8-KOther EventsExhibits & Filings

QUEST DIAGNOSTICS INC 8-K Report, Corporate Update (Jan 31, 2011)

Filed January 31, 2011For Securities:DGX

Summary

Quest Diagnostics Incorporated filed an 8-K on January 31, 2011, to incorporate by reference financial information previously announced on January 25, 2011. The report details the company's fourth quarter and full-year 2010 financial results. While revenues saw a slight decline year-over-year for both periods, income from continuing operations remained relatively stable for the fourth quarter and saw a modest increase for the full year on a per-share basis. The company also announced a significant increase in its share repurchase authorization, signaling confidence and a commitment to returning capital to shareholders. However, the filing also disclosed ongoing significant legal and regulatory matters, including a potential settlement with the State of California regarding MediCal billings and a class-action lawsuit concerning age discrimination claims, which introduce considerable uncertainty and potential financial risk.

Key Highlights

  • 1Quest Diagnostics reported Q4 2010 income from continuing operations of $167 million ($0.97/share), compared to $182 million ($0.97/share) in Q4 2009. Full-year 2010 income from continuing operations was $723 million ($4.06/share), versus $730 million ($3.88/share) in 2009.
  • 2Fourth-quarter 2010 revenues were $1.8 billion, a 1.3% decrease from the prior year. Full-year 2010 revenues were $7.4 billion, a 1.2% decrease year-over-year.
  • 3Q4 2010 results included charges for workforce reductions and employment litigation settlement, partially offset by a tax contingency benefit.
  • 4The Board of Directors approved an additional $750 million share repurchase authorization, bringing the total authorization to $1 billion. The company repurchased $750 million in 2010.
  • 5Quest Diagnostics is involved in a lawsuit with the State of California concerning MediCal billings, with allegations of overcharging. The company temporarily suspended billing MediCal for up to six months and has been in discussions to settle for $241 million, but an agreement is not yet reached.
  • 6A putative class action lawsuit was filed in New Jersey alleging age discrimination against sales personnel over forty years old, impacting current and former officers.
  • 7The company continues to provide services to MediCal during the billing suspension and recognized revenue according to its interpretation of regulations, though an unfavorable outcome in the California lawsuit could impact future reimbursements.

Frequently Asked Questions

For the fourth quarter of 2010, Quest Diagnostics reported income from continuing operations of $167 million, or $0.97 per diluted share, compared to $182 million, or $0.97 per diluted share, in the fourth quarter of 2009. Full-year 2010 income from continuing operations was $723 million, or $4.06 per diluted share, compared to $730 million, or $3.88 per diluted share, in 2009. Revenues for Q4 2010 were $1.8 billion, down 1.3% year-over-year, and full-year revenues were $7.4 billion, down 1.2%.

The company is facing two major legal challenges. First, a lawsuit with the State of California regarding allegations of overcharging the MediCal program, for which Quest is in settlement discussions to pay $241 million but no agreement has been reached. Second, a class-action lawsuit in New Jersey alleging age discrimination against sales personnel. While management does not anticipate a material adverse effect on the company's financial condition from these matters, the outcomes could be material to the results of operations or cash flows in the period they are determined or paid.

Quest Diagnostics' Board of Directors approved an additional $750 million share repurchase authorization, bringing the total authorization to $1 billion. This follows the company's repurchase of $750 million of its shares in 2010, indicating a strong commitment to returning capital to shareholders through buybacks.

Quest Diagnostics has temporarily suspended billing MediCal for up to six months through March 1, 2011, while the California lawsuit is pending. The company continues to provide services and recognize revenue based on its interpretation of California regulations. However, an unfavorable outcome in the lawsuit could lead to reduced reimbursement from the MediCal program, which represented approximately $66 million in revenue in 2010.