In March 2010, U.S. federal legislation was enacted which is likely to have a significant impact on, among other things, access to and the cost of healthcare in the United States. The legislation provides for extensive health insurance reforms and expands coverage to approximately 32 million Americans which will result in expanded access to healthcare. In addition, the legislation eliminates patient cost-sharing for certain prevention and wellness benefits. We believe these changes will benefit our industry by leading to increased utilization of our services.
These benefits are expected to be partially offset by provisions of the legislation aimed at reducing the overall cost of healthcare. Impacting laboratories specifically, the legislation provides for annual reductions in the Medicare clinical laboratory fee schedule of 1.75% for five years beginning in 2011 and includes a productivity adjustment which reduces the CPI market basket update beginning in 2011. Approximately 12% of our consolidated revenues are reimbursed by Medicare under the clinical laboratory fee schedule. The legislation also imposes an excise tax on the seller for the sale of certain medical devices in the United States, including those purchased and used by laboratories, beginning in 2013.
In addition, the legislation is focused on reducing the growth of healthcare costs. The legislation establishes the Independent Payment Advisory Board, which will be responsible, beginning in 2014, annually to submit proposals aimed at reducing Medicare cost growth while preserving quality. These proposals automatically will be implemented unless Congress enacts alternative proposals that achieve the same savings targets. Further, the legislation calls for a Center for Medicare and Medicaid Innovation that will examine alternative payment methodologies and conduct demonstration programs.
We believe that the legislation will be a net positive for our industry over the long term due to expanded coverage and the elimination of patient cost-sharing for certain prevention and wellness benefits, and that we are well positioned to respond to the evolving healthcare environment and related market forces.
In addition to the healthcare reform legislation, in April 2010, Congress passed an extension to delay until May 31, 2010 a potential 21.2% decrease in the Medicare fee schedule for pathology and other physician services performed for patients and billed under Part B of the Medicare program. It is currently not clear if legislation will be passed to permanently eliminate this potential fee decrease. In 2009, approximately 3% of our consolidated revenues were reimbursed based on this fee schedule.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions and select accounting policies that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
While many operational aspects of our business are subject to complex federal, state and local regulations, the accounting for our business is generally straightforward, with net revenues primarily recognized upon completion of the testing process. Our revenues are primarily comprised of a high volume of relatively low dollar transactions, and about one-half of total operating 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. These accounting policies have been described in our Annual Report on Form 10-K for the year ended December 31, 2009.
Our clinical testing business currently represents our one reportable business segment. In both 2010 and 2009, our clinical testing business accounted for greater than 90% of our net revenues. Our other operating segments consist of our risk assessment services, clinical trials testing, healthcare information technology and
diagnostic products businesses. Our business segment information is disclosed in Note 9 to the interim consolidated financial statements.
Three Months Ended March 31, 2010 Compared with Three Months Ended March 31, 2009
Continuing Operations
Income from continuing operations for the three months ended March 31, 2010 was $163 million, or $0.89 per diluted share, compared to $169 million, or $0.89 per diluted share, in 2009. The decrease in income from continuing operations for the three month period was primarily due to severe weather and charges principally associated with workforce reductions.
Results for the three months ended March 31, 2010 include $17.3 million of pre-tax charges, or $0.06 per diluted share, principally associated with workforce reductions. Of these costs, $4.5 million and $12.8 million, respectively, were included in cost of services and selling, general and administrative expenses. We also estimate that the impact of severe weather adversely affected the comparison of operating income for the three months ended March 31, 2010 to the prior year period by $14.3 million, or $0.05 per diluted share. Additionally, other income (expense), net for the three months ended March 31, 2010 includes a pre-tax gain on an investment of $4.0 million.
Net Revenues
Net revenues for both the three months ended March 31, 2010 and 2009 were $1.8 billion. Revenue growth for 2010 was reduced by an estimated 1% due to the impact of severe weather. For the first quarter of 2010, revenues for our clinical testing business, which accounts for over 90% of our net revenues, decreased by 0.4%, compared to the prior year. Clinical testing volume, measured by the number of requisitions, decreased 2.6% for the quarter ended March 31, 2010. We estimate that the impact of severe weather adversely affected the growth in our clinical testing revenues and volume by 1%. In addition to the impact of severe weather, we believe that clinical testing volume was adversely affected by a general slowdown in physician office visits. Revenue per requisition increased 2.3% for the three months ended March 31, 2010, with the increase primarily driven by a positive test mix, partially offset by the 1.9% Medicare fee schedule decrease, which went into effect on January 1, 2010 and served to reduce revenue per requisition by about half of one percent.
Our businesses other than clinical laboratory testing accounted for approximately 8% of our net revenues. These businesses include our risk assessment services, clinical trials testing, healthcare information technology, and diagnostic products businesses. These businesses contain most of our international operations and, in the aggregate, reported revenues for the quarter ended March 31, 2010 were 3% above the prior year, with the increase principally driven by the favorable impact of foreign exchange rates.
Operating Costs and Expenses
Total operating costs and expenses for the three months ended March 31, 2010 increased $20 million compared to the first quarter of 2009, and increased as a percentage of net revenues to 83.5%, compared to 82.2% in 2009. Lower testing volume related to severe weather and charges associated with actions we have taken to adjust our cost structure in response to lower testing volume served to increase total operating costs as a percentage of net revenues for the three months ended March 31, 2010. During the first quarter of 2010, we recorded $17.3 million of pre-tax charges, principally associated with workforce reductions, of which $4.5 million was recorded in cost of services and $12.8 million was recorded in selling, general and administrative expenses.
Cost of services, which includes the costs of obtaining, transporting and testing specimens, was 59.1% of net revenues for the three months ended March 31, 2010, compared to 58.3% of net revenues in the prior year period. The increase in cost of services as a percentage of net revenues for the three months ended March 31,
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2010 primarily reflects the impact of lower testing volume related to severe weather and charges associated with actions we have taken to adjust our cost structure, partially offset by the improvement in 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 23.9% of net revenues for the three months ended March 31, 2010, compared to 23.5% in the prior year period. This increase in selling, general, and administrative expenses as a percentage of net revenues primarily reflects the impact lower testing volume related to severe weather and charges associated with actions we have taken to adjust our cost structure, partially offset by the improvement in revenue per requisition.
For the three months ended March 31, 2010 and 2009, bad debt expense was 4.2% and 4.5% of net revenues, respectively. Continued progress in our billing and collection processes has resulted in improvements in bad debt, 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.
Operating Income
Operating income for the three months ended March 31, 2010 was $299 million, or 16.5% of net revenues, compared to $321 million, or 17.8% of net revenues, in the prior year period. The estimated impact of severe weather combined with charges associated with actions we have taken to adjust our cost structure adversely impacted the year-over-year change in operating income as a percentage of net revenues for the first quarter by 1.6%, compared to the prior year period.
Other Income (Expense)
Interest expense, net for the three months ended March 31, 2010 decreased $3.5 million compared to the prior year period. The decrease was primarily due to lower interest rates on our variable-rate debt.
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 three months ended March 31, 2010, other income (expense), net includes a gain on an investment of $4.0 million.
Discontinued Operations
Loss from discontinued operations, net of taxes, for the three months ended March 31, 2010 was $0.1 million, with no impact on diluted earnings per share, compared to a loss of $1.7 million, or $0.01 per diluted share, in 2009. See Note 8 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 March 31, 2010 and December 31, 2009, the fair value of our debt was estimated at approximately $3.3 billion, 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 March 31, 2010 and December 31, 2009, the estimated fair value exceeded the carrying value of the debt by $144 million and $151 million, respectively. A hypothetical 10% increase in interest rates (representing 46 basis points at both March 31, 2010 and December 31, 2009) would potentially reduce the estimated fair value of our debt by $94 million and $96 million at March 31, 2010 and December 31, 2009, respectively.
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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 March 31, 2010, the borrowing rates under these credit facilities were: for our secured receivables credit facility, 1.38%; for our senior unsecured credit facility, LIBOR plus 0.40%; and for our term loan due May 2012, LIBOR plus 0.40%. At March 31, 2010, the weighted average LIBOR rate was 0.24 %. At March 31, 2010, there was $742 million outstanding under our term loan due May 2012, and no borrowings outstanding under our $750 million senior unsecured revolving credit facility or our $525 million secured receivables credit facility.
Our objective is to mitigate the variability in cash outflows that result from changes in interest rates by maintaining a balanced mix of fixed-rate and variable-rate debt obligations. In order to achieve these objectives, we have entered into interest rate swaps. Interest rate swaps involve the periodic exchange of payments without the exchange of underlying principal or notional amounts. Net payments are recognized as an adjustment to interest expense.
In November 2009, we entered into various fixed-to-variable interest rate swap agreements that effectively convert a portion of our 4.75% Senior Notes due 2020 to variable-interest rate debt based on LIBOR plus 1.33%. At March 31, 2010, the interest rate swap agreements which expire in January 2020 have a notional amount totaling $350 million. The fixed-to-variable interest rate swap agreements are accounted for as fair value hedges of a portion of our outstanding 4.75% Senior Notes due 2020. Based on our net exposure to interest rate changes, a hypothetical 10% change in interest rates on our variable rate indebtedness (representing 3 basis points) would impact annual interest expense by $0.3 million, assuming no changes to the debt outstanding at March 31, 2010.
The fair value of the fixed-to-variable interest rate swap agreements at March 31, 2010 was a liability of $6.0 million. A hypothetical 10% change in interest rates (representing 37 basis points) would potentially change the fair value of the liability of these instruments by approximately $11 million.
For details regarding our outstanding debt, see Note 10 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2009. 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 $12 million at March 31, 2010.
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.
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Liquidity and Capital Resources
Cash and Cash Equivalents
Cash and cash equivalents at March 31, 2010 totaled $463 million compared to $534 million at December 31, 2009. 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 three months ended March 31, 2010, cash flows from operating activities of $239 million, together with cash on-hand, were used to fund investing and financing activities of $43 million and $268 million, respectively. Cash and cash equivalents at March 31, 2009 totaled $204 million compared to $254 million at December 31, 2008. Cash flows from operating activities in 2009 of $273 million, together with cash on-hand, were used to fund investing and financing activities of $41 million and $281 million, respectively.
Cash Flows from Operating Activities
Net cash provided by operating activities for the three months ended March 31, 2010 was $239 million compared to $273 million in the prior year period. This decrease was primarily due to a change in the timing of variable compensation payments. Days sales outstanding, a measure of billing and collection efficiency, were 41 days at March 31, 2010 compared to 43 days at both March 31, 2009 and December 31, 2009.
Cash Flows from Investing Activities
Net cash used in investing activities for the three months ended March 31, 2010 and 2009 was $43 million and $41 million, respectively, and consisted principally of capital expenditures.
Cash Flows from Financing Activities
Net cash used in financing activities for the three months ended March 31, 2010 was $268 million, consisting primarily of purchases of treasury stock totaling $251 million, dividend payments of $18 million and a decrease in book overdrafts of $12 million, partially offset by $19 million in proceeds from the exercise of stock options, including related tax benefits. The $251 million of treasury stock purchases represents 4.5 million shares of our common stock purchased at an average price of $56.21 per share under an accelerated stock purchase agreement with a bank.
Net cash used in financing activities for the three months ended March 31, 2009 was $281 million, consisting primarily of purchases of treasury stock totaling $250 million, dividend payments of $19 million and a decrease in book overdrafts of $17 million. The $250 million of treasury stock purchases represents 5.6 million shares of our common stock purchased at an average price of $44.48 per share. Cash flows from financing activities also included $11 million in proceeds from the exercise of stock options, including related tax benefits. In addition, $50 million of borrowings under our secured receivables credit facility which were used to fund certain of the share repurchases were repaid in the quarter.
Dividend Program
During each of the quarters of 2010 and 2009, our Board of Directors declared a quarterly cash dividend of $0.10 per common share. On February 11, 2010, our Board of Directors declared a quarterly cash dividend per common share of $0.10, paid on April 6, 2010. 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.
Share Repurchase Plan
In January 2010, our Board of Directors authorized $750 million of additional share repurchases. The share repurchase authorization has no set expiration or termination date. For the three months ended March 31, 2010, we repurchased 4.5 million shares of our common stock at an average price of $56.21 per share for $251 million under an accelerated stock purchase agreement with a bank. For the three months ended March 31, 2010, we reissued 1.0 million shares for employee benefit plans. Since its inception in May 2003, we have repurchased
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approximately 64 million shares of our common stock at an average price of $46.87 for $3.0 billion under our share repurchase program. At March 31, 2010, $499 million of share repurchase authorization remained available.
Contractual Obligations and Commitments
The following table summarizes certain of our contractual obligations as of March 31, 2010:
| | | | | | | | | | | | | | | | |
| | Payments due by period | |
| |
| |
| | (in thousands) | |
Contractual Obligations | | Total | | Remainder
of 2010 | | 1-3 years | | 3–5 years | | After 5 years | |
| |
| |
| |
| |
| |
| |
| | | | | | | | | | | |
Outstanding debt | | $ | 3,116,802 | | $ | 165,534 | | $ | 901,268 | | $ | — | | $ | 2,050,000 | |
Capital lease obligations | | | 24,272 | | | 3,658 | | | 7,827 | | | 5,682 | | | 7,105 | |
Interest payments on outstanding debt | | | 1,722,264 | | | 99,400 | | | 228,742 | | | 321,112 | | | 1,073,010 | |
Operating leases | | | 667,513 | | | 148,583 | | | 246,594 | | | 118,237 | | | 154,099 | |
Purchase obligations | | | 111,350 | | | 38,512 | | | 57,498 | | | 11,892 | | | 3,448 | |
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|
| |
|
| |
|
| |
|
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|
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| | | | | | | | | | | | | | | | |
Total contractual obligations | | $ | 5,642,201 | | $ | 455,687 | | $ | 1,441,929 | | $ | 456,923 | | $ | 3,287,662 | |
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Interest payments on our outstanding debt have been calculated after giving effect to our interest rate swap agreements, using the interest rates as of March 31, 2010 applied to the March 31, 2010 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 10 to the Consolidated Financial Statements in our 2009 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, 2009 is contained in Note 15 to the Consolidated Financial Statements in our 2009 Annual Report on Form 10-K.
As of March 31, 2010, our total liabilities for unrecognized tax benefits were approximately $134 million, which were excluded from the table above. We believe it is reasonably possible that our liabilities for unrecognized tax benefits may decrease by $26 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 5 to the Consolidated Financial Statements in our 2009 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 March 31, 2010, 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.
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.
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Requirements and Capital Resources
We estimate that we will invest approximately $200 million during 2010 for capital expenditures to support and expand our existing operations, principally related to investments in information technology, equipment, and facility upgrades.
As of March 31, 2010, $1.3 billion of borrowing capacity was available under our existing credit facilities, consisting of $525 million available under our secured receivables credit facility and $750 million available under our senior unsecured revolving credit facility.
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.
New Accounting Standards
In October 2009, the Financial Accounting Standards Board (“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. In January 2010, the FASB issued an amendment to the accounting standards related to the disclosures about an entity’s use of fair value measurements. In February 2010, the FASB issued an amendment to the accounting standards related to the accounting for, and disclosure of, subsequent events in an entity’s consolidated financial statements. 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, 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 2009 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 2010 Quarterly Reports on Form 10-Q and other items throughout the 2009 Form 10-K and our 2010 Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
See Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
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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 first quarter of 2010, 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
See Note 7 to the interim consolidated financial statements for information regarding the status of legal proceedings involving the Company.
In addition to the risk factors set forth in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, investors should consider the following risk factor before deciding to invest in any securities issued by the Company.
U.S. healthcare reform legislation may result in significant change, and our business could be adversely impacted if we fail to adapt.
Government oversight of and attention to the healthcare industry in the United States is significant and increasing. In March 2010, U.S. federal legislation was enacted to reform healthcare. The legislation provides for reductions in the Medicare clinical laboratory fee schedule of 1.75% for five years beginning in 2011 and also includes a productivity adjustment which reduces the CPI market basket update beginning in 2011. Approximately 12% of our consolidated revenues are reimbursed by Medicare under the clinical laboratory fee schedule. The legislation imposes an excise tax on the seller for the 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 growth while preserving quality. These proposals automatically will be implemented unless Congress enacts alternative proposals that achieve the same savings targets. Further, the legislation calls for a Center for Medicare and Medicaid Innovation that will examine alternative payment methodologies and conduct demonstration programs. The legislation provides for extensive health insurance reforms, including the elimination of pre-existing condition exclusions and other limitations on coverage, fixed percentages on medical loss ratios, expansion in Medicaid and other programs, employer mandates, individual mandates, creation of state and regional health insurance exchanges, and tax subsidies for individuals to help cover the cost of individual insurance coverage. The legislation also permits the establishment of accountable care organizations, a new healthcare delivery model. While the ultimate impact of the legislation on the healthcare industry is unknown, it is likely to be extensive and may result in significant change. Our failure to adapt to these changes could have a material adverse effect on our business.
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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 first quarter of 2010.
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) | |
| |
| |
| |
| |
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January 1, 2010 – January 31, 2010 | | | | | | | | | | | |
Share Repurchase Program (A) | | 4,460,304 | | $ | 56.21 | | 4,460,304 | | $ | 499,338 | |
Employee Transactions (B) | | 39 | | $ | 61.21 | | N/A | | | N/A | |
February 1, 2010 – February 28, 2010 | | | | | | | | | | | |
Share Repurchase Program (A) | | — | | $ | — | | — | | $ | 499,338 | |
Employee Transactions (B) | | 45,563 | | $ | 55.89 | | N/A | | | N/A | |
March 1, 2010 – March 31, 2010 | | | | | | | | | | | |
Share Repurchase Program (A) | | — | | $ | — | | — | | $ | 499,338 | |
Employee Transactions (B) | | 225,798 | | $ | 55.78 | | N/A | | | N/A | |
Total | | | | | | | | | | | |
Share Repurchase Program (A) | | 4,460,304 | | $ | 56.21 | | 4,460,304 | | $ | 499,338 | |
Employee Transactions (B) | | 271,400 | | $ | 55.80 | | N/A | | | N/A | |
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| (A) | In January 2010, our Board of Directors authorized the Company to repurchase an additional $750 million of the Company’s common stock. Since the share repurchase program’s inception in May 2003, our Board of Directors has authorized $3.5 billion of share repurchases of our common stock through March 31, 2010. The share repurchase authorization has no set expiration or termination date. |
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| (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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Exhibits:
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10.1* | Fourth Amended and Restated Credit and Security Agreement dated as of June 11, 2008, among Quest Diagnostics Receivables Inc., as Borrower, the Company, as Servicer, each of the lenders party thereto and The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as Administrative Agent |
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10.2* | Credit Agreement dated as of May 31, 2007, among the Company, certain subsidiary guarantors of the Company, the lenders party thereto, Bank of America, N.A., as Administrative Agent, Morgan Stanley Senior Funding, Inc., as Syndication Agent, Barclays Bank Plc, JPMorgan Chase Bank, N.A., Merrill Lynch Bank, USA and Wachovia Bank, National Association, as co-Documentation Agents, and Morgan Stanley Senior Funding, Inc. and Banc of America Securities LLC, as Joint Lead Arrangers and Joint Book Runners |
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31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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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 |
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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 |
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101.INS | dgx-20100331.xml |
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101.SCH | dgx-20100331.xsd |
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101.CAL | dgx-20100331_cal.xml |
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101.DEF | dgx-20100331_def.xml |
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101.LAB | dgx-20100331_lab.xml |
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101.PRE | dgx-20100331_pre.xml |
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101.REF | dgx-20100331_ref.xml |
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* | Portions of this Exhibit have been omitted pursuant to a request for confidential treatment and filed separately with the Securities and Exchange Commission. |
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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.
April 26, 2010
Quest Diagnostics Incorporated
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By | /s/ Surya N. Mohapatra |
|
|
| Surya N. Mohapatra, Ph.D. |
| Chairman of the Board, President and |
| Chief Executive Officer |
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By | /s/ Robert A. Hagemann |
|
|
| Robert A. Hagemann |
| Senior Vice President and |
| Chief Financial Officer |
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