hurricanes in the third quarter of 2008. Changes in foreign exchange rates reduced revenue growth for the three and nine months ended September 30, 2009 by 0.4% and 0.6%, respectively.
For the third quarter of 2009, revenues for our clinical testing business, which accounts for over 90% of our net revenues, grew 4.3% above the prior year level. Declines in pre-employment drug testing, which is part of our clinical testing business, reduced consolidated revenues by about 0.8%. Clinical testing volume, measured by the number of requisitions, was unchanged from the prior year period. Pre-employment drug testing, which accounted for approximately 5% of our total clinical testing volume, declined 23% and reduced consolidated volume by 1.7%. The volume decrease in pre-employment drug testing is principally due to reduced hiring by employers served by this business. Also, we estimate that the third quarter volume comparison to the prior year was aided by about 0.6%, associated with the impact of hurricanes in the third quarter of 2008. Revenue per requisition increased 4.3% for the three months ended September 30, 2009, with the increase continuing to be primarily driven by a positive test mix and a benefit of about a half of one percent from the Medicare laboratory fee increase which went into effect January 1, 2009.
For the nine months ended September 30, 2009, clinical testing revenues grew 3.5% above the prior year level. Declines in pre-employment drug testing reduced consolidated revenues by about 0.8%. Clinical testing volume, measured by the number of requisitions, decreased 0.8% for the nine months ended September 30, 2009. Pre-employment drug testing, which accounted for approximately 5% of our total clinical testing volume, declined 24% and reduced consolidated volume by 1.7%. Our decision to exit certain laboratory management agreements that did not meet our profitability thresholds also reduced volume by 0.5%. In addition, the nine months ended September 30, 2009 had fewer business days than the prior year which we estimate reduced volume by 0.5%. Lastly, we estimate that the volume comparison for 2009 was aided by about 0.2%, associated with the impact of hurricanes in the third quarter of 2008. Revenue per requisition increased 4.3% for the nine months ended September 30, 2009, with the increase primarily driven by a positive test mix and a benefit of about a half of one percent from the Medicare laboratory fee increase which went into effect January 1, 2009.
Our businesses other than clinical laboratory testing accounted for approximately 8% of our net revenues for the three and nine months ended September 30, 2009. These businesses include our risk assessment services business, our clinical trials testing business, our healthcare information technology business and our diagnostic products business. These businesses contain most of our international operations and, in the aggregate, reported revenues for the three months ended September 30, 2009 were within 1% of the prior year level, despite the impact of foreign exchange rates which reduced the combined revenues of these businesses by approximately 4%. Reported revenues for these businesses for the nine months ended September 30, 2009 were 3% below the prior year period, with the decline more than accounted for by the impact of foreign exchange rates which reduced the combined revenues of these businesses by approximately 6%.
Total operating costs and expenses for the three months ended September 30, 2009 increased $39 million compared to the third quarter of 2008, and decreased as a percentage of net revenues to 81.6% compared to 82.6% in 2008. Total operating costs and expenses for the nine months ended September 30, 2009 increased $34 million from the prior year period and decreased as a percentage of net revenues to 81.7% compared to 83.4% in 2008. Lower testing volume in our clinical testing business, actions we have taken to improve our operating efficiency and reduce the size of our workforce, and discrete cost containment actions taken during 2009 have enabled us to realize modest cost increases on increased net revenues. These efforts, coupled with higher revenue per requisition, served to reduce operating costs and expenses as a percentage of net revenues.
Cost of services, which includes the costs of obtaining, transporting and testing specimens, was 57.9% of net revenues for the three months ended September 30, 2009, decreasing from 58.7% of net revenues in the prior year period. The improvement over the prior year reflects actions taken to reduce our cost structure and higher revenue per requisition as well as the impact of hurricanes which adversely impacted our operations during the third quarter of 2008. For the nine months ended September 30, 2009, cost of services, as a percentage of net revenues, was 58.0% of net revenues, decreasing from 59.0% of net revenues in the prior year period. The improvement over the prior year primarily reflects actions taken to reduce our cost structure and higher revenue per requisition.
Selling, general and administrative expenses, which include the costs of the sales force, billing operations, bad debt expense, and general management and administrative support, were 23.3% of net revenues for the three months ended September 30, 2009, compared to 23.4% in the prior year period. For the nine months ended September 30, 2009, selling, general and administrative expenses, as a percentage of net revenues, decreased to 23.4% from 23.9% in the prior year period. These improvements were primarily due to actions taken to reduce our cost structure and higher revenue per requisition.
For both the three months ended September 30, 2009 and 2008, bad debt expense was 4.4% of net revenues. For the nine months ended September 30, 2009, bad debt expense was 4.4% compared to 4.6% of net revenues in the prior year period. Continued progress in our billing and collection processes has resulted in stable bad debt, and improvements in days sales outstanding and the cost of our billing operation. With our disciplined approach, we expect to see continued strong performance in our billing and collection metrics, despite a slow economy.
Other operating expense (income), net represents miscellaneous income and expense items related to operating activities, including gains and losses associated with the disposal of operating assets and provisions for restructurings and other special charges. For the nine months ended September 30, 2009, other operating expense (income), net includes a $15.5 million second quarter gain related to an insurance settlement for storm-related losses.
Operating Income
Operating income for the three months ended September 30, 2009 was $348 million, or 18.4% of net revenues, compared to $317 million, or 17.4% of net revenues, in the prior year period. For the nine months ended September 30, 2009, operating income was $1.0 billion, or 18.3% of net revenues, compared to $905 million, or 16.6% of net revenues in the prior year period. The improvements in operating income, as a percentage of net revenues, were primarily due to a more profitable revenue mix, resulting in higher revenue per requisition and progress we are making with our cost reduction program, as well as discrete cost containment actions we took during the first quarter of 2009. Operating income for the nine months ended September 30, 2009 also includes a $15.5 million gain related to an insurance settlement for storm-related losses, which contributed approximately 30 basis points to the improvement in operating income as a percentage of net revenues. In addition, we estimate that the impact of hurricanes in the third quarter of 2008 served to aid the three and nine month period-over-period comparisons by about 30 basis points and 10 basis points, respectively. The operating income percentage for the three and nine months ended September 30, 2009 also reflects the impact of the various items which served to reduce cost of services and selling, general and administrative expenses as a percentage of net revenues.
Other Income (Expense)
Interest expense, net for the three and nine months ended September 30, 2009 decreased $10 million and $27 million, respectively, compared to the prior year periods. These decreases were primarily due to lower interest rates on our variable-interest rate debt, as well as lower average outstanding debt balances in 2009, compared to the prior year periods.
Other income (expense), net represents miscellaneous income and expense items related to non-operating activities such as gains and losses associated with investments and other non-operating assets. For the nine months ended September 30, 2009, other income (expense), net includes a charge of $7.0 million associated with the write-down of an investment and $7.6 million in charges associated with the early extinguishment of debt. For the three and nine months ended September 30, 2008, other income (expense), net includes a third quarter charge of $8.9 million associated with the write-down of an equity investment.
Income Tax Expense
The effective income tax rate for the three and nine months ended September 30, 2009 increased by 1% and 0.8%, respectively, compared to the prior year period, primarily due to the favorable resolution of certain tax contingencies in 2008.
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Discontinued Operations
Income from discontinued operations, net of taxes, for the three months ended September 30, 2009 was $0.5 million, or $0.00 per diluted share, compared to a loss of $49 million, or $0.25 per diluted share in 2008. Loss from discontinued operations, net of taxes, for the nine months ended September 30, 2009 was $1.0 million, or $0.01 per diluted share, compared to $51 million, or $0.26 per diluted share in the prior year. During the third quarter of 2008, the Company and NID reached an agreement in principle with the United States Attorney’s Office to settle the previously disclosed federal government investigation of NID, a test kit subsidiary voluntarily closed in 2006. As a result of the agreement in principle, during the third quarter of 2008, the Company recorded a charge of $73 million in discontinued operations to increase its reserves for the settlement and related matters. On April 15, 2009, the Company entered into a final settlement agreement with the federal government and paid $308 million, which had been previously reserved in connection with the final settlement. See Note 9 to the interim consolidated financial statements for further details.
Quantitative and Qualitative Disclosures About Market Risk
We address our exposure to market risks, principally the market risk of changes in interest rates, through a controlled program of risk management that includes the use of derivative financial instruments. We do not hold or issue derivative financial instruments for trading purposes. We believe that our exposures to foreign exchange impacts and changes in commodities prices are not material to our consolidated financial condition or results of operations. See Note 4 to the interim consolidated financial statements for additional discussion of our financial instruments and hedging activities.
At September 30, 2009 and December 31, 2008, the fair value of our debt was estimated at approximately $3.2 billion and $2.9 billion, respectively, using quoted market prices and yields for the same or similar types of borrowings, taking into account the underlying terms of the debt instruments. At September 30, 2009, the estimated fair value exceeded the carrying value of the debt by $193 million. At December 31, 2008, the carrying value exceeded the estimated fair value of the debt by $155 million. A hypothetical 10% increase in interest rates (representing approximately 45 basis points and 53 basis points at September 30, 2009 and December 31, 2008, respectively) would potentially reduce the estimated fair value of our debt by approximately $59 million and $75 million at September 30, 2009 and December 31, 2008, respectively.
Borrowings under our senior unsecured revolving credit facility, our secured receivables credit facility and our term loan due May 2012 are subject to variable interest rates. Interest on our secured receivables credit facility is based on rates that are intended to approximate commercial paper rates for highly-rated issuers. Interest rates on our senior unsecured revolving credit facility and term loan due May 2012 are subject to a pricing schedule that can fluctuate based on changes in our credit ratings. As such, our borrowing costs under these credit arrangements will be subject to both fluctuations in interest rates and changes in our credit ratings. As of September 30, 2009, the borrowing rates under these credit facilities were: for our secured receivables credit facility, 1.14%; for our senior unsecured credit facility, LIBOR plus 0.40%; and for our term loan due May 2012, LIBOR plus 0.50%. At September 30, 2009, the weighted average LIBOR rate was 0.25%. At September 30, 2009, there was $1.1 billion outstanding under our term loan due May 2012, $100 million outstanding under our $500 million secured receivables credit facility and no borrowings outstanding under our $750 million senior unsecured revolving credit facility.
We have entered into various variable-to-fixed interest rate swap agreements, whereby we fixed the interest rates on a portion of our term loan due May 2012 for periods ranging through October 2009. As of September 30, 2009, variable-to-fixed interest rate swap agreements on $200 million of the term loan due May 2012 remain in place through October 2009 with fixed interest rates ranging from 5.13% to 5.27%. Based on our net exposure to interest rate changes, a hypothetical 10% change in interest rates on our variable rate indebtedness (representing approximately 4 basis points) would impact annual net interest expense by approximately $0.5 million, assuming no changes to the debt outstanding at September 30, 2009.
The fair value of the interest rate swap agreements at September 30, 2009 was a liability of $2.1 million. A hypothetical 10% increase or decrease in interest rates (representing approximately 5 basis points) would not have a material impact on the fair value of the liability of these instruments at September 30, 2009.
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During the third quarter of 2009, the Company entered into various forward starting interest rate swap agreements for an aggregate notional amount of $400 million. The forward starting interest rate swap agreements have fixed interest rates ranging from 4.120% to 4.575%. The forward starting interest rate swaps are 17 to 18 month forward agreements that cover a ten-year hedging period and were entered into to hedge part of our interest rate exposure associated with forecasted new debt issuances related to certain debt maturing through 2011.
The fair value of the forward starting interest rate swap agreements at September 30, 2009 was a liability of $13.3 million. A hypothetical 10% decrease in interest rates (representing approximately 40 basis points) would potentially increase the fair value of the liability of these instruments by approximately $13 million. A hypothetical 10% increase in interest rates would potentially decrease the fair value of the liability of these instruments by approximately $13 million.
For details regarding our outstanding debt, see Note 5 to the interim consolidated financial statements and Note 9 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2008. For details regarding our financial instruments, see Note 4 to the interim consolidated financial statements.
Risk Associated with Investment Portfolio
Our investment portfolio includes equity investments in publicly held companies that are classified as available-for-sale securities and other strategic equity holdings in privately held companies. These securities are exposed to price fluctuations and are generally concentrated in the life sciences industry. The carrying values of our available-for-sale equity securities and privately held securities were $8 million at September 30, 2009.
We regularly evaluate the fair value measurements of our equity investments to determine if losses in value are other than temporary and if an impairment loss has been incurred. The evaluation considers if the security has the ability to recover and, if so, the estimated recovery period. Other factors that are considered in this evaluation include the amount of the other-than-temporary decline and its duration, the issuer’s financial condition and short-term prospects and whether the market decline was caused by overall economic conditions or conditions specific to the individual security.
We do not hedge our equity price risk. The impact of an adverse movement in equity prices on our holdings in privately held companies cannot be easily quantified, as our ability to realize returns on investments depends on, among other things, the enterprises’ ability to raise additional capital or derive cash inflows from continuing operations or through liquidity events such as initial public offerings, mergers or private sales.
Fair Value Measurements
On January 1, 2009, the Company adopted a new accounting standard for applying fair value measurements to assets, liabilities and transactions on a non-recurring basis. The adoption did not have a material effect on the Company’s financial position, results of operations or cash flows. See Note 2 to the interim consolidated financial statements for further details.
Liquidity and Capital Resources
Cash and Cash Equivalents
Cash and cash equivalents at September 30, 2009 totaled $247 million compared to $254 million at December 31, 2008. Cash and cash equivalents consist of highly liquid short-term investments, including time deposits with highly-rated banks, and various insured money market funds, including those that invest in U.S. Treasury securities. For the nine months ended September 30, 2009, cash flows from operating activities of $637 million, together with cash on-hand, were used to fund investing and financing activities of $140 million and $504 million, respectively. Cash and cash equivalents at September 30, 2008 totaled $287 million, compared to $168 million at December 31, 2007. For the nine months ended September 30, 2008, cash flows from operating
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activities of $700 million were used to fund investing and financing activities of $116 million and $465 million, respectively.
Cash Flows from Operating Activities
Net cash provided by operating activities for the nine months ended September 30, 2009 was $637 million compared to $700 million in the prior year period. For the nine months ended September 30, 2009, cash flows from operating activities includes second quarter 2009 payments totaling $308 million associated with the final settlement agreement related to the federal government’s investigation related to NID (see Note 9). After giving consideration to the settlement payments, underlying cash flows from operating activities exceeded the prior year level, primarily driven by higher earnings in the current year. Days sales outstanding, a measure of billing and collection efficiency, were 43 days at September 30, 2009 compared to 45 days at September 30, 2008 and 44 days at December 31, 2008.
Cash Flows from Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2009 was $140 million, consisting principally of capital expenditures of $117 million. In addition, we completed two small acquisitions for a total of $36 million, which was partially offset by $21 million related to the receipt of a payment from an escrow fund established at the time of an acquisition in 2007.
Net cash used in investing activities for the nine months ended September 30, 2008 was $116 million, consisting principally of capital expenditures of $140 million, partially offset by $23 million related to the receipt of a payment from an escrow fund established at the time of an acquisition in 2007, and proceeds from the sale of an investment in the first quarter of 2008.
Cash Flows from Financing Activities
Net cash used in financing activities for the nine months ended September 30, 2009 was $504 million, consisting primarily of purchases of treasury stock totaling $350 million, net debt reductions of $108 million and dividend payments of $56 million, partially offset by $50 million in proceeds from the exercise of stock options, including related tax benefits. The $350 million of treasury stock purchases represents 7.5 million shares of our common stock purchased at an average price of $46.86 per share. The net reduction of debt of $108 million consists of $510 million of borrowings and $618 million of repayments. Borrowings under our secured receivables credit facility totaled $510 million and were used primarily to fund the NID settlement payments totaling $308 million and $150 million to fund the retirement of debt in connection with our June 2009 debt tender. Debt repayments of $618 million consisted primarily of $410 million on our secured receivables credit facility, and $174 million aggregate principal amount of our 5.125% senior notes due 2010 and $26 million aggregate principal amount of our 7.50% senior notes due 2011.
Net cash used in financing activities for the nine months ended September 30, 2008 was $465 million, consisting primarily of net reductions of debt of $413 million and dividend payments of $58 million. Net debt reductions included the repayment of $293 million on our term loan due May 2012, $120 million on our secured receivables credit facility and $15 million on our term loan due December 31, 2008, partially offset by borrowings of $20 million on our secured receivables credit facility. In addition, cash flows from financing activities included $30 million in proceeds from the exercise of stock options, including related tax benefits.
Dividend Program
During each of the quarters of 2009 and 2008, our Board of Directors declared a quarterly cash dividend of $0.10 per common share. On August 12, 2009, our Board of Directors declared a quarterly cash dividend per common share of $0.10, paid on October 19, 2009. We expect to fund future dividend payments with cash flows from operations, and do not expect the dividend to have a material impact on our ability to finance future growth.
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Share Repurchase Plan
In January 2009, our Board of Directors authorized $500 million of additional share repurchases. The share repurchase authorization has no set expiration or termination date. For the three months ended September 30, 2009, we repurchased 1.8 million shares of our common stock at an average price of $54.10 per share for $100 million. For the nine months ended September 30, 2009, we repurchased 7.5 million shares of our common stock at an average price of $46.86 per share for $350 million, including 4.5 million shares repurchased from SB Holdings Capital Inc., a wholly-owned subsidiary of GlaxoSmithKline plc., at an average price of $44.33 per share for $200 million. For the three and nine months ended September 30, 2009, the Company reissued 1.0 million shares and 1.9 million shares, respectively, for employee benefit plans. Since its inception in May 2003, we have repurchased approximately 57 million shares of our common stock at an average price of $45.62 for $2.6 billion under our share repurchase program. At September 30, 2009, $150 million of share repurchase authorization remained available.
Contractual Obligations and Commitments
The following table summarizes certain of our contractual obligations as of September 30, 2009:
| | | | | | | | | | | | | | | | |
| | Payments due by period | |
| | | |
| | (in thousands) | |
Contractual Obligations | | Total | | Remainder
of 2009 | | 1-3 years | | 3–5 years | | After 5 years | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding debt | | $ | 2,960,772 | | $ | 100,000 | | $ | 1,006,721 | | $ | 560,000 | | $ | 1,294,051 | |
Capital lease obligations | | | 20,834 | | | 915 | | | 5,671 | | | 3,155 | | | 11,093 | |
Interest payments on outstanding debt | | | 1,267,076 | | | 32,738 | | | 235,392 | | | 166,004 | | | 832,942 | |
Operating leases | | | 685,798 | | | 56,907 | | | 293,029 | | | 146,072 | | | 189,790 | |
Purchase obligations | | | 99,317 | | | 14,564 | | | 72,796 | | | 11,007 | | | 950 | |
| | | | | | | | | | | | | | | | |
Total contractual obligations | | $ | 5,033,797 | | $ | 205,124 | | $ | 1,613,609 | | $ | 886,238 | | $ | 2,328,826 | |
| | | | | | | | | | | | | | | | |
Interest payments on our outstanding debt have been calculated after giving effect to our interest rate swap agreements, using the interest rates as of September 30, 2009 applied to the September 30, 2009 balances, which are assumed to remain outstanding through their maturity dates.
A full description of the terms of our indebtedness and related debt service requirements and our future payments under certain of our contractual obligations is contained in Note 9 to the Consolidated Financial Statements in our 2008 Annual Report on Form 10-K. A full discussion and analysis regarding our minimum rental commitments under noncancelable operating leases and noncancelable commitments to purchase products or services at December 31, 2008 is contained in Note 14 to the Consolidated Financial Statements in our 2008 Annual Report on Form 10-K.
As of September 30, 2009, our total liabilities for unrecognized tax benefits were approximately $121 million, which were excluded from the table above. The increase in liabilities for unrecognized tax benefits since December 31, 2008 is primarily due to certain unrecognized tax benefits of $59 million associated with the NID settlement. We believe it is reasonably possible that our liabilities for unrecognized tax benefits may decrease by less than $5 million within the next twelve months, primarily as a result of the expiration of statues of limitations, settlements and/or the conclusion of tax examinations on certain tax positions. For the remainder, we cannot make reasonably reliable estimates of the timing of the future payments of these liabilities. See Note 4 to the Consolidated Financial Statements in our 2008 Annual Report on Form 10-K for information regarding our contingent tax liability reserves.
Our credit agreements and our term loan due May 2012 contain various covenants and conditions, including the maintenance of certain financial ratios, that could impact our ability to, among other things, incur additional indebtedness. As of September 30, 2009, we were in compliance with the various financial covenants included in our credit agreements and we do not expect these covenants to adversely impact our ability to execute our growth strategy or conduct normal business operations.
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Unconsolidated Joint Ventures
We have investments in unconsolidated joint ventures in Phoenix, Arizona; Indianapolis, Indiana; and Dayton, Ohio, which are accounted for under the equity method of accounting. We believe that our transactions with our joint ventures are conducted in all material respects at arm’s length, reflecting current market conditions and pricing. Total net revenues of our unconsolidated joint ventures equal less than 6% of our consolidated net revenues. Total assets associated with our unconsolidated joint ventures are less than 2% of our consolidated total assets. We have no material unconditional obligations or guarantees to, or in support of, our unconsolidated joint ventures and their operations.
Requirements and Capital Resources
We estimate that we will invest approximately $180 million during 2009 for capital expenditures to support and expand our existing operations, principally related to investments in information technology, equipment, and facility upgrades.
As of September 30, 2009, $1.2 billion of borrowing capacity was available under our existing credit facilities, consisting of $400 million available under our secured receivables credit facility and $750 million available under our senior unsecured revolving credit facility. Our secured receivables credit facility matures on December 11, 2009. We expect to replace or extend the facility upon its maturity. If we are unable to replace or extend our current secured receivables credit facility, we may need to utilize our senior unsecured revolving credit facility or seek additional financing through other financing arrangements.
We believe the banks participating in our various credit facilities are predominantly highly-rated banks, and that the amounts under the credit facilities are currently available to us. Should one or several banks no longer participate in either of our credit facilities, we would not expect it to impact our ability to fund operations.
We believe that cash and cash equivalents on-hand and cash from operations, together with our borrowing capacity under our credit facilities, will provide sufficient financial flexibility to meet seasonal working capital requirements and to fund capital expenditures, debt service requirements, cash dividends on common shares, share repurchases and additional growth opportunities for the foreseeable future. We believe that our credit profile should provide us with access to additional financing, if necessary, to fund growth opportunities that cannot be funded from existing sources.
Impact of New Accounting Standards
In April 2009, the Financial Accounting Standards Board (“FASB”) issued a standard on interim disclosures about fair value of financial instruments. In June 2009, the FASB issued a standard on subsequent events, and a statement to amend a FASB interpretation on variable interest entities. In addition, in June 2009, the FASB issued the FASB Accounting Standards Codification (the “ASC”). The ASC has become the single source of non-governmental accounting principles generally accepted in the United States recognized by the FASB in the preparation of financial statements. In August 2009, the FASB issued an amendment to the accounting standards related to the measurement of liabilities that are recognized or disclosed on a recurring basis at fair value. In October 2009, the FASB issued an amendment to the accounting standards related to the accounting for revenue in arrangements with multiple deliverables, and an amendment to the accounting standards related to certain revenue arrangements that include software elements. The impact of these accounting standards is discussed in Note 1 to the interim consolidated financial statements.
Forward-Looking Statements
Some statements and disclosures in this document are forward-looking statements. Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as “may,” “believe,” “will,” “expect,” “project,” “estimate,” “anticipate,” “plan” or “continue”. These forward-looking statements are based on our current plans and expectations and are subject to a number of risks and uncertainties that could significantly cause our plans and expectations, including actual results, to differ materially from the forward-looking statements. Risks and uncertainties that may affect our future results include,
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but are not limited to, adverse results from pending or future government investigations, lawsuits or private actions, the competitive environment, changes in government regulations, changing relationships with customers, payers, suppliers and strategic partners and other factors discussed in “Business” in Part I, Item 1, “Risk Factors” and “Cautionary Factors That May Affect Future Results” in Item I, Part 1A, “Legal Proceedings” in Part I, Item 3, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 and “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A in our 2008 Annual Report on Form 10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2, “Quantitative and Qualitative Disclosures About Market Risk” in Part I, Item 3 and “Risk Factors” in Part II, Item 1A in our 2009 Quarterly Reports on Form 10-Q and other items throughout the 2008 Form 10-K and our 2009 Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Item 4. Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended). Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.
During the third quarter of 2009, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 8 and Note 9 to the interim consolidated financial statements for information regarding the status of legal proceedings involving the Company.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The table below sets forth the information with respect to purchases made by or on behalf of the Company of its common stock during the third quarter of 2009.
| | | | | | | | | | |
| |
ISSUER PURCHASES OF EQUITY SECURITIES |
| |
| | | | | | | | | | |
Period | | Total Number
of Shares
Purchased | | Average
Price Paid
per Share | | Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs | | Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under the
Plans or Programs
(in thousands) |
| | | | | | | | | |
July 1, 2009 – July 31, 2009 | | | | | | | | | | |
| | | | | | | | | | | |
Share Repurchase Program (A) | | - | | $ | - | | - | | $ | 250,041 |
| | | | | | | | | | | |
Employee Transactions (B) | | 398 | | $ | 54.93 | | N/A | | | N/A |
| | | | | | | | | | | |
August 1, 2009 – August 31, 2009 | | | | | | | | | | |
| | | | | | | | | | | |
Share Repurchase Program (A) | | 1,848,400 | | $ | 54.10 | | 1,848,400 | | $ | 150,050 |
| | | | | | | | | | | |
Employee Transactions (B) | | 932 | | $ | 53.44 | | N/A | | | N/A |
| | | | | | | | | | | |
September 1, 2009 – September 30, 2009 | | | | | | | | | | |
| | | | | | | | | | | |
Share Repurchase Program (A) | | - | | $ | - | | - | | $ | 150,050 |
| | | | | | | | | | | |
Employee Transactions (B) | | 162 | | $ | 54.34 | | N/A | | | N/A |
| | | | | | | | | | | |
Total | | | | | | | | | | |
| | | | | | | | | | | |
Share Repurchase Program (A) | | 1,848,400 | | $ | 54.10 | | 1,848,400 | | $ | 150,050 |
| | | | | | | | | | | |
Employee Transactions (B) | | 1,492 | | $ | 53.94 | | N/A | | | N/A |
| | | | | | | | | | | |
| |
(A) | In January 2009, our Board of Directors authorized the Company to repurchase an additional $500 million of the Company’s common stock. Since the share repurchase program’s inception in May 2003, our Board of Directors has authorized $2.8 billion of share repurchases of our common stock through September 30, 2009. The share repurchase authorization has no set expiration or termination date. |
| |
(B) | Includes: (1) shares delivered or attested to in satisfaction 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 Non-Employee Director Long-Term Incentive Plan, collectively the “Stock Compensation Plans”) who exercised options; (2) restricted common shares withheld (under the terms of grants under the Stock Compensation Plans) to offset tax withholding obligations that occur upon vesting and release of the restricted common shares; and (3) shares withheld (under the terms of grants under the Stock Compensation Plans) to offset tax withholding obligations that occur upon the delivery of common shares underlying restricted stock units and performance share units. |
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Item 6. Exhibits
Exhibits:
| | |
| 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | |
| 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | |
| 32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | |
| 32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | |
| 101.INS | dgx-20090930.xml |
| | |
| 101.SCH | dgx-20090930.xsd |
| | |
| 101.CAL | dgx-20090930_cal.xml |
| | |
| 101.DEF | dgx-20090930_def.xml |
| | |
| 101.LAB | dgx-20090930_lab.xml |
| | |
| 101.PRE | dgx-20090930_pre.xml |
| | |
| 101.REF | dgx-20090930_ref.xml |
39
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | |
October 27, 2009 |
Quest Diagnostics Incorporated |
| | |
By | /s/ Surya N. Mohapatra | |
| | |
| Surya N. Mohapatra, Ph.D.
Chairman of the Board, President and
Chief Executive Officer |
| | |
By | /s/ Robert A. Hagemann | |
| |
| Robert A. Hagemann
Senior Vice President and
Chief Financial Officer |
40
