UNITED STATES
|
SECURITIES AND EXCHANGE COMMISSION
|
WASHINGTON, DC 20549
|
|
Large accelerated filer
x
|
Accelerated filer
o
|
Non-accelerated filer
o
|
Smaller reporting company
o
|
Emerging growth company
o
|
|
|
Page
|
Item 1. Financial Statements
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Index to unaudited consolidated financial statements filed as part of this report:
|
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||
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|
|
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||
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|
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||
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||
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||
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||
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||
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Three Months Ended September 30,
|
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Nine Months Ended September 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Net revenues
|
$
|
1,889
|
|
|
$
|
1,856
|
|
|
$
|
5,692
|
|
|
$
|
5,537
|
|
|
|
|
|
|
|
|
|
||||||||
Operating costs and expenses and other operating income:
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of services
|
1,222
|
|
|
1,190
|
|
|
3,691
|
|
|
3,525
|
|
||||
Selling, general and administrative
|
354
|
|
|
348
|
|
|
1,068
|
|
|
1,061
|
|
||||
Amortization of intangible assets
|
22
|
|
|
19
|
|
|
66
|
|
|
54
|
|
||||
Other operating (income) expense, net
|
(13
|
)
|
|
1
|
|
|
(14
|
)
|
|
1
|
|
||||
Total operating costs and expenses, net
|
1,585
|
|
|
1,558
|
|
|
4,811
|
|
|
4,641
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Operating income
|
304
|
|
|
298
|
|
|
881
|
|
|
896
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net
|
(41
|
)
|
|
(38
|
)
|
|
(124
|
)
|
|
(112
|
)
|
||||
Other income (expense), net
|
3
|
|
|
(2
|
)
|
|
2
|
|
|
12
|
|
||||
Total non-operating expenses, net
|
(38
|
)
|
|
(40
|
)
|
|
(122
|
)
|
|
(100
|
)
|
||||
|
|
|
|
|
|
|
|
||||||||
Income before income taxes and equity in earnings of equity method investees
|
266
|
|
|
258
|
|
|
759
|
|
|
796
|
|
||||
Income tax expense
|
(48
|
)
|
|
(92
|
)
|
|
(142
|
)
|
|
(264
|
)
|
||||
Equity in earnings of equity method investees, net of taxes
|
9
|
|
|
9
|
|
|
32
|
|
|
25
|
|
||||
Net income
|
227
|
|
|
175
|
|
|
649
|
|
|
557
|
|
||||
Less: Net income attributable to noncontrolling interests
|
14
|
|
|
14
|
|
|
40
|
|
|
39
|
|
||||
Net income attributable to Quest Diagnostics
|
$
|
213
|
|
|
$
|
161
|
|
|
$
|
609
|
|
|
$
|
518
|
|
|
|
|
|
|
|
|
|
||||||||
Earnings per share attributable to Quest Diagnostics’ common stockholders:
|
|
|
|
|
|
|
|
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|
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|
||||
Basic
|
$
|
1.56
|
|
|
$
|
1.18
|
|
|
$
|
4.46
|
|
|
$
|
3.77
|
|
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||||||||
Diluted
|
$
|
1.53
|
|
|
$
|
1.15
|
|
|
$
|
4.37
|
|
|
$
|
3.68
|
|
|
|
|
|
|
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|
||||||||
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
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|
||||
Basic
|
136
|
|
|
137
|
|
|
136
|
|
|
137
|
|
||||
|
|
|
|
|
|
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|
||||||||
Diluted
|
139
|
|
|
140
|
|
|
139
|
|
|
140
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Dividends per common share
|
$
|
0.50
|
|
|
$
|
0.45
|
|
|
$
|
1.50
|
|
|
$
|
1.35
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Net income
|
$
|
227
|
|
|
$
|
175
|
|
|
$
|
649
|
|
|
$
|
557
|
|
|
|
|
|
|
|
|
|
||||||||
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
||||||||
Currency translation
|
(2
|
)
|
|
8
|
|
|
(10
|
)
|
|
20
|
|
||||
Investment adjustments, net of taxes
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
||||
Net deferred loss on cash flow hedges, net of taxes
|
1
|
|
|
1
|
|
|
2
|
|
|
1
|
|
||||
Other comprehensive (loss) income
|
(1
|
)
|
|
12
|
|
|
(8
|
)
|
|
24
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Comprehensive income
|
226
|
|
|
187
|
|
|
641
|
|
|
581
|
|
||||
Less: Comprehensive income attributable to noncontrolling interests
|
14
|
|
|
14
|
|
|
40
|
|
|
39
|
|
||||
Comprehensive income attributable to Quest Diagnostics
|
$
|
212
|
|
|
$
|
173
|
|
|
$
|
601
|
|
|
$
|
542
|
|
|
September 30,
2018 |
|
December 31,
2017 |
||||
Assets
|
|
|
|
|
|
||
Current assets:
|
|
|
|
|
|
||
Cash and cash equivalents
|
$
|
263
|
|
|
$
|
137
|
|
Accounts receivable, net of allowance for doubtful accounts of $10 and $13 as of September 30, 2018 and December 31, 2017, respectively
|
1,097
|
|
|
924
|
|
||
Inventories
|
95
|
|
|
95
|
|
||
Prepaid expenses and other current assets
|
148
|
|
|
150
|
|
||
Total current assets
|
1,603
|
|
|
1,306
|
|
||
Property, plant and equipment, net
|
1,194
|
|
|
1,145
|
|
||
Goodwill
|
6,447
|
|
|
6,335
|
|
||
Intangible assets, net
|
1,168
|
|
|
1,119
|
|
||
Investment in equity method investees
|
456
|
|
|
462
|
|
||
Other assets
|
118
|
|
|
136
|
|
||
Total assets
|
$
|
10,986
|
|
|
$
|
10,503
|
|
|
|
|
|
||||
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
||
Current liabilities:
|
|
|
|
|
|
||
Accounts payable and accrued expenses
|
$
|
1,085
|
|
|
$
|
1,021
|
|
Current portion of long-term debt
|
304
|
|
|
36
|
|
||
Total current liabilities
|
1,389
|
|
|
1,057
|
|
||
Long-term debt
|
3,394
|
|
|
3,748
|
|
||
Other liabilities
|
761
|
|
|
663
|
|
||
Commitments and contingencies
|
|
|
|
|
|
||
Redeemable noncontrolling interest
|
77
|
|
|
80
|
|
||
Stockholders’ equity:
|
|
|
|
|
|
||
Quest Diagnostics stockholders’ equity:
|
|
|
|
|
|
||
Common stock, par value $0.01 per share; 600 shares authorized as of both September 30, 2018 and December 31, 2017; 217 and 216 shares issued as of September 30, 2018 and December 31, 2017, respectively
|
2
|
|
|
2
|
|
||
Additional paid-in capital
|
2,656
|
|
|
2,612
|
|
||
Retained earnings
|
7,546
|
|
|
7,138
|
|
||
Accumulated other comprehensive loss
|
(58
|
)
|
|
(48
|
)
|
||
Treasury stock, at cost; 81 shares as of both September 30, 2018 and December 31, 2017
|
(4,829
|
)
|
|
(4,783
|
)
|
||
Total Quest Diagnostics stockholders’ equity
|
5,317
|
|
|
4,921
|
|
||
Noncontrolling interests
|
48
|
|
|
34
|
|
||
Total stockholders’ equity
|
5,365
|
|
|
4,955
|
|
||
Total liabilities and stockholders’ equity
|
$
|
10,986
|
|
|
$
|
10,503
|
|
|
Nine Months Ended September 30,
|
||||||
|
2018
|
|
2017
|
||||
Cash flows from operating activities:
|
|
|
|
|
|
||
Net income
|
$
|
649
|
|
|
$
|
557
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
||
Depreciation and amortization
|
228
|
|
|
197
|
|
||
Provision for doubtful accounts
|
2
|
|
|
5
|
|
||
Deferred income tax provision
|
52
|
|
|
90
|
|
||
Stock-based compensation expense
|
53
|
|
|
54
|
|
||
Other, net
|
7
|
|
|
(5
|
)
|
||
Changes in operating assets and liabilities:
|
|
|
|
|
|
||
Accounts receivable
|
(166
|
)
|
|
(29
|
)
|
||
Accounts payable and accrued expenses
|
51
|
|
|
(3
|
)
|
||
Income taxes payable
|
(1
|
)
|
|
—
|
|
||
Other assets and liabilities, net
|
30
|
|
|
(14
|
)
|
||
Net cash provided by operating activities
|
905
|
|
|
852
|
|
||
|
|
|
|
||||
Cash flows from investing activities:
|
|
|
|
|
|
||
Business acquisitions, net of cash acquired
|
(219
|
)
|
|
(299
|
)
|
||
Capital expenditures
|
(232
|
)
|
|
(170
|
)
|
||
(Increase) decrease in investments and other assets
|
(4
|
)
|
|
5
|
|
||
Net cash used in investing activities
|
(455
|
)
|
|
(464
|
)
|
||
|
|
|
|
||||
Cash flows from financing activities:
|
|
|
|
|
|
||
Proceeds from borrowings
|
1,630
|
|
|
—
|
|
||
Repayments of debt
|
(1,665
|
)
|
|
(5
|
)
|
||
Purchases of treasury stock
|
(150
|
)
|
|
(350
|
)
|
||
Exercise of stock options
|
95
|
|
|
125
|
|
||
Employee payroll tax withholdings on stock issued under stock-based compensation plans
|
(20
|
)
|
|
(23
|
)
|
||
Dividends paid
|
(198
|
)
|
|
(186
|
)
|
||
Distributions to noncontrolling interests
|
(41
|
)
|
|
(38
|
)
|
||
Sale of noncontrolling interest in subsidiaries
|
12
|
|
|
—
|
|
||
Other financing activities, net
|
13
|
|
|
55
|
|
||
Net cash used in financing activities
|
(324
|
)
|
|
(422
|
)
|
||
|
|
|
|
||||
Net change in cash and cash equivalents and restricted cash
|
126
|
|
|
(34
|
)
|
||
Cash and cash equivalents and restricted cash, beginning of period
|
137
|
|
|
384
|
|
||
Cash and cash equivalents and restricted cash, end of period
|
$
|
263
|
|
|
$
|
350
|
|
|
|
|
|
||||
Cash and cash equivalents
|
$
|
263
|
|
|
$
|
350
|
|
Restricted cash
|
—
|
|
|
—
|
|
||
Cash and cash equivalents and restricted cash, end of period
|
$
|
263
|
|
|
$
|
350
|
|
|
|
|
Quest Diagnostics Stockholders’ Equity
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
|
Shares of
Common Stock Outstanding |
|
Common
Stock
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Compre-
hensive Loss
|
|
Treasury
Stock, at
Cost
|
|
Non-
controlling
Interests
|
|
Total
Stock-
holders’
Equity
|
|
|
Redeemable Non-controlling Interest
|
|||||||||||||||||
Balance, December 31, 2017
|
135
|
|
|
$
|
2
|
|
|
$
|
2,612
|
|
|
$
|
7,138
|
|
|
$
|
(48
|
)
|
|
$
|
(4,783
|
)
|
|
$
|
34
|
|
|
$
|
4,955
|
|
|
|
$
|
80
|
|
Net income
|
|
|
|
|
|
|
|
|
|
609
|
|
|
|
|
|
|
|
|
34
|
|
|
643
|
|
|
|
6
|
|
||||||||
Other comprehensive loss, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|||||||||
Dividends declared
|
|
|
|
|
|
|
|
|
|
(203
|
)
|
|
|
|
|
|
|
|
|
|
|
(203
|
)
|
|
|
|
|||||||||
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
|
(32
|
)
|
|
|
(9
|
)
|
||||||||
Issuance of common stock under benefit plans
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
20
|
|
|
|
|
|||||||||
Stock-based compensation expense
|
|
|
|
|
|
|
49
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
53
|
|
|
|
|
|||||||||
Exercise of stock options
|
2
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
90
|
|
|
|
|
|
95
|
|
|
|
|
|||||||||
Shares to cover employee payroll tax withholdings on stock issued under stock-based compensation plans
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|||||||||
Purchases of treasury stock
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150
|
)
|
|
|
|
|
(150
|
)
|
|
|
|
|||||||||
Sale of noncontrolling interest in subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
12
|
|
|
|
|
|
||||||||
Reclassification of stranded tax effects resulting from enactment of the Tax Cuts and Jobs Act
|
|
|
|
|
|
|
2
|
|
|
(2
|
)
|
|
|
|
|
|
—
|
|
|
|
|
||||||||||||||
Balance, September 30, 2018
|
136
|
|
|
$
|
2
|
|
|
$
|
2,656
|
|
|
$
|
7,546
|
|
|
$
|
(58
|
)
|
|
$
|
(4,829
|
)
|
|
$
|
48
|
|
|
$
|
5,365
|
|
|
|
$
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance, December 31, 2016
|
137
|
|
|
$
|
2
|
|
|
$
|
2,545
|
|
|
$
|
6,613
|
|
|
$
|
(72
|
)
|
|
$
|
(4,460
|
)
|
|
$
|
32
|
|
|
$
|
4,660
|
|
|
|
$
|
77
|
|
Net income
|
|
|
|
|
|
|
|
|
|
518
|
|
|
|
|
|
|
|
|
34
|
|
|
552
|
|
|
|
5
|
|
||||||||
Other comprehensive income, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|||||||||
Dividends declared
|
|
|
|
|
|
|
|
|
|
(185
|
)
|
|
|
|
|
|
|
|
|
|
|
(185
|
)
|
|
|
|
|||||||||
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
(34
|
)
|
|
|
(4
|
)
|
||||||||
Issuance of common stock under benefit plans
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
18
|
|
|
|
|
|||||||||
Stock-based compensation expense
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
54
|
|
|
|
|
|||||||||
Exercise of stock options
|
3
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
122
|
|
|
|
|
|
125
|
|
|
|
|
|||||||||
Shares to cover employee payroll tax withholdings on stock issued under stock-based compensation plans
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|||||||||
Purchases of treasury stock
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(365
|
)
|
|
|
|
|
(365
|
)
|
|
|
|
|||||||||
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
2
|
|
|
|
|
|
||||||||
Balance, September 30, 2017
|
136
|
|
|
$
|
2
|
|
|
$
|
2,585
|
|
|
$
|
6,946
|
|
|
$
|
(48
|
)
|
|
$
|
(4,691
|
)
|
|
$
|
34
|
|
|
$
|
4,828
|
|
|
|
$
|
78
|
|
|
As Previously Reported
|
|
Adjustment for New Accounting Standard on Revenue Recognition
|
|
As Restated
|
||||||
Three Months Ended September 30, 2017
|
|
|
|
|
|
||||||
|
|
|
|
|
|
||||||
Consolidated Statement of Operations:
|
|
|
|
|
|
||||||
Net revenues
|
$
|
1,931
|
|
|
$
|
(75
|
)
|
|
$
|
1,856
|
|
Selling, general and administrative expenses
|
$
|
423
|
|
|
$
|
(75
|
)
|
|
$
|
348
|
|
Net income attributable to Quest Diagnostics
|
$
|
161
|
|
|
$
|
—
|
|
|
$
|
161
|
|
|
As Previously Reported
|
|
Adjustment for New Accounting Standard on Revenue Recognition
|
|
As Restated
|
||||||
Nine Months Ended September 30, 2017
|
|
|
|
|
|
||||||
|
|
|
|
|
|
||||||
Consolidated Statement of Operations:
|
|
|
|
|
|
||||||
Net revenues
|
$
|
5,773
|
|
|
$
|
(236
|
)
|
|
$
|
5,537
|
|
Selling, general and administrative expenses
|
$
|
1,297
|
|
|
$
|
(236
|
)
|
|
$
|
1,061
|
|
Net income attributable to Quest Diagnostics
|
$
|
518
|
|
|
$
|
—
|
|
|
$
|
518
|
|
|
|
|
|
|
|
||||||
Consolidated Statements of Cash Flows:
|
|
|
|
|
|
||||||
Provision for doubtful accounts
|
$
|
241
|
|
|
$
|
(236
|
)
|
|
$
|
5
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
||||||
Accounts receivable
|
$
|
(265
|
)
|
|
$
|
236
|
|
|
$
|
(29
|
)
|
|
|
|
|
|
|
||||||
Balance, December 31, 2017
|
|
|
|
|
|
||||||
|
|
|
|
|
|
||||||
Consolidated Balance Sheets:
|
|
|
|
|
|
||||||
Accounts receivable
|
$
|
1,193
|
|
|
$
|
(256
|
)
|
|
$
|
937
|
|
Allowance for doubtful accounts
|
$
|
269
|
|
|
$
|
(256
|
)
|
|
$
|
13
|
|
Accounts receivable, net of allowance for doubtful accounts
|
$
|
924
|
|
|
$
|
—
|
|
|
$
|
924
|
|
•
|
Amounts generally described as restricted cash and restricted cash equivalents are now presented with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. As a result of adoption, there was no impact to cash flows from operating, investing or financing activities for the
nine
months ended
September 30, 2018
and no impact to cash flows from operating or financing activities for the
nine
months ended
September 30, 2017
.
$25 million
of escrow proceeds associated with the disposition of the Focus Diagnostics products business in May 2016, which was previously reported as a cash inflow from investing activities for the nine months ended
September 30, 2017
, is no longer presented within the net change in cash and cash equivalents and restricted cash as it is included in the beginning-of-period balance of restricted cash. Refer to Note 6 to the consolidated financial statements contained in the Company’s
2017
Annual Report on Form 10-K for more information regarding the disposition of the Focus Diagnostics products business.
|
•
|
The classification of how certain cash receipts and payments are presented within the statement of cash flows has been clarified. As a result, cash payments for debt retirement costs are now presented as a financing cash outflow in the consolidated statement of cash flows. There were no debt retirement costs for the
nine
months ended
September 30, 2018
and 2017.
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||
Healthcare insurers:
|
|
|
|
|
|
|
|
||||
Fee-for-service
|
32
|
%
|
|
34
|
%
|
|
32
|
%
|
|
33
|
%
|
Capitated
|
3
|
|
|
4
|
|
|
4
|
|
|
4
|
|
Total healthcare insurers
|
35
|
|
|
38
|
|
|
36
|
|
|
37
|
|
Government payers
|
16
|
|
|
17
|
|
|
16
|
|
|
16
|
|
Client payers
|
32
|
|
|
30
|
|
|
31
|
|
|
30
|
|
Patient
|
13
|
|
|
11
|
|
|
13
|
|
|
12
|
|
Total DIS
|
96
|
|
|
96
|
|
|
96
|
|
|
95
|
|
DS
|
4
|
|
|
4
|
|
|
4
|
|
|
5
|
|
Net revenues
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Amounts attributable to Quest Diagnostics’ common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income attributable to Quest Diagnostics
|
$
|
213
|
|
|
$
|
161
|
|
|
$
|
609
|
|
|
$
|
518
|
|
Less: Earnings allocated to participating securities
|
1
|
|
|
1
|
|
|
2
|
|
|
2
|
|
||||
Earnings available to Quest Diagnostics’ common stockholders – basic and diluted
|
$
|
212
|
|
|
$
|
160
|
|
|
$
|
607
|
|
|
$
|
516
|
|
|
|
|
|
|
|
|
|
||||||||
Weighted average common shares outstanding – basic
|
136
|
|
|
137
|
|
|
136
|
|
|
137
|
|
||||
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock options and performance share units
|
3
|
|
|
3
|
|
|
3
|
|
|
3
|
|
||||
Weighted average common shares outstanding – diluted
|
139
|
|
|
140
|
|
|
139
|
|
|
140
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Earnings per share attributable to Quest Diagnostics’ common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic
|
$
|
1.56
|
|
|
$
|
1.18
|
|
|
$
|
4.46
|
|
|
$
|
3.77
|
|
|
|
|
|
|
|
|
|
||||||||
Diluted
|
$
|
1.53
|
|
|
$
|
1.15
|
|
|
$
|
4.37
|
|
|
$
|
3.68
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||
Stock options
|
2
|
|
|
2
|
|
|
2
|
|
|
1
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Employee separation costs
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
19
|
|
|
$
|
9
|
|
Facility-related costs
|
—
|
|
|
1
|
|
|
4
|
|
|
2
|
|
||||
Total restructuring charges
|
$
|
4
|
|
|
$
|
5
|
|
|
$
|
23
|
|
|
$
|
11
|
|
|
|
|
Basis of Fair Value Measurements
|
||||||||||||
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets /
Liabilities
|
|
Significant
Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
||||||||
September 30, 2018
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
||||
Trading securities
|
$
|
57
|
|
|
$
|
57
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cash surrender value of life insurance policies
|
40
|
|
|
—
|
|
|
40
|
|
|
—
|
|
||||
Total
|
$
|
97
|
|
|
$
|
57
|
|
|
$
|
40
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
||||||||
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swaps
|
$
|
131
|
|
|
$
|
—
|
|
|
$
|
131
|
|
|
$
|
—
|
|
Deferred compensation liabilities
|
104
|
|
|
—
|
|
|
104
|
|
|
—
|
|
||||
Contingent consideration
|
12
|
|
|
—
|
|
|
—
|
|
|
12
|
|
||||
Total
|
$
|
247
|
|
|
$
|
—
|
|
|
$
|
235
|
|
|
$
|
12
|
|
|
|
|
Basis of Fair Value Measurements
|
||||||||||||
December 31, 2017
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
||||
Trading securities
|
$
|
58
|
|
|
$
|
58
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cash surrender value of life insurance policies
|
37
|
|
|
—
|
|
|
37
|
|
|
—
|
|
||||
Equity securities
|
2
|
|
|
2
|
|
|
—
|
|
|
—
|
|
||||
Total
|
$
|
97
|
|
|
$
|
60
|
|
|
$
|
37
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
||||||||
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
||||
Deferred compensation liabilities
|
$
|
103
|
|
|
$
|
—
|
|
|
$
|
103
|
|
|
$
|
—
|
|
Interest rate swaps
|
89
|
|
|
—
|
|
|
89
|
|
|
—
|
|
||||
Contingent consideration
|
7
|
|
|
—
|
|
|
—
|
|
|
7
|
|
||||
Total
|
$
|
199
|
|
|
$
|
—
|
|
|
$
|
192
|
|
|
$
|
7
|
|
|
Contingent Consideration
|
||
|
|
||
Balance, December 31, 2017
|
$
|
7
|
|
Purchases, additions and issuances
|
17
|
|
|
Settlements
|
(1
|
)
|
|
Total gains/losses included in earnings - realized/unrealized
|
(11
|
)
|
|
Balance, September 30, 2018
|
$
|
12
|
|
|
September 30,
2018 |
|
December 31,
2017 |
||||
Balance, beginning of period
|
$
|
6,335
|
|
|
$
|
6,000
|
|
Goodwill acquired during the period
|
112
|
|
|
335
|
|
||
Balance, end of period
|
$
|
6,447
|
|
|
$
|
6,335
|
|
|
Weighted
Average
Amortization
Period
(in years)
|
|
September 30, 2018
|
|
December 31, 2017
|
||||||||||||||||||||
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
|||||||||||||
Amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Customer-related
|
18
|
|
$
|
1,309
|
|
|
$
|
(458
|
)
|
|
$
|
851
|
|
|
$
|
1,210
|
|
|
$
|
(404
|
)
|
|
$
|
806
|
|
Non-compete agreements
|
8
|
|
3
|
|
|
(2
|
)
|
|
1
|
|
|
7
|
|
|
(5
|
)
|
|
2
|
|
||||||
Technology
|
16
|
|
107
|
|
|
(48
|
)
|
|
59
|
|
|
95
|
|
|
(45
|
)
|
|
50
|
|
||||||
Other
|
10
|
|
92
|
|
|
(71
|
)
|
|
21
|
|
|
105
|
|
|
(80
|
)
|
|
25
|
|
||||||
Total
|
17
|
|
1,511
|
|
|
(579
|
)
|
|
932
|
|
|
1,417
|
|
|
(534
|
)
|
|
883
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Trade names
|
|
|
235
|
|
|
—
|
|
|
235
|
|
|
235
|
|
|
—
|
|
|
235
|
|
||||||
Other
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|
1
|
|
||||||
Total intangible assets
|
|
|
$
|
1,747
|
|
|
$
|
(579
|
)
|
|
$
|
1,168
|
|
|
$
|
1,653
|
|
|
$
|
(534
|
)
|
|
$
|
1,119
|
|
Year Ending December 31,
|
|
|
|
Remainder of 2018
|
$
|
23
|
|
2019
|
90
|
|
|
2020
|
89
|
|
|
2021
|
83
|
|
|
2022
|
79
|
|
|
2023
|
79
|
|
|
Thereafter
|
489
|
|
|
Total
|
$
|
932
|
|
|
|
Notional Amount
|
||||||
Debt Instrument
|
|
September 30, 2018
|
|
December 31, 2017
|
||||
|
|
|
|
|
||||
4.25% Senior Notes due April 2024
|
|
$
|
250
|
|
|
$
|
250
|
|
3.50% Senior Notes due March 2025
|
|
600
|
|
|
600
|
|
||
3.45% Senior Notes due June 2026
|
|
350
|
|
|
350
|
|
||
|
|
$
|
1,200
|
|
|
$
|
1,200
|
|
|
|
|
Carrying Amount of Hedged Long-Term Debt
|
|
Hedge Accounting Basis Adjustment (a)
|
|
Carrying Amount of Hedged Long-Term Debt
|
|
Hedge Accounting Basis Adjustment (a)
|
||||||||
Balance Sheet Classification
|
|
September 30, 2018
|
|
September 30, 2018
|
|
December 31, 2017
|
|
December 31, 2017
|
|||||||||
Long-term debt
|
|
$
|
1,087
|
|
|
$
|
(87
|
)
|
|
$
|
1,132
|
|
|
$
|
(33
|
)
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
|
Other income (expense), net
|
|
Other income (expense), net
|
|
Other income (expense), net
|
|
Other income (expense), net
|
|||||||||
Total for line item in which the effects of fair value hedges are recorded
|
|
$
|
3
|
|
|
$
|
(2
|
)
|
|
$
|
2
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Gain (loss) on fair value hedging relationships:
|
|
|
|
|
|
|
|
|
|||||||||
Hedged items (Long-term debt)
|
|
$
|
10
|
|
|
$
|
(1
|
)
|
|
$
|
42
|
|
|
$
|
(12
|
)
|
|
Derivatives designated as hedging instruments
|
|
$
|
(10
|
)
|
|
$
|
1
|
|
|
$
|
(42
|
)
|
|
$
|
12
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
||||||||
Derivatives Designated as Hedging Instruments
|
|
Balance Sheet
Classification
|
|
Fair Value
|
|
Balance Sheet
Classification
|
|
Fair Value
|
||||
Interest rate swaps
|
|
Other liabilities
|
|
$
|
131
|
|
|
Other liabilities
|
|
$
|
89
|
|
•
|
Foreign currency translation adjustments;
|
•
|
Net deferred loss on cash flow hedges, which represents deferred losses, net of tax on interest rate related derivative financial instruments designated as cash flow hedges, net of amounts reclassified to interest expense (see Note
10
).
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Depreciation expense
|
$
|
55
|
|
|
$
|
50
|
|
|
$
|
162
|
|
|
$
|
143
|
|
Amortization expense
|
22
|
|
|
19
|
|
|
66
|
|
|
54
|
|
||||
Depreciation and amortization expense
|
$
|
77
|
|
|
$
|
69
|
|
|
$
|
228
|
|
|
$
|
197
|
|
|
|
|
|
|
|
|
|
||||||||
Interest expense
|
$
|
(42
|
)
|
|
$
|
(39
|
)
|
|
$
|
(126
|
)
|
|
$
|
(114
|
)
|
Interest income
|
1
|
|
|
1
|
|
|
2
|
|
|
2
|
|
||||
Interest expense, net
|
$
|
(41
|
)
|
|
$
|
(38
|
)
|
|
$
|
(124
|
)
|
|
$
|
(112
|
)
|
|
|
|
|
|
|
|
|
||||||||
Interest paid
|
$
|
28
|
|
|
$
|
27
|
|
|
$
|
114
|
|
|
$
|
104
|
|
Income taxes paid
|
$
|
29
|
|
|
$
|
64
|
|
|
$
|
70
|
|
|
$
|
177
|
|
|
|
|
|
|
|
|
|
||||||||
Assets acquired under capital leases
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
Accounts payable associated with capital expenditures
|
$
|
13
|
|
|
$
|
14
|
|
|
$
|
13
|
|
|
$
|
14
|
|
Accounts payable associated with purchases of treasury stock
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
15
|
|
Dividends payable
|
$
|
68
|
|
|
$
|
62
|
|
|
$
|
68
|
|
|
$
|
62
|
|
|
|
|
|
|
|
|
|
||||||||
Businesses acquired:
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fair value of assets acquired
|
$
|
59
|
|
|
$
|
229
|
|
|
$
|
242
|
|
|
$
|
343
|
|
Fair value of liabilities assumed
|
—
|
|
|
40
|
|
|
1
|
|
|
40
|
|
||||
Fair value of net assets acquired
|
59
|
|
|
189
|
|
|
241
|
|
|
303
|
|
||||
Merger consideration paid (payable), net
|
(5
|
)
|
|
(2
|
)
|
|
(17
|
)
|
|
(4
|
)
|
||||
Cash paid for business acquisitions
|
54
|
|
|
187
|
|
|
224
|
|
|
299
|
|
||||
Less: Cash acquired
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
||||
Business acquisitions, net of cash acquired
|
$
|
54
|
|
|
$
|
187
|
|
|
$
|
219
|
|
|
$
|
299
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
||||
DIS business
|
$
|
1,810
|
|
|
$
|
1,777
|
|
|
$
|
5,448
|
|
|
$
|
5,283
|
|
All other operating segments
|
79
|
|
|
79
|
|
|
244
|
|
|
254
|
|
||||
Total net revenues
|
$
|
1,889
|
|
|
$
|
1,856
|
|
|
$
|
5,692
|
|
|
$
|
5,537
|
|
|
|
|
|
|
|
|
|
||||||||
Operating earnings (loss):
|
|
|
|
|
|
|
|
|
|
|
|
||||
DIS business
|
$
|
333
|
|
|
$
|
334
|
|
|
$
|
982
|
|
|
$
|
987
|
|
All other operating segments
|
11
|
|
|
10
|
|
|
33
|
|
|
40
|
|
||||
General corporate activities
|
(40
|
)
|
|
(46
|
)
|
|
(134
|
)
|
|
(131
|
)
|
||||
Total operating income
|
304
|
|
|
298
|
|
|
881
|
|
|
896
|
|
||||
Non-operating expenses, net
|
(38
|
)
|
|
(40
|
)
|
|
(122
|
)
|
|
(100
|
)
|
||||
Income before income taxes and equity in earnings of equity method investees
|
266
|
|
|
258
|
|
|
759
|
|
|
796
|
|
||||
Income tax expense
|
(48
|
)
|
|
(92
|
)
|
|
(142
|
)
|
|
(264
|
)
|
||||
Equity in earnings of equity method investees, net of taxes
|
9
|
|
|
9
|
|
|
32
|
|
|
25
|
|
||||
Net income
|
227
|
|
|
175
|
|
|
649
|
|
|
557
|
|
||||
Less: Net income attributable to noncontrolling interests
|
14
|
|
|
14
|
|
|
40
|
|
|
39
|
|
||||
Net income attributable to Quest Diagnostics
|
$
|
213
|
|
|
$
|
161
|
|
|
$
|
609
|
|
|
$
|
518
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
•
|
Our total net revenues of
$1.9 billion
were
1.8%
above the prior year period.
|
•
|
In our DIS business:
|
◦
|
Revenues of
$1.8 billion
increased by
1.9%
compared to the prior year period, which reflects the impact of recent acquisitions and weather in the prior year period. We estimate that reduced reimbursement due to the Protecting Access to Medicare Act ("PAMA") negatively impacted DIS revenue growth by 0.5%.
|
◦
|
Volume, measured by the number of requisitions, increased
2.0%
compared to the prior year period.
|
◦
|
Revenue per requisition decreased by 0.8% compared to the prior year period.
|
•
|
DS revenues of
$79 million
increased by
0.3%
compared to the prior year period primarily associated with our healthcare information technology solutions partially offset by certain royalty revenues received in 2017 related to a royalty agreement, retained from the sale of our products business, that has since expired.
|
•
|
Net income attributable to Quest Diagnostics' stockholders was
$213 million
, or
$1.53
per diluted share, in
2018
, compared to
$161 million
, or
$1.15
per diluted share, in the prior year period. For the three months ended
September 30, 2018
, net income attributable to Quest Diagnostics and diluted EPS benefited from the lower corporate income tax rate as a result of the Tax Cuts and Jobs Act ("TCJA").
|
•
|
Net cash provided by operating activities was
$905 million
in
2018
, compared to
$852 million
in the prior year period. The
$53 million
increase in net cash provided by operating activities was primarily a result of a decrease in tax payments due to the impact of TCJA partially offset by timing of movements in our working capital accounts.
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||||||||||||||||
|
2018
|
|
2017
|
|
Increase
(Decrease) |
|
% Increase
(Decrease) |
|
2018
|
|
2017
|
|
Increase
(Decrease) |
|
% Increase
(Decrease) |
||||||||||||||
|
(dollars in millions, except per share amounts)
|
||||||||||||||||||||||||||||
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
DIS business
|
$
|
1,810
|
|
|
$
|
1,777
|
|
|
$
|
33
|
|
|
1.9
|
%
|
|
$
|
5,448
|
|
|
$
|
5,283
|
|
|
$
|
165
|
|
|
3.1
|
%
|
DS businesses
|
79
|
|
|
79
|
|
|
—
|
|
|
0.3
|
|
|
244
|
|
|
254
|
|
|
(10
|
)
|
|
(3.1
|
)
|
||||||
Total net revenues
|
$
|
1,889
|
|
|
$
|
1,856
|
|
|
$
|
33
|
|
|
1.8
|
%
|
|
$
|
5,692
|
|
|
$
|
5,537
|
|
|
$
|
155
|
|
|
2.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Operating costs and expenses and other operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Cost of services
|
$
|
1,222
|
|
|
$
|
1,190
|
|
|
$
|
32
|
|
|
2.7
|
%
|
|
$
|
3,691
|
|
|
$
|
3,525
|
|
|
$
|
166
|
|
|
4.7
|
%
|
Selling, general and administrative
|
354
|
|
|
348
|
|
|
6
|
|
|
1.9
|
|
|
1,068
|
|
|
1,061
|
|
|
7
|
|
|
0.7
|
|
||||||
Amortization of intangible assets
|
22
|
|
|
19
|
|
|
3
|
|
|
NM
|
|
|
66
|
|
|
54
|
|
|
12
|
|
|
NM
|
|
||||||
Other operating (income) expense, net
|
(13
|
)
|
|
1
|
|
|
(14
|
)
|
|
NM
|
|
|
(14
|
)
|
|
1
|
|
|
(15
|
)
|
|
NM
|
|
||||||
Total operating costs and expenses, net
|
$
|
1,585
|
|
|
$
|
1,558
|
|
|
$
|
27
|
|
|
1.8
|
%
|
|
$
|
4,811
|
|
|
$
|
4,641
|
|
|
$
|
170
|
|
|
3.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Operating income
|
$
|
304
|
|
|
$
|
298
|
|
|
$
|
6
|
|
|
1.8
|
%
|
|
$
|
881
|
|
|
$
|
896
|
|
|
$
|
(15
|
)
|
|
(1.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Interest expense, net
|
$
|
(41
|
)
|
|
$
|
(38
|
)
|
|
$
|
(3
|
)
|
|
8.5
|
%
|
|
$
|
(124
|
)
|
|
$
|
(112
|
)
|
|
$
|
(12
|
)
|
|
11.1
|
%
|
Other income (expense), net
|
3
|
|
|
(2
|
)
|
|
5
|
|
|
NM
|
|
|
2
|
|
|
12
|
|
|
(10
|
)
|
|
NM
|
|
||||||
Total non-operating expenses, net
|
$
|
(38
|
)
|
|
$
|
(40
|
)
|
|
$
|
2
|
|
|
(6.3
|
)%
|
|
$
|
(122
|
)
|
|
$
|
(100
|
)
|
|
$
|
(22
|
)
|
|
21.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Income tax expense
|
$
|
(48
|
)
|
|
$
|
(92
|
)
|
|
$
|
44
|
|
|
(47.8
|
)%
|
|
$
|
(142
|
)
|
|
$
|
(264
|
)
|
|
$
|
122
|
|
|
(46.1
|
)%
|
Effective income tax rate
|
18.1
|
%
|
|
35.7
|
%
|
|
(1760) bps
|
|
|
NM
|
|
|
18.8
|
%
|
|
33.2
|
%
|
|
(1440) bps
|
|
|
NM
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Equity in earnings of equity method investees, net of taxes
|
$
|
9
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
(3.2
|
)%
|
|
$
|
32
|
|
|
$
|
25
|
|
|
$
|
7
|
|
|
27.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Net income attributable to Quest Diagnostics
|
$
|
213
|
|
|
$
|
161
|
|
|
$
|
52
|
|
|
32.1
|
%
|
|
$
|
609
|
|
|
$
|
518
|
|
|
$
|
91
|
|
|
17.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Diluted earnings per common share attributable to Quest Diagnostics’ common stockholders
|
$
|
1.53
|
|
|
$
|
1.15
|
|
|
$
|
0.38
|
|
|
32.7
|
%
|
|
$
|
4.37
|
|
|
$
|
3.68
|
|
|
$
|
0.69
|
|
|
18.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
NM - Not Meaningful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||
Net revenues:
|
|
|
|
|
|
|
|
||||
DIS business
|
95.8
|
%
|
|
95.7
|
%
|
|
95.7
|
%
|
|
95.4
|
%
|
DS businesses
|
4.2
|
|
|
4.3
|
|
|
4.3
|
|
|
4.6
|
|
Total net revenues
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
||||
Operating costs and expenses and other operating income:
|
|
|
|
|
|
|
|
|
|
||
Cost of services
|
64.6
|
%
|
|
64.1
|
%
|
|
64.8
|
%
|
|
63.7
|
%
|
Selling, general and administrative
|
18.8
|
|
|
18.8
|
|
|
18.8
|
|
|
19.1
|
|
Amortization of intangible assets
|
1.2
|
|
|
1.0
|
|
|
1.2
|
|
|
1.0
|
|
Other operating (income) expense, net
|
(0.7
|
)
|
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
Total operating costs and expenses, net
|
83.9
|
%
|
|
83.9
|
%
|
|
84.5
|
%
|
|
83.8
|
%
|
|
|
|
|
|
|
|
|
||||
Operating income
|
16.1
|
%
|
|
16.1
|
%
|
|
15.5
|
%
|
|
16.2
|
%
|
•
|
pre-tax charges of $19 million ($10 million in cost of services and $9 million in selling, general and administrative expenses), or $0.10 per diluted share, primarily associated with workforce reductions, systems conversions and integration incurred in connection with further restructuring and integrating our business;
|
•
|
net pre-tax benefit of $12 million ($13 million gain in other operating (income) expense, net partially offset by $1 million of charges in cost of services), or $0.06 per diluted share, primarily attributable to a gain associated with the decrease in the fair value of the contingent consideration accrual associated with our MedXM acquisition partially offset by non-cash asset impairment charges; and
|
•
|
excess tax benefits associated with stock-based compensation arrangements of
$4 million
, or $0.02 per diluted share, recorded in income tax expense.
|
•
|
pre-tax charges of $75 million ($36 million in cost of services, $38 million in selling, general and administrative expenses, and $1 million in other operating (income) expense, net), or $0.40 per diluted share, primarily associated with workforce reductions, systems conversions and integration incurred in connection with further restructuring and integrating our business;
|
•
|
excess tax benefits associated with stock-based compensation arrangements of $17 million, or $0.12 per diluted share, recorded in income tax expense;
|
•
|
an income tax benefit of $15 million, or $0.10 per diluted share, associated with a change in a tax return accounting method that will enable the Company to accelerate the deduction of certain expenses on its 2017 tax return at the federal corporate statutory tax rate in effect during 2017; and
|
•
|
net pre-tax gain of $2 million ($14 million gain in other operating (income) expense, net partially offset by $12 million in cost of services), or $0.01 per diluted share, primarily attributable to a gain associated with the decrease in the fair value of the contingent consideration accrual associated with our MedXM acquisition and an insurance claim for hurricane related losses partially offset by costs incurred related to certain legal matters and non-cash asset impairment charges.
|
•
|
pre-tax charges of $23 million ($12 million in cost of services and $11 million in selling, general and administrative expenses), or $0.10 per diluted share, primarily associated with systems conversions and integration incurred in connection with further restructuring and integrating our business;
|
•
|
pre-tax charges of $9 million ($3 million in cost of services, $1 million in selling, general and administrative expenses, and $5 million in other income (expense), net), or $0.04 per diluted share, primarily associated with non-cash asset impairment charges and incremental costs incurred as a result of hurricanes; and
|
•
|
excess tax benefits associated with stock-based compensation arrangements of
$7 million
, or $0.04 per diluted share, recorded in income tax expense.
|
•
|
pre-tax charges of $64 million ($31 million in cost of services, $32 million in selling, general and administrative expenses and $1 million in equity earnings of equity method investees, net of taxes), or $0.28 per diluted share, primarily associated with systems conversions and integration incurred in connection with further restructuring and integrating our business;
|
•
|
excess tax benefits associated with stock-based compensation arrangements of $36 million, or $0.25 per diluted share, recorded in income tax expense; and
|
•
|
net pre-tax charges of $4 million ($3 million in cost of services, $3 million in selling, general and administrative expenses and $(2) million in other income (expense), net), or $0.02 per diluted share primarily associated with non-cash asset impairment charges, incremental costs incurred as a result of hurricanes, and costs incurred related to certain legal matters, partially offset by a gain on the sale of an interest in an equity method investment.
|
•
|
the reduced corporate tax rate as a result of the TCJA; and
|
•
|
a
$13 million
income tax benefit during 2018 due to the release of tax reserves associated with the expiration of the statute of limitations for certain income tax returns; partially offset by
|
•
|
a decrease in excess tax benefits associated with stock-based compensation arrangements. During the
three
months ended
September 30, 2018
and
2017
we recognized
$4 million
and
$7 million
, respectively, of excess tax benefits associated with stock-based compensation arrangements.
|
•
|
the reduced corporate tax rate as a result of the TCJA;
|
•
|
a
$15 million
income tax benefit during 2018 associated with a change in a tax return accounting method that will enable the Company to accelerate the deduction of certain expenses on its 2017 tax return at the federal corporate statutory rate in effect during 2017; and
|
•
|
a
$13 million
income tax benefit during 2018 due to the release of tax reserves associated with the expiration of the statute of limitations for certain income tax returns; partially offset by
|
•
|
a decrease in excess tax benefits associated with stock-based compensation arrangements. During the
nine
months ended
September 30, 2018
and
2017
we recognized
$17 million
and
$36 million
, respectively, of excess tax benefits associated with stock-based compensation arrangements.
|
|
Nine Months Ended September 30,
|
|
Increase
(Decrease) |
||||||||
|
2018
|
|
2017
|
|
|||||||
|
(dollars in millions)
|
|
|
||||||||
Net cash provided by operating activities
|
$
|
905
|
|
|
$
|
852
|
|
|
$
|
53
|
|
Net cash used in investing activities
|
(455
|
)
|
|
(464
|
)
|
|
9
|
|
|||
Net cash used in financing activities
|
(324
|
)
|
|
(422
|
)
|
|
98
|
|
|||
Net change in cash and cash equivalents and restricted cash
|
$
|
126
|
|
|
$
|
(34
|
)
|
|
$
|
160
|
|
•
|
a
$80 million
decrease in net cash paid for business acquisitions; partially offset by
|
•
|
a
$62 million
increase in capital expenditures.
|
•
|
a
$200 million
decrease in repurchases of our common stock (see "
Share Repurchases
" for further details) in 2018; partially offset by
|
•
|
$35 million in net debt repayments in 2018 compared to $5 million in 2017;
|
•
|
a $40 million decrease in bank overdrafts, which are generally settled in cash the following business day; and
|
•
|
a
$30 million
decrease in proceeds from the exercise of stock options, due to reduced volume of stock options exercised in 2018 as compared to 2017.
|
|
|
Payments due by period
|
||||||||||||||||||
Contractual Obligations
|
|
Total
|
|
Remainder of 2018
|
|
1-3 years
|
|
3-5 years
|
|
After 5 years
|
||||||||||
|
|
(dollars in millions)
|
||||||||||||||||||
Outstanding debt
|
|
$
|
3,776
|
|
|
$
|
—
|
|
|
$
|
1,100
|
|
|
$
|
550
|
|
|
$
|
2,126
|
|
Capital lease obligations
|
|
37
|
|
|
1
|
|
|
7
|
|
|
5
|
|
|
24
|
|
|||||
Interest payments on outstanding debt
|
|
1,515
|
|
|
59
|
|
|
312
|
|
|
221
|
|
|
923
|
|
|||||
Operating leases
|
|
664
|
|
|
50
|
|
|
301
|
|
|
155
|
|
|
158
|
|
|||||
Purchase obligations
|
|
1,803
|
|
|
77
|
|
|
544
|
|
|
445
|
|
|
737
|
|
|||||
Merger consideration obligations
|
|
12
|
|
|
7
|
|
|
2
|
|
|
3
|
|
|
—
|
|
|||||
Total contractual obligations
|
|
$
|
7,807
|
|
|
$
|
194
|
|
|
$
|
2,266
|
|
|
$
|
1,379
|
|
|
$
|
3,968
|
|
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, 2018 – July 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Share Repurchase Program (A)
|
|
60,320
|
|
|
$
|
107.76
|
|
|
60,320
|
|
|
$
|
860,622
|
|
Employee Transactions (B)
|
|
564
|
|
|
$
|
110.23
|
|
|
N/A
|
|
|
N/A
|
|
|
August 1, 2018 – August 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|||
Share Repurchase Program (A)
|
|
657,803
|
|
|
$
|
109.15
|
|
|
657,803
|
|
|
$
|
788,823
|
|
Employee Transactions (B)
|
|
1,329
|
|
|
$
|
110.80
|
|
|
N/A
|
|
|
N/A
|
|
|
September 1, 2018 – September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Share Repurchase Program (A)
|
|
197,839
|
|
|
$
|
109.68
|
|
|
197,839
|
|
|
$
|
767,124
|
|
Employee Transactions (B)
|
|
151
|
|
|
$
|
109.67
|
|
|
N/A
|
|
|
N/A
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Share Repurchase Program (A)
|
|
915,962
|
|
|
$
|
109.17
|
|
|
915,962
|
|
|
$
|
767,124
|
|
Employee Transactions (B)
|
|
2,044
|
|
|
$
|
110.56
|
|
|
N/A
|
|
|
N/A
|
|
(A)
|
Since the share repurchase program’s inception in May 2003, our Board of Directors has authorized $8 billion of share repurchases of our common stock through
September 30, 2018
. 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) who exercised options; and (2) shares withheld (under the terms of grants under the Amended and Restated Employee Long-Term Incentive Plan) to offset tax withholding obligations that occur upon the delivery of common shares underlying restricted stock units and performance share units.
|
Item 6.
|
Exhibits
|
3.1
|
|
|
|
31.1
|
|
|
|
31.2
|
|
|
|
32.1
|
|
|
|
32.2
|
|
|
|
101.INS
|
dgx-20180930.xml
|
|
|
101.SCH
|
dgx-20180930.xsd
|
|
|
101.CAL
|
dgx-20180930_cal.xml
|
|
|
101.DEF
|
dgx-20180930_def.xml
|
|
|
101.LAB
|
dgx-20180930_lab.xml
|
|
|
101.PRE
|
dgx-20180930_pre.xml
|
|
|
|
|
By
|
/s/ Stephen H. Rusckowski
|
|
Stephen H. Rusckowski
|
|
Chairman, President and
|
|
Chief Executive Officer
|
|
|
|
|
By
|
/s/ Mark J. Guinan
|
|
Mark J. Guinan
|
|
Executive Vice President and
|
|
Chief Financial Officer
|
(a)
|
The number of shares to constitute the series and the distinctive designation thereof;
|
(b)
|
The dividend rate on the shares of the series; whether dividends shall be cumulative, and, if so, from what date or dates;
|
(c)
|
Whether or not the shares of the series shall be redeemable and, if redeemable, the terms upon which the shares of the series may be redeemed and the premium, if any, over and above the par value thereof and any dividends accrued thereon which the share of the series shall be entitled to receive upon the redemption thereof;
|
(d)
|
Whether or not the shares of the series shall be subject to the operation of a retirement or sinking fund to be applied to the purchase or redemption of such shares for retirement and, if such retirement or sinking fund be established, the annual amount thereof and the terms and provisions relative to the operation thereof;
|
(e)
|
Whether or not the shares of the series shall be convertible into shares of any class or classes of stock of the Corporation, with or without par value, or of any other series of the same class and, if convertible, the conversion price or prices or the rate at which such conversion may be made and the method, if any, of adjusting the same;
|
(f)
|
The rights of the shares of the series in the event of voluntary or involuntary liquidation, dissolution or winding-up of the Corporation;
|
(g)
|
The restrictions, if any, on the payment of dividends upon, and the making of the distributions to any class of stock ranking junior to the shares of the series, and the restrictions, if any, on the purchase or redemption of the shares of any such junior class;
|
(h)
|
Whether the series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; and
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Quest Diagnostics Incorporated;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a.
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a.
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b.
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
By
|
/s/ Stephen H. Rusckowski
|
|
|
|
Stephen H. Rusckowski
|
|
Chairman, President and
|
|
Chief Executive Officer
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Quest Diagnostics Incorporated;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a.
|
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a.
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b.
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
By
|
/s/ Mark J. Guinan
|
|
|
|
Mark J. Guinan
|
|
Executive Vice President and
|
|
Chief Financial Officer
|
Dated:
|
October 24, 2018
|
|
/s/ Stephen H. Rusckowski
|
|
|
|
|
|
|
|
|
|
Stephen H. Rusckowski
|
|
|
|
|
Chairman, President and
|
|
|
|
|
Chief Executive Officer
|
|
Dated:
|
October 24, 2018
|
|
/s/ Mark J. Guinan
|
|
|
|
|
|
|
|
|
|
Mark J. Guinan
|
|
|
|
|
Executive Vice President and
|
|
|
|
|
Chief Financial Officer
|
|