Quest Diagnostics 2013 Annual Report Download

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2013 FORM 10–K

Table of contents

  • Page 1
    2013 FORM 10-K

  • Page 2
    ... WASHINGTON, DC 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 2013 Commission File Number 001-12215 Quest Diagnostics Incorporated 3 Giralda Farms Madison, New Jersey 07940 (973) 520-2700 Delaware...

  • Page 3
    ... of the registrant's Proxy Statement to be filed by April 30, 2014 Part of Form 10-K into which incorporated Part III Such Proxy Statement, except for the portions thereof which have been specifically incorporated by reference, shall not be deemed "filed" as part of this report on Form 10-K.

  • Page 4
    ... Business Our Strategy and Strengths Business Operations The United States Clinical Testing Industry General Billing and Reimbursement Regulation Available Information Executive Officers of the Company Item 1A. Risk Factors Cautionary Factors That May Affect Future Results Item 1B. Unresolved Staff...

  • Page 5
    ... business through our headquarters in Madison, New Jersey, and our laboratories, patient service centers, offices and other facilities around the United States and in selected locations outside the United States. Unless the context otherwise requires, the terms "Quest Diagnostics," the "Company...

  • Page 6
    ... by consolidating data and delivering insights, delivering test management solutions to improve care and help control cost and by providing patient-focused programs to enable effective management of care. Our 2013 agreements with UMass Memorial Medical Center and Dignity Health are examples of the...

  • Page 7
    ... and client services. Diagnostic Solutions includes our other businesses, including central laboratory testing for pharmaceutical and medical device clinical trials, life insurer services, diagnostic products and healthcare information technology. 4. Refocus on diagnostic information services. We...

  • Page 8
    ... for hospitals. These solutions offer access to a large national healthcare provider network using Quest Diagnostics' Care360 connectivity products. The Care360 products, including Care360 Labs and Meds, enable physicians electronically to order diagnostic testing and review test results from Quest...

  • Page 9
    ...,® a secure mobile health platform that allows users to receive and archive their Quest Diagnostics test results, manage their personal health information, find a Quest Diagnostics location and schedule appointments directly from their smartphone. Strong quality and a positive customer experience...

  • Page 10
    ... the detection of employee use of drugs of abuse, offering a full range of solutions, including urine, hair, blood and oral fluid tests. Our Quest Diagnostics Drug Testing IndexTM, which is an annual report of our aggregate drug testing results, is cited by employers, the federal government and the...

  • Page 11
    ... Quest Diagnostics Nichols Institute laboratory facilities and in other facilities, including Focus Diagnostics and Athena Diagnostics. We operate 24 hours a day, 365 days a year. We also provide routine testing services, and inpatient anatomic pathology and medical director services, at hospital...

  • Page 12
    ...sends email reminders to patients who require frequent testing, and Gazelle,® a secure mobile health platform that allows users to receive and archive their Quest Diagnostics test results, manage their personal health information, find a Quest Diagnostics location and schedule appointments directly...

  • Page 13
    ... SureSwab® Vaginosis/Vaginitis Plus test by expanding the organisms and sample types in the offering. - We introduced access to a new non-invasive cell-free fetal DNA screening test developed by Natera, a leading innovator in prenatal genetic testing. - We released FSHD testing by DNA combing, the...

  • Page 14
    ... and Influenza A H1N1. Focus Diagnostics sells its diagnostic products to large academic medical centers, hospitals and commercial laboratories. Celera offers a number of market-leading high complexity molecular diagnostic products in segments such as HIV-1 drug resistance testing (under the ViroSeq...

  • Page 15
    ... digit royalty payments from the sale of drugs, if any, resulting from the program. This drug development program entered Phase III clinical trials in September 2007 and Merck has disclosed its intent to file a New Drug Application in 2014. We do not control the development activities conducted by...

  • Page 16
    ...position. New industry entrants with extensive resources may make acquisitions or expand into our traditional areas of operations. Reimbursement pressure. There is a strong focus in the United States on controlling the overall cost of healthcare. Healthcare market participants, including governments...

  • Page 17
    ... plans, self-insured employer benefit funds, accountable care organizations, patient-centered medical homes, the traditional Medicare or Medicaid program, physicians or others (e.g., a hospital, another laboratory or an employer). In light of health care reform, there is increased market activity...

  • Page 18
    ... leverage our Company's expertise and resources, including our superior access, extensive test menu, medical staff, data, and wellness and disease management capabilities. Physicians. Physicians, including both primary care physicians and specialists, requiring diagnostic information services for...

  • Page 19
    ... of factors when selecting a diagnostic information services provider, including service capability and quality; accuracy, timeliness and consistency in reporting test results; patient insurance coverage; number and type of tests performed; pricing; access to medical/scientific thought leaders for...

  • Page 20
    ...quality assurance program, we utilize internal proficiency testing, extensive quality control and rigorous process audits for our diagnostic information services. For most clinical laboratory tests, quality control samples are processed in parallel with the analysis of patient specimens. The results...

  • Page 21
    ... on a claim-by-claim basis. Billing for diagnostic information services is very complicated, and we maintain compliance policies and procedures for our billing. Patients, insurance companies, Medicare, Medicaid, physicians, hospitals, IDNs and employer groups all have different billing requirements...

  • Page 22
    ... generally does require a patient deductible for anatomic pathology services. Certain Medicaid programs require Medicaid recipients to pay co-payment amounts for diagnostic information services. Part B of the Medicare program contains fee schedule payment methodologies for clinical testing services...

  • Page 23
    ... validations and technical procedures for tests. Fraud and Abuse. Federal anti-kickback laws and regulations prohibit making payments or furnishing other benefits to influence the referral of tests billed to Medicare, Medicaid or certain other federal or state healthcare programs. The penalties for...

  • Page 24
    ... protected health information. We maintain policies and practices designed to meet applicable requirements. Drug Testing; Controlled Substances. All U.S. laboratories that perform drug testing for certain public sector employees and employees of certain federally regulated businesses are required to...

  • Page 25
    ... on our corporate governance webpage Directors Management Code of Business Ethics Integrity Commitment Values Corporate Governance Guidelines Charters for the following committees of our Board of Directors: Audit and Finance; Compensation; Executive; Governance; and Quality, Safety and Compliance...

  • Page 26
    ... Company's healthcare IT, insurer services, clinical trials, diagnostic products and employer solutions businesses. Prior to joining Quest Diagnostics, from March 2012 to April 2013, Mr. Davis served as Lead Director, and then as Chief Executive Officer, of InSightec, Inc., a medical device company...

  • Page 27
    ... a broad test menu or services or pricing superior to hospital-affiliated laboratories and other laboratories could have a material adverse effect on our business. The diagnostic information services industry also is faced with changing technology and new product introductions. Competitors may...

  • Page 28
    ... by government payers to reduce utilization and reimbursement for diagnostic information services. From time to time, Congress has legislated reductions in, or frozen updates to, the Medicare Clinical Laboratory Fee Schedule. In addition, CMS has adopted policies limiting or excluding coverage for...

  • Page 29
    ...our employees and management; customer attrition; difficulty recruiting, hiring, motivating and retaining talented and skilled personnel; increased stock price volatility and changes to our stock price that may be unrelated to our current results of operations; and executing the strategy in a timely...

  • Page 30
    ... types of investigations and related litigation can result in diversion of management time and attention; expenditure of large amounts of cash on legal fees, costs and payment of damages; limitations on our ability to continue some of our operations; enforcement actions, fines and penalties or the...

  • Page 31
    ..., insurance companies, Medicare, Medicaid, physicians, hospitals and employer groups. Changes in laws and regulations could increase the complexity and cost of our billing process. Additionally, auditing for compliance with applicable laws and regulations as well as internal compliance policies and...

  • Page 32
    ... for our laboratory-based testing services and negatively impact our revenues. Some traditional customers for anatomic pathology services have added in-office histology labs or have retained pathologists to read cases on site, thus allowing them to bill for services previously referred to outside...

  • Page 33
    ... resource. The supply of qualified personnel may be limited and competition for qualified employees is strong. If we were to lose, or to fail to attract and retain, key management personnel, or qualified skilled technical or professional employees at our clinical laboratories or research centers...

  • Page 34
    ...better determine tests being performed. This could lead to limited coverage decisions or payment denials. Commercial health plans, Medicare contractors and Medicaid programs continue to implement the new codes and issue coverage and payment decisions. Payment levels for many new codes remain largely...

  • Page 35
    ... in federal healthcare programs and substantial monetary penalties. As part of a settlement with the U.S. Department of Justice and other federal government agencies, in April 2009 we entered into a five-year Corporate Integrity Agreement with the U.S. Department of Health and Human Services Office...

  • Page 36
    ... involve aggressively priced capitated or fee-for-service payments by health insurers or other payers. The impact upon our testing volume and collected revenue or general or administrative expenses resulting from our compliance with Medicare and Medicaid administrative policies and requirements of...

  • Page 37
    ...new strategic plan. (dd) Inability to adapt to diverse and dynamic non-U.S. markets. Item 1B. Unresolved Staff Comments There are no unresolved SEC comments that require disclosure. Item 2. Properties Our executive offices are located in Madison, New Jersey. We maintain clinical testing laboratories...

  • Page 38
    Item 4. Mine Safety Disclosures Not applicable. 34

  • Page 39
    ... indicated, the high and low sales price per share as reported on the New York Stock Exchange Consolidated Tape and dividend information. Common Stock Market Price High Low Dividends Declared 2012 First Quarter Second Quarter Third Quarter Fourth Quarter 2013 First Quarter Second Quarter Third...

  • Page 40
    ... 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 Director Long-Term Incentive Plan, collectively the "Stock Compensation Plans") who exercised options...

  • Page 41
    ... of companies on the Standard & Poor's 500 Stock Index and the S&P 500 Healthcare Equipment & Services Index. Date Closing DGX Price Total Shareholder Return DGX S&P 500 S&P 500 H.C. DGX Performance Graph Values S&P 500 S&P 500 H.C. 12/31/2009 12/31/2010 12/30/2011 12/31/2012 12/31/2013 $60...

  • Page 42
    ... 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 annual report. Management's Report on Internal Control Over Financial Reporting See page 68. Changes in...

  • Page 43
    ... on our corporate governance website, www.QuestDiagnostics.com/governance. We will post any amendments to the Code of Business Ethics, and any waivers that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange, on our website. Information regarding the Company...

  • Page 44
    ... Results (unaudited) 2. Financial Statement Schedule. F- 1 F- 2 F- 3 F- 4 F- 5 F- 6 F- 7 F- 49 Page Item Schedule II - Valuation Accounts and Reserves 3. Exhibits Page F- 52 An exhibit index has been filed as part of this Report beginning on page E-1 and is incorporated herein by reference...

  • Page 45
    ... duly authorized, on February 17, 2014. QUEST DIAGNOSTICS INCORPORATED (Registrant) By: /s/Stephen H. Rusckowski Stephen H. Rusckowski President and Chief Executive Officer Each individual whose signature appears below constitutes and appoints Michael E. Prevoznik and William J. O'Shaughnessy, Jr...

  • Page 46
    ... Stephen H. Rusckowski Director, President and Chief Executive Officer (Principal Executive Officer) Senior Vice President and Chief Financial Officer (Principal Financial Officer) Vice President, Corporate Controller and Chief Accounting Officer (Principal Accounting Officer) /s/Mark J. Guinan...

  • Page 47
    ... the audited consolidated financial statements of our Company. During the fourth quarter of 2012, we sold our OralDNA salivary diagnostics business, and committed to a plan to sell our HemoCue diagnostic products business. In February 2013, we entered into an agreement to sell HemoCue. The sale of...

  • Page 48
    ... California. On October 7, 2013, we completed the acquisition of ConVerge Diagnostic Services, LLC ("ConVerge"), a leading full-service laboratory providing clinical, cytology and anatomic pathology testing services to patients, physicians and hospitals in New England. Consolidated operating results...

  • Page 49
    ... was offered to companies whose principal place of business was in states most affected by Hurricane Sandy. (p) Includes payments associated with the settlement of the California Lawsuit, restructuring and integration costs, and transaction costs associated with the acquisitions of Athena and Celera...

  • Page 50
    ... consolidated financial statements), or $208 million net of an associated reduction in estimated tax payments. (s) Includes proceeds from the sale of the ibrutinib royalty rights of $474 million, net of transaction costs, as well as proceeds from the sales of HemoCue and Enterix of $296 million. 46

  • Page 51
    ...the number of physician office and hospital visits. Diagnostic Solutions Our Diagnostic Solutions ("DS") business, which represents the balance of our revenues, is comprised of our risk assessment services, clinical trials testing, diagnostic products and healthcare information technology businesses...

  • Page 52
    ...on the execution of our five-point strategy during 2013 as follows: • As part of our effort to restore growth, we acquired the clinical outreach and anatomic pathology businesses of UMass Memorial Medical Center ("UMass"); the toxicology and clinical laboratory business of ATN; certain lab-related...

  • Page 53
    ... as Medicare and Medicaid, as well as healthcare insurers and larger employers, have taken steps and may continue to take steps to control the cost, utilization and delivery of healthcare services, including diagnostic testing services. Part B of the Medicare program contains fee schedule payment...

  • Page 54
    ... continued, resulting in fewer but larger customers and payers with significant bargaining power to negotiate fee arrangements with healthcare providers, including clinical laboratories. Healthcare insurers sometimes require that diagnostic testing service providers accept discounted fee structures...

  • Page 55
    ...Healthcare Insurers Government Payers Client Payers Patients Healthcare insurers Reimbursements from healthcare insurers represent approximately one-half of our DIS net revenues. Reimbursements from healthcare insurers are based on negotiated fee-for-service schedules and on capitated payment rates...

  • Page 56
    ...-collection, are similar to those noted above for healthcare insurers under negotiated fee-for-service arrangements. Client payers Client payers include physicians, hospitals, employers and other commercial laboratories, and are billed based on a negotiated fee schedule. Receivables due from client...

  • Page 57
    ... values of the reporting units. We use a discount rate that considers a weighted average cost of capital plus an appropriate risk premium based upon the business being valued. Our analysis also considers publicly available information regarding the market capitalization of our Company, as well as...

  • Page 58
    ... upon its similar economic characteristics with other diagnostic products businesses in this reporting unit. In the fourth quarter of 2012, we received several offers to purchase HemoCue, and in February 2013, we entered into an agreement to sell HemoCue. The proposed consideration to be received...

  • Page 59
    ...-diagnostics business ("OralDNA") during the fourth quarter of 2012. In addition, in December 2012, we committed to a plan to sell HemoCue and completed the sale of HemoCue in April 2013. The accompanying consolidated statements of operations and related disclosures have been recast to report...

  • Page 60
    ... vs. 2011 Increase (Decrease) 2013 vs. 2012 % Increase (Decrease) 2012 vs. 2011 % Increase (Decrease) 2013 Net revenues: DIS business DS businesses Total net revenues Operating costs and expenses: Cost of services Selling, general and administrative Amortization of intangible assets Gain on sale of...

  • Page 61
    ...the periods presented: 2013 Net revenues: DIS business DS businesses Total net revenues 92.2% 7.8% 100.0% 2012 92.4% 7.6% 100.0% 2011 92.2% 7.8% 100.0% Operating costs and expenses: Cost of services Selling, general and administrative Amortization of intangible assets Gain on sale of royalty rights...

  • Page 62
    ... diagnostics coding requirements, as well as certain commercial fee schedule changes, all of which went into effect at the beginning of the year. Revenue per requisition was also negatively impacted by a decrease in higher priced anatomic pathology testing and an increase in lower priced drugs...

  • Page 63
    ... of the costs associated with our sales and marketing efforts, billing operations, bad debt expense and general management and administrative support. The decrease in selling, general and administrative expenses for the year ended December 31, 2013 is primarily due to the impact of actions we have...

  • Page 64
    ... in 2011 related to the acquisition of Celera. For the years ended December 31, 2013, 2012 and 2011, other income, net includes gains of $10 million, $7 million and $0.3 million, respectively, associated with investments held in trusts pursuant to our supplemental deferred compensation plans. Income...

  • Page 65
    ...benefits for 2011 were primarily associated with certain state tax planning initiatives and the favorable resolution of certain tax contingencies. Discontinued Operations Discontinued operations includes HemoCue, which was sold in April 2013, OralDNA, which was sold in December 2012, and NID, a test...

  • Page 66
    ... million secured receivables credit facility or under our $750 million senior unsecured revolving credit facility. We seek 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...

  • Page 67
    ... payments in 2013 and a third quarter 2013 income tax payment of $28 million related to the resolution of certain audit matters. Days sales outstanding, a measure of billing and collection efficiency, was 47 days at both December 31, 2013 and 2012. Net cash provided by operating activities...

  • Page 68
    ...on hand, were used to fund the acquisition of Celera in May 2011. During the second quarter of 2011, proceeds from the sale of short-term marketable securities acquired as part of the Celera acquisition totaling $214 million, together with cash on hand, were used to fund $500 million and $30 million...

  • Page 69
    purchases of treasury stock totaling $50 million. Later in the quarter, we repaid $31 million of borrowings outstanding under our secured receivables credit facility with cash on hand. Dividends During each of the quarters of 2013, our Board of Directors declared a quarterly cash dividend of $0.30 ...

  • Page 70
    ... next twelve months, primarily as a result of the expiration of statutes 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...

  • Page 71
    ... information technology, laboratory equipment and facilities, including specific initiatives associated with our Invigorate program. As of December 31, 2013, $1.3 billion of borrowing capacity was available under our existing credit facilities, consisting of $525 million available under our secured...

  • Page 72
    ... with the policies or procedures may deteriorate. PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the financial statements included in this annual report, audited the Company's internal control over financial reporting as of December 31, 2013 and issued...

  • Page 73
    ...statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to...

  • Page 74
    ...for sale Total current liabilities Long-term debt Other liabilities Non-current liabilities held for sale Commitments and contingencies Stockholders' equity: Quest Diagnostics stockholders' equity: Common stock, par value $0.01 per share; 600 shares authorized at both December 31, 2013 and 2012; 215...

  • Page 75
    QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011 (in millions, except per share data) 2013 Net revenues Operating costs and expenses: Cost of services Selling, general and administrative Amortization of ...

  • Page 76
    QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011 (in millions) 2013 Net income Other comprehensive income (loss): Currency translation Market valuation, net of tax Net deferred loss on cash flow ...

  • Page 77
    ... expenses Settlement of special charge Income taxes payable Termination of interest rate swap agreements Other assets and liabilities, net Net cash provided by operating activities Cash flows from investing activities: Business acquisitions, net of cash acquired Proceeds from sale of businesses...

  • Page 78
    ... on stock issued under benefit plans Tax benefits associated with stock-based compensation plans Purchases of treasury stock Other Balance, December 31, 2013 (17) 144 $ 2 $ 3 1 (3) 158 $ 2 $ 3 1 (17) 157 $ 2 $ 171 $ 2 $ Additional Paid-In Capital Retained Earnings Treasury Stock, at Cost...

  • Page 79
    ... in December 2012, the Company committed to a plan to sell its HemoCue diagnostics products business ("HemoCue"). In April 2013, the Company completed the sale of HemoCue. The accompanying consolidated statements of operations and related disclosures have been recast to report the results of OralDNA...

  • Page 80
    ... 31, 2012 and 2011. Under capitated arrangements with healthcare insurers, the Company recognizes revenue based on a predetermined monthly reimbursement rate for each member of an insurer's health plan regardless of the number or cost of services provided by the Company. In 2013, 2012 and 2011...

  • Page 81
    ... Plan ("ESPP") based on the 15% discount at purchase. See Note 16 for a further discussion of stock-based compensation. Fair Value Measurements The Company determines fair value measurements used in its consolidated financial statements based upon the exit price that would be received to sell...

  • Page 82
    ... governmental agencies, the Company does not believe that such receivables represent a credit risk since the related healthcare programs are funded by federal and state governments, and payment is primarily dependent on submitting appropriate documentation. At December 31, 2013 and 2012, receivables...

  • Page 83
    ... rate that is used considers a weighted average cost of capital plus an appropriate risk premium based upon the business being valued. Management's analysis also considers publicly available information regarding the market capitalization of the Company as well as (i) the financial projections...

  • Page 84
    ... trading equity securities represent participant-directed investments of deferred employee compensation and related Company matching contributions held in trusts pursuant to the Company's supplemental deferred compensation plans (see Note 16). The Company purchases life insurance policies, with the...

  • Page 85
    ... equity securities and from changes in the cash surrender value of life insurance policies for the year ended December 31, 2011 were not material. Derivative Financial Instruments The Company uses derivative financial instruments to manage its exposure to market risks for changes in interest rates...

  • Page 86
    ... entity. Under this new standard, a parent company that ceases to have a controlling financial interest in a foreign subsidiary or group of assets within a foreign entity shall release any related cumulative translation adjustment into net income only if a sale or transfer results in complete or...

  • Page 87
    ... per share due to their antidilutive effect: 2013 Stock options and performance share units 1 2012 2 2011 2 4. RESTRUCTURING ACTIVITIES Invigorate Program During 2012, the Company committed to a course of action related to a multi-year program called Invigorate which is designed to reduce its...

  • Page 88
    ...'s support functions and $4 million associated with the Company's voluntary retirement program. Of the total $76 million in restructuring charges incurred during the year ended December 31, 2013, $27 million and $49 million were recorded in cost of services and selling, general and administrative...

  • Page 89
    ... of advanced diagnostic tests related to neurological conditions. Through the acquisition, the Company acquired all of Athena's operations. The Company financed the all-cash purchase price of $740 million and related transaction costs with a portion of the net proceeds from the Company's 2011 Senior...

  • Page 90
    ... May 4, 2011. Through the acquisition, the Company acquired all of Celera's operations. The Company financed the all-cash purchase price of $670 million and related transaction costs with borrowings under its existing credit facilities and cash on hand. Of the total cash purchase price of $670...

  • Page 91
    ... the remainder allocated to the Company's Diagnostics Solutions ("DS") business. The goodwill recorded as part of the Athena and Celera acquisitions includes: the expected synergies resulting from combining the operations of the acquired businesses with those of the Company; and the value associated...

  • Page 92
    ...$213 million net of cash acquired and deferred consideration associated with the UMass acquisition. On January 2, 2013, the Company completed the acquisition of the clinical outreach and anatomic pathology businesses of UMass Memorial Medical Center ("UMass"). The purchase price included $50 million...

  • Page 93
    ... continuing involvement in the Enterix business subsequent to its sale. The continuing involvement relates to a minimum purchase agreement between the acquiror of the Enterix business and the Company. Sale of HemoCue In April 2013, the Company completed the sale of HemoCue and recorded an after-tax...

  • Page 94
    ...8 December 31, 2013 Assets: Trading securities Cash surrender value of life insurance policies Put Option Forward starting interest rate swaps Total Liabilities: Deferred compensation liabilities Interest rate swaps Call option Total December 31, 2012 Assets: Trading securities Cash surrender value...

  • Page 95
    ... life insurance policies are based upon earnings and changes in the value of the underlying investments. Changes in the fair value of the deferred compensation obligation are derived using quoted prices in active markets based on the market price per unit multiplied by the number of units. The cash...

  • Page 96
    ... Quoted Prices in Active Markets for Significant Identical Other Significant Assets / Observable Unobservable Liabilities Inputs Inputs Level 1 Level 2 Level 3 $ 312 $ - $ 312 $ - $ Total Loss 78 December 31, 2012 Net assets held for sale In connection with the Company's agreement to sell HemoCue...

  • Page 97
    ... of the federal statutory rate to the Company's effective tax rate for 2013, 2012 and 2011 was as follows: 2013 Tax provision at statutory rate State and local income taxes, net of federal benefit Impact of foreign operations Tax credits Charge associated with settlement of certain legal claims (see...

  • Page 98
    ...benefits as of and for the years ended December 31, 2013, 2012 and 2011 consisted of the following: 2013 Balance, beginning of year Additions: For tax positions of current year For tax positions of prior years Reductions: Changes in judgment Expirations of statutes of limitations Settlements Balance...

  • Page 99
    ... required as a result of these tax audits. As of December 31, 2013, a summary of the tax years that remain subject to examination, or that are under appeal, for the Company's major jurisdictions are: United States - federal United States - various states 9. 2008 - 2013 2005 - 2013 SUPPLEMENTAL CASH...

  • Page 100
    ... Note 5 for further details regarding acquisitions. For the year ended December 31, 2013, the $37 million of goodwill written-off was associated with the sale of Enterix. For the year ended December 31, 2012, goodwill impairment was associated with the agreement to sell HemoCue and the write-off of...

  • Page 101
    ...in millions unless otherwise indicated) Intangible assets at December 31, 2013 and 2012 consisted of the following: Weighted Average Amortization Period (Years) Cost Amortizing intangible assets: Customer-related intangibles Non-compete agreements Technology Other Total 18 4 14 8 16 $ 670 43 119 141...

  • Page 102
    ... on December 5, 2014. Interest on the Secured Receivables Credit Facility is based on rates that are intended to approximate commercial paper rates for highly-rated issuers. At December 31, 2013 and 2012, the Company's borrowing rate under the Secured Receivables Credit Facility was 0.86% and 0.97...

  • Page 103
    ...price and related transaction costs associated with its acquisition of Athena, which closed on April 4, 2011 (see Note 5), and $485 million of the net proceeds, together with $90 million of cash on hand, to repay outstanding indebtedness under the Company's senior unsecured revolving credit facility...

  • Page 104
    ...(16) 15 $ 2012 11 49 (2) 58 $ Maturities of Long-Term Debt As of December 31, 2013, long-term debt maturing in each of the years subsequent to December 31, 2014 is as follows: Year Ending December 31, 2015 2016 2017 2018 2019 Thereafter Total maturities of long-term debt Unamortized discount Fair...

  • Page 105
    ... comprehensive (loss) income, related to the Company's cash flow hedges as of December 31, 2013 and 2012 was $5 million and $7 million, respectively. The loss recognized on the Company's cash flow hedges for the years ended December 31, 2013, 2012 and 2011, as a result of ineffectiveness, was not...

  • Page 106
    ...deferred losses on the Company's interest rate related derivative financial instruments designated as cash flow hedges, net of amounts reclassified to interest expense (see Note 14). For the years ended December 31, 2013, 2012 and 2011, the tax effects related to the market valuation adjustments and...

  • Page 107
    ... the completed sale of HemoCue. Dividends During each of the quarters of 2013, the Company's Board of Directors declared a quarterly cash dividend of $0.30 per common share. During each of the first three quarters in 2012, the Company's Board of Directors declared a quarterly cash dividend of $0.17...

  • Page 108
    ... average price of the Company's common stock during the purchase period, less a fixed discount. Under the ASR, the Company paid $450 million to the financial institution and received 7.6 million shares of common stock, resulting in a final price per share of $59.46. The Company initially received...

  • Page 109
    ... AND COMPENSATION PLANS Employee and Non-employee Directors Stock Ownership Programs In 2005, the Company established the ELTIP to replace the Company's prior Employee Equity Participation Programs established in 1999 (the "1999 EEPP"). At the Company's annual shareholders' meeting in May 2012, the...

  • Page 110
    ... fair market value of the Company's common stock. Total intrinsic value of options exercised in 2013, 2012 and 2011 was $32 million, $45 million and $43 million, respectively. As of December 31, 2013, there was $10 million of unrecognized stock-based compensation cost related to stock options which...

  • Page 111
    ...2012 and 2011, respectively. Employee Stock Purchase Plan Under the Company's Employee Stock Purchase Plan ("ESPP"), substantially all employees can elect to have up to 10% of their annual wages withheld to purchase Quest Diagnostics common stock. The purchase price of the stock is 85% of the market...

  • Page 112
    ... this plan were $34 million and $30 million at December 31, 2013 and 2012, respectively. The Company purchases life insurance policies, with the Company named as beneficiary of the policies, for the purpose of funding the program's liability. The cash surrender value of such life insurance policies...

  • Page 113
    ... related matters. The Company funded the $241 million payment in the second quarter of 2011 with cash on hand and borrowings under its existing credit facilities. In June 2013, a putative class action entitled Mt. Lookout Chiropractic Center Inc. v. Quest Diagnostics Incorporated, et al. was filed...

  • Page 114
    ... marketing materials, certain product offerings, and test ordering and other policies. The Company is cooperating with the request. In January 2012, a putative class action entitled Beery v. Quest Diagnostics Incorporated was filed in the United States District Court for the District of New Jersey...

  • Page 115
    ... the Michigan Attorney General's Office seeking documents relating to the Company's pricing and billing practices as they relate to Michigan's Medicaid program. The Company cooperated with the requests. In January 2012, the State of Michigan intervened as a plaintiff in a civil lawsuit, Michigan ex...

  • Page 116
    ... to the Company's results of operations or cash flows in the period in which the impact of such claims is determined or paid. 19. HELD FOR SALE AND DISCONTINUED OPERATIONS During the fourth quarter of 2012, the Company committed to a plan to sell HemoCue. In February 2013, the Company entered into...

  • Page 117
    ...2013 and 2012. The remaining balance sheet information related to HemoCue was not material at December 31, 2013. 20. BUSINESS SEGMENT INFORMATION $ $ 21 1 22 16 44 60 $ $ 17 15 5 3 40 24 219 111 354 The clinical testing that the Company performs is an essential element in the delivery of healthcare...

  • Page 118
    ... in 2013, 2012 and 2011. All other operating segments are included in the Company's DS business and consist of its risk assessment services, clinical trials testing, diagnostic products and healthcare information technology. The Company's DS business offers a variety of solutions for life insurers...

  • Page 119
    ...494 12 506 35 471 $ $ 6,587 559 7,146 $ $ 6,820 563 7,383 $ $ 6,812 580 7,392 2012 2011 $ $ $ 2013 Depreciation and amortization: DIS business (a) All other operating segments (a) General corporate Adjustments: Discontinued operations Total depreciation and amortization Capital expenditures: DIS...

  • Page 120
    ... announced that it has entered into a definitive agreement under which it will acquire Solstas Lab Partners Group and its subsidiaries ("Solstas") for $570 million. Solstas is a full-service commercial laboratory based in Greensboro, North Carolina. Solstas operates in nine states throughout the...

  • Page 121
    ...share data) 2013 (a) Net revenues Gross profit Income from continuing operations Income from discontinued operations, net of taxes Net income Less: Net income attributable to noncontrolling interests Net income attributable to Quest Diagnostics Amounts attributable to Quest Diagnostics' stockholders...

  • Page 122
    ... restructuring and integrating the Company. Of these costs, $7 million and $12 million were included in cost of services and selling, general and administrative expenses, respectively. Income (loss) from discontinued operations, net of taxes includes a gain on the sale of HemoCue of $14 million (see...

  • Page 123
    ... reductions and professional fees incurred in connection with further restructuring and integrating the Company. Of these costs, $23 million and $13 million were included in cost of services and selling, general and administrative expenses, respectively. In addition, management estimates that the...

  • Page 124
    QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES SCHEDULE II - VALUATION ACCOUNTS AND RESERVES (in millions) Provision for Doubtful Accounts $ 270 Balance at 1-1-13 Year Ended December 31, 2013 Doubtful accounts and allowances $ 236 Net Deductions and Other $ Balance at 12-31-13 236 270 (a) $ ...

  • Page 125
    ..., 2013 Commission File No. 001-12215 QUEST DIAGNOSTICS INCORPORATED Exhibit Number 3.1 Description Restated Certificate of Incorporation (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: May 21, 2013) and incorporated herein by reference) (Commission File Number 001...

  • Page 126
    ...Bank of New York (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: April 1, 2002) and incorporated herein by reference) (Commission File Number 001-12215) Fourth Supplemental Indenture dated as of March 19, 2003, among Unilab Corporation (f/k/a Quest Diagnostics Newco...

  • Page 127
    ...Ltd., New York Branch as Administrative Agent (filed as an Exhibit to the Company's 2011 annual report on Form 10-K and incorporated herein by reference) (Commission File Number 001-12215) Amendment No. 5 dated as of December 7, 2012 to Fourth Amended and Restated Credit and Security Agreement dated...

  • Page 128
    ...12215) Quest Diagnostics Supplemental Deferred Compensation Plan (Pre-2005) amended and restated November 27, 2012 (filed as an Exhibit to the Company's 2012 annual report on Form 10-K and incorporated herein by reference) (Commission File Number 001-12215) Senior Management Incentive Plan (filed as...

  • Page 129
    ...of Non-Employee Director Elective Option Award Agreement (filed as an Exhibit to the Company's 2011 annual report on Form 10-K and incorporated herein by reference) (Commission File Number 001-12215) Employment Agreement between the Company and Kathy Ordoñez, dated as of March 17, 2011 (filed as an...

  • Page 130
    ** ‡ Furnished herewith. Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 15(b) of Form 10-K. E-6

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    RRD 0, The SFI label applies to the text stock