benefits, and investments we made in our
sales and service capabilities, as well the impact of the Athena and Celera acquisitions, served to increase total operating
expenses as a percent of net revenues compared to the prior year.
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.