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2015 Annual Report
on Form 10-K

Table of contents

  • Page 1
    2015 Annual Report on Form 10-K

  • Page 2
    ... 2015 Commission File Number 001-12215 Quest Diagnostics Incorporated 3 Giralda Farms Madison, New Jersey 07940 (973) 520-2700 Delaware (State of Incorporation) 16-1387862 (I.R.S. Employer Identification Number) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Common...

  • Page 3
    ...be filed by April 29, 2016 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. QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM...

  • Page 4
    ... 1. Business Our Strategy and Strengths Business Operations The United States Clinical Testing Market 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
    ... actions that transform lives. Quest Diagnostics was incorporated in Delaware in 1990; its predecessor companies date back to 1967. We conduct business through our headquarters in Madison, New Jersey, and our laboratories, patient service centers, offices and other facilities around the United...

  • Page 6
    ... a five-point business strategy to achieve our vision and our goals. Table 2 - Five Point Business Strategy 1. 2. 3. 4. 5. Restore growth Drive operational excellence Simplify the organization Refocus on diagnostic information services Deliver disciplined capital deployment Since the end of 2013...

  • Page 7
    ... health care system in New Jersey. Table 5 - Key Professional Lab Services Offerings Lab management outsourcing Joint venture Outreach acquisition Test menu management Data diagnostics, consolidation and insights Reference testing Supply chain management Programs enabling effective patient care...

  • Page 8
    ... organization, and our processes, to better focus on our customers, speed decision-making and to empower employees. 4. Refocus on diagnostic information services. We have a sharp focus on diagnostic information services. In 2015, we contributed our business of central laboratory testing for clinical...

  • Page 9
    ...Health System outreach laboratory testing business 2015 Closed Acquisitions Superior Mobile Medics, a national provider of paramedical and health data collection services to the life insurance and employer health and wellness industries Clinical Laboratory Partners (subsidiary of Hartford HealthCare...

  • Page 10
    ...for companion and complementary diagnostics, and can offer an array of assets and services to support the development of companion diagnostics, including our robust collection of laboratory data and access to the company's patient service centers. 6 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 11
    ...receive a positive screening result but fail to undergo additional molecular testing, as recommended by medical guidelines, to help confirm a diagnosis of active hepatitis C infection, the cause of chronic hepatitis C. We developed and introduced a test for HIV-1 RNA, Quantitative Real-Time PCR with...

  • Page 12
    ... in key fields of science and medicine. We work with key groups and organizations, including world class healthcare leaders, to foster important advances in healthcare, including in precision medicine. Some examples of our collaborations include: 8 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 13
    ... solutions to enable patients to manage their healthcare and medical information. Examples of this include our Care360® products, national Care 360® healthcare provider network and MyQuest® by Care360® patient healthcare portal, which allows 9 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM...

  • Page 14
    ... Information Services and Diagnostic Solutions. The Company provides insights that empower and enable a broad range of customers, including patients, clinicians, hospitals, IDNs, health plans, employers and accountable care organizations ("ACOs"). 10 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM...

  • Page 15
    ... services. The value creation side of the business is organized by clinical franchise and focuses on customer solutions for the marketplace, including new test development, diagnostic insights and product marketing. The value delivery side includes sales, marketing, routine and esoteric laboratory...

  • Page 16
    ... clinical data to improve population health outcomes and reduce healthcare spend. We offer biometric wellness screenings to employer populations through our patient service centers and on-site through our extensive network of mobile examiners and nurses. In addition to a wide range of screening...

  • Page 17
    ...North America. In 2015, ExamOne enhanced its service offering when it acquired the assets of Superior Mobile Medics, a national provider of paramedical and health data collection services to the life insurance, employer health and wellness industries. 13 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM...

  • Page 18
    ... outreach (non-hospital patients) testing Approximate % of Total Industry 40% 60% Consists of approximately: 35% - hospital-affiliated laboratories 53% - commercial clinical laboratories Balance - physician-office laboratories and other locations 14 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 19
    ... clinical decision support, access to patient data, increasing patient participation in care management, population health management and improving clinical outcomes. There is increasing focus on access to patient data and data-driven insights. 15 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM...

  • Page 20
    ... fee for service to capitation), changing medical coverage policies (e.g., healthcare benefits design), pre-authorization of lab testing, requiring co-pays, introducing lab spend management utilities and payment and patient care innovations such as ACOs and patient-centered medical homes. In light...

  • Page 21
    ... healthcare reform legislation adopted in 2010 contained provisions eliminating patient cost-sharing for preventive services, and additional provisions that we believe have increased the number of patients that have health insurance, including Medicaid, and thus better access to diagnostic testing...

  • Page 22
    ... offering to health plans services and programs that leverage our Company's expertise and resources, including our superior access, extensive test menu, medical staff, data, IT solutions, and wellness and disease management capabilities. Clinicians Clinicians, including both primary care physicians...

  • Page 23
    ...services help employers, employees and others manage healthcare costs and capitalize on trends in personalized health. We seek to grow our employer business through offering new and innovative programs to help them with their goal of maintaining a safe and productive workplace. 19 QUEST DIAGNOSTICS...

  • Page 24
    ... 20 - Sample Third Party Payers Health plans Self-insured employer benefit funds ACOs IDNs Patient-centered medical homes Traditional Medicare or Medicaid program Physicians Others (e.g., hospital, laboratory or employer) In light of health care reform, there is increased market activity regarding...

  • Page 25
    ... diagnostic products, healthcare information technology solutions and risk assessment services. Information Technology. We use information systems extensively in virtually all aspects of our business, including clinical testing, test ordering and reporting, billing, customer service, logistics...

  • Page 26
    ... Diagnostic Information Services business, our goal is to continually improve the processes for collection, handling, storage and transportation of patient specimens, as well as the precision and accuracy of analysis and result reporting. The Quest Diagnostics Quality Program includes policies and...

  • Page 27
    ... health insurance providers offering Medicare Advantage programs and of beneficiary enrollment in these programs. In recent years, in an effort to control costs, states also have mandated that Medicaid beneficiaries enroll in private managed care arrangements. 23 QUEST DIAGNOSTICS 2015 ANNUAL REPORT...

  • Page 28
    ... the Clinical Laboratory Fee Schedule, but 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...

  • Page 29
    ... areas, instruments, software, test kits, reagents and other devices used by clinical laboratories to perform diagnostic testing in the United States. The FDA also regulates drugs-of-abuse testing for employers and insurers, testing for blood bank purposes and testing of donors of human cells for...

  • Page 30
    ... Information A healthcare provider may be required to notify individuals or the government if the provider discovers certain breaches of personal information or protected health information. Drug Testing; Controlled All U.S. laboratories that perform drug testing for certain public sector employees...

  • Page 31
    ... of our equity securities filed by our directors, officers and others under Section 16 of the Exchange Act Corporate Governance Guidelines Code of Business Ethics Certificate of Incorporation Bylaws Corporate Political Contributions Policy Values 27 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 32
    ...as Regional President, West Business Unit, Primary Care. From 2007 to 2009, he served as Vice President, Human Resources, Corporate Groups. Before that Mr. Cunningham served Pfizer in a series of sales and leadership and general management roles. 28 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 33
    ... healthcare information technology, risk assessment, 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...

  • Page 34
    ... the Center for Medicare and Medicaid Innovation to examine alternative payment methodologies and conduct demonstration programs. The law provided for extensive health insurance reforms, including the elimination of pre-existing condition exclusions and other limitations on coverage, fixed...

  • Page 35
    ... Fee Schedule, developing a new fee schedule and limiting reductions in that fee schedule. If this process does not recognize the value that clinical testing services bring to the healthcare system, our business can be materially adversely impacted. 31 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10...

  • Page 36
    ... of clinical testing services. ACOs and IDNs also may undertake efforts to reduce utilization of, or reimbursement for, diagnostic information services. The healthcare industry has experienced a trend of consolidation among health insurance plans, resulting in fewer but larger insurance plans with...

  • Page 37
    ... in the Medicare and Medicaid programs. Regardless of merit or eventual outcome, these 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...

  • Page 38
    ...our business. We are planning to implement common laboratory information and billing systems, which will promote standardized processes. We expect that this effort will take several years to complete and may result in temporary disruptions in service. 34 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM...

  • Page 39
    ...in-office histology labs or have retained pathologists to read cases on site. Hospitals also are internalizing clinical laboratory testing, including some esoteric testing. Internalization of testing may reduce demand for services previously referred to outside service providers, such as the Company...

  • Page 40
    ... resources to implement our controls and systems in new markets, to comply with the U.S. Foreign Corrupt Practices Act and similar anti-corruption laws in non-U.S. jurisdictions and to overcome challenges based on differing languages and cultures. 36 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM...

  • Page 41
    .... Health plans, Medicare contractors and Medicaid programs continue to consider or implement the new codes and issue coverage and payment decisions. Payment levels for many new codes remain largely unresolved and healthcare providers continue to address implementation of the new codes. Our business...

  • Page 42
    ... priced capitated or fee-for-service payments by health insurers or other payers. (f) 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 third-party...

  • Page 43
    ... (laboratory) Tampa, Florida (laboratory) Atlanta, Georgia (laboratory) Chicago, Illinois (2) (laboratories) Marlborough, Massachusetts (laboratories) Baltimore, Maryland (laboratory) Teterboro, New Jersey (laboratory) Philadelphia, Pennsylvania (laboratory) Norristown, Pennsylvania (offices) Dallas...

  • Page 44
    ... 2016. The table below sets forth the information with respect to purchases made by or on behalf of the Company of its common stock during the fourth quarter of 2015. ISSUER PURCHASES OF EQUITY SECURITIES Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate...

  • Page 45
    ... Quest Diagnostics' common stock since December 31, 2010 based on the market price of the Company's common stock and assuming reinvestment of dividends, with the cumulative total shareholder return of companies on the Standard & Poor's 500 Stock Index and the S&P 500 Healthcare Equipment & Services...

  • Page 46
    ... 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 71. Changes in...

  • Page 47
    ... The actual charges incurred in connection with the course of action in 2016 could be materially different from these estimates. As detailed plans to implement the course of action are approved and executed, it will result in charges to earnings. 43 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 48
    ...Corporate Governance Our Code of Business Ethics applies to all employees, executive officers and directors, including our Chief Executive Officer, Chief Financial Officer and Corporate Controller. You can find our Code of Business Ethics on our corporate governance website, www.QuestDiagnostics.com...

  • Page 49
    ...of this Report beginning on page E-1 and is incorporated herein by reference. (b) Exhibits filed as part of this Report. An exhibit index has been filed as part of this Report beginning on page E-1 and is incorporated herein by reference. (c) None. 45 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10...

  • Page 50
    ... cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on February 26, 2016. 46 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 51
    ... C. Stanzione, Ph.D. Daniel C. Stanzione, Ph.D. /s/Gail R. Wilensky, Ph.D. Gail R. Wilensky, Ph.D. /s/John B. Ziegler John B. Ziegler Director Director Director Director Director Director Director Chairman of the Board Director Director 47 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 52
    ... years 2011 through 2015 from 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. The sale of HemoCue was completed in April 2013...

  • Page 53
    ... operating results for 2015 include the results of operations of MemorialCare and Superior Mobile Medics subsequent to the closing of the applicable acquisition. In July 2015, we contributed our clinical trials testing business to a newly formed global clinical trials central laboratory services...

  • Page 54
    ... 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 for 2013 include the results of operations of UMass, ATN, Dignity...

  • Page 55
    ... to companies whose principal place of business was in states most affected by Hurricane Sandy. (i) On April 4, 2011, we completed the acquisition of Athena Diagnostics ("Athena"). On May 17, 2011, we completed the acquisition of Celera Corporation ("Celera"). Consolidated operating results for 2011...

  • Page 56
    ... and improve healthcare management. Our diagnostic information services business ("DIS") provides insights through clinical testing and related services to patients, physicians, hospitals, accountable care organizations ("ACOs"), integrated delivery networks ("IDNs"), health plans, employers and...

  • Page 57
    ...-authorization of lab testing, requiring co-pays, introducing lab spend management utilities and payment and patient care innovations such as ACOs and patient-centered medical homes. As health plans and government programs require greater levels of patient cost-sharing, our patient collections could...

  • Page 58
    ... Mobile Medics, a national provider of paramedical and health data collection services to the life insurance and employer health and wellness industries. For details regarding our acquisitions, see Note 5 to the consolidated financial statements. 54 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM...

  • Page 59
    ... acquire the outreach laboratory service business of Clinical Laboratory Partners ("CLP"), a wholly-owned subsidiary of Hartford HealthCare. CLP provides clinical lab testing to physicians in Connecticut. The acquisition is expected to be completed in the first quarter of 2016, subject to customary...

  • Page 60
    ... Client Payers Patients (including coinsurance and deductible responsibilities) Total DIS Healthcare insurers rates. Reimbursements from healthcare insurers are based on negotiated fee-for-service schedules and on capitated payment 16 16 44 17 93 56 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM...

  • Page 61
    ..., employers, other commercial laboratories and institutions for which services are performed on a wholesale basis, and are billed based on a negotiated fee schedule. Credit risk and ability to pay are more of a consideration for these payers than healthcare insurers and government payers. Collection...

  • Page 62
    ... the following reporting units for goodwill impairment testing DIS business; Diagnostic products business; Risk assessment services business; and Clinical trials testing business (disposed of on July 1, 2015 as a result of the Clinical Trials Contribution). Certain reporting units have components...

  • Page 63
    ... of capital expenditures and working capital. The fair values of the reporting units could be different if, for example, forecasted revenue growth rates, economic conditions, government regulations or actions by payers to control utilization of or reimbursement for health care services, turn out to...

  • Page 64
    ... in 2006 and will continue to report NID as a discontinued operation until uncertain tax benefits associated with NID are resolved. For further details regarding our discontinued operations, see Note 18 to the consolidated financial statements. 60 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 65
    ... per common share from continuing operations attributable to Quest Diagnostics' common stockholders NM - Not Meaningful $ $ 709 $ 551 $ 814 $ 158 $ (263) 28.7 % (32.3)% $ 4.87 $ 3.78 $ 5.31 $ 1.09 $ (1.53) 28.8 % (28.8)% 61 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10...

  • Page 66
    ...; and net pre-tax costs of $15 million, or $0.09 per diluted share, primarily associated with costs related to legal matters, partially offset by a pre-tax gain of $9 million associated with a decrease in the fair value of the contingent 62 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K • •

  • Page 67
    ... as a result of test mix associated with those acquisitions. For the year ended December 31, 2014, combined revenues in our DS businesses increased by 0.5% compared to the prior year. Cost of Services Cost of services consists principally of costs for obtaining, transporting and testing specimens as...

  • Page 68
    ... Inc. ("Summit Health") and Steward Health Care Systems, LLC outreach laboratory service ("Steward") acquisitions. Gain on Contribution of Business to Joint Venture Gain on contribution of business to joint venture for the year ended December 31, 2015 is the non-cash gain resulting from the Clinical...

  • Page 69
    ... the sale of HemoCue. In addition, income from discontinued operations, net of taxes for the year ended December 31, 2013 includes discrete tax benefits of $20 million associated with favorable resolution of certain tax contingencies related to NID. 65 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10...

  • Page 70
    ... security. We do not hedge our equity price risk. The impact of an adverse movement in equity prices on our holdings in privately held companies cannot be easily quantified, as our ability to realize returns on investments depends on, among other 66 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 71
    ... under a program offered to companies whose principal place of business was in states most affected by Hurricane Sandy as well as a third quarter of 2013 income tax payment of $28 million related to the resolution of certain audit matters. Days sales outstanding, a measure of billing and collection...

  • Page 72
    ... for the year ended December 31, 2015, also includes $51 million of deferred acquisition consideration payments, primarily to UMass Memorial Medical Center ("UMass") related to the business acquisition in 2013, and $63 million of proceeds from the sale of a noncontrolling interest in a subsidiary to...

  • Page 73
    ... 31, 2015, we were in compliance with the various financial covenants included in our credit agreements and we do not expect these covenants to adversely impact our ability to execute our growth strategy or conduct normal business operations. 69 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 74
    ... our results of operations or financial condition. Impact of New Accounting Standards The impacts of recent accounting pronouncements not yet effective on our consolidated financial statements are discussed in Note 2 to the consolidated financial statements. 70 QUEST DIAGNOSTICS 2015 ANNUAL REPORT...

  • Page 75
    ... of compliance 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, 2015...

  • Page 76
    ... to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP Florham Park, New Jersey February 26, 2016 F- 1 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 77
    ... Total current liabilities Long-term debt Other liabilities Commitments and contingencies Redeemable noncontrolling interest Stockholders' equity: Quest Diagnostics stockholders' equity: Common stock, par value $0.01 per share; 600 shares authorized at both December 31, 2015 and 2014; 216 shares and...

  • Page 78
    QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013 (in millions, except per share data) 2015 Net revenues Operating costs, expenses and other income: Cost of services Selling, general and administrative ...

  • Page 79
    ... income attributable to Quest Diagnostics $ 753 $ 2014 592 $ 2013 883 (15) - 3 1 (11) 742 44 698 (7) (1) (10) (1) (19) 573 36 537 (27) (1) 2 4 (22) 861 34 827 $ $ $ The accompanying notes are an integral part of these statements. F- 4 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 80
    ... 5 - 187 192 $ $ 2013 883 283 270 19 28 (4) - (474) 19 (247) (21) (93) (11) 652 (213) 296 474 (231) - 2 328 896 (900) (1,037) 138 4 (185) (32) - - 10 (1,106) (126) 17 296 187 $ The accompanying notes are an integral part of these statements. F- 5 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 81
    ... Exercise of stock options Shares to cover employee payroll tax withholdings on stock issued under benefit plans Tax benefits associated with stockbased compensation plans Purchases of treasury stock Sale of redeemable noncontrolling interest Adjustment to fair value Balance, December 31, 2015 143...

  • Page 82
    ... improve healthcare management. The Company's diagnostic information services business ("DIS") provides insights through clinical testing and related services to patients, physicians, hospitals, accountable care organizations ("ACOs"), integrated delivery networks ("IDNs"), health plans, employers...

  • Page 83
    ... of an insurer's health plan regardless of the number or cost of services provided by the Company. Revenues from the Company's risk assessment services, clinical trials testing (see Note 6 regarding the contribution of the clinical trials testing business to a newly formed joint venture effective...

  • Page 84
    ... number of performance share units expected to be earned is recognized as compensation cost in earnings in the period of the change. The Company recognizes stock-based compensation expense related to the Company's Amended Employee Stock Purchase Plan ("ESPP") based on the 15% discount at purchase...

  • Page 85
    ... previously written-off are recorded as credits to the allowance for doubtful accounts. Inventories Inventories, which consist principally of testing supplies and reagents, are valued at the lower of cost (first in, first out method) or market. F- 10 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 86
    ... Company concluded that it was more likely than not that the estimated fair values were greater than the carrying values of the reporting units, and as such, no further analysis was required. For the diagnostic products reporting unit, the Company F- 11 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM...

  • Page 87
    ...'s intent and ability to hold the investment for a period of time sufficient to allow for a recovery in fair value. If the decline in fair value is deemed to be otherthan-temporary, the cost basis of the security is written down to fair value. F- 12 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 88
    ..., net unrealized gains or losses on available-for-sale securities, foreign currency translation adjustments and deferred gains and losses related to certain derivative financial instruments (see Note 15). $ 6 49 8 63 $ 2014 9 49 8 66 $ $ F- 13 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 89
    ... amortized cost on the balance sheet. The ASU is effective for the Company in the first quarter of 2018. The Company does not expect the adoption of this ASU to have a material impact on its results of operations, financial position and cash flows. F- 14 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM...

  • Page 90
    ... to partially offset reimbursement pressures and labor and benefit cost increases; free up additional resources to invest in science, innovation and other growth initiatives; and enable us to improve service quality and operating profitability. F- 15 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 91
    ...Cash payments Balance, December 31, 2014 Income statement expense Cash payments Other / adjustments Balance, December 31, 2015 $ 31 $ 31 (44) 18 38 (40) - 16 $ FacilityRelated Costs 5 $ 12 (6) 11 1 (6) (3) 3 $ Total 36 43 (50) 29 39 (46) (3) 19 $ F- 16 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM...

  • Page 92
    ... Medics, Inc. On November 16, 2015, the Company completed the acquisition of the business assets of Superior Mobile Medics, Inc. ("Superior Mobile Medics"), a national provider of paramedical and health data collection services to the life insurance and employer health and wellness industries, in an...

  • Page 93
    ... comprised of customer-related intangibles. Acquisition of Dignity Health's Laboratory Outreach Business On June 22, 2013, the Company completed the acquisition of certain lab-related clinical outreach service operations of Dignity Health ("Dignity"), a hospital system in California. The assets...

  • Page 94
    ... liabilities Total liabilities assumed Net assets acquired $ 9 48 7 12 49 271 203 7 - 210 42 648 64 4 8 76 572 20 2 Summit Health Weighted Average Useful Life Fair Value (in years) $ 1 9 - 16 6 92 33 2 3 38 - 162 10 - - 10 152 15 1 4 $ $ F- 19 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 95
    ... Holdings Inc. to form a global clinical trials central laboratory services joint venture, Q2 Solutions. The transaction closed on July 1, 2015. In connection with the transaction, the Company contributed certain assets of its clinical trials testing business ("Clinical Trials") and a net...

  • Page 96
    ...(in millions unless otherwise indicated) Sale of Royalty Rights As part of its acquisition of Celera in 2011, the Company gained rights to receive royalties on ibrutinib, an experimental cancer therapy. In July 2013, the Company sold its right to receive royalties related to the commercialization of...

  • Page 97
    ... portfolio of investments which are tracked by an administrator. The Company purchases life insurance policies, with the Company named as beneficiary of the policies, for the purpose of funding the program's liability. Changes in the cash F- 22 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 98
    ... 2, 2013 acquisition of the Massachusetts-based clinical outreach and anatomic pathology businesses from UMass and received $50 million associated with the call option exercise price. The put option expired unexercised. In April 2014, the Company completed the acquisitions of Summit Health and...

  • Page 99
    ... 31, 2015, 2014 and 2013, respectively. For the year ended December 31, 2015, the Company recognized $145 million deferred tax expense associated with the financial reporting and tax basis difference resulting from the contribution of the Clinical Trials business to the Q2 Solutions joint venture...

  • Page 100
    ... benefit Impact of foreign operations Tax credits Deferred taxes on gains and losses Adjustments to unrecognized tax positions (the net benefit mainly results ...2014 91 78 169 $ $ 95 $ 202 49 1 (90) 140 (517) (120) $ - 138 42 3 - 165 (519) (171) F- 25 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM ...

  • Page 101
    ... statutes of limitations, settlements and/ or the conclusion of tax examinations, the Company believes it is reasonably possible that the total amount of unrecognized tax benefits may decrease by up to $4 million within the next twelve months. F- 26 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 102
    ... Revenue Service ("IRS") has completed its examinations of the Company's consolidated federal income tax returns up through and including the 2011 tax year; however, the Company plans to pursue all alternatives for settlement, including litigation, for certain tax adjustments related to its 2009...

  • Page 103
    ...Summit Health and Steward acquisitions (see Note 5), of which $90 million is deductible for tax purposes. Acquisitions during the year also resulted in $270 million of intangible assets, principally comprised of customer-related intangibles and tradenames. F- 28 QUEST DIAGNOSTICS 2015 ANNUAL REPORT...

  • Page 104
    ... expense related to amortizable intangible assets for each of the five succeeding fiscal years and thereafter as of December 31, 2015 is as follows: Year Ending December 31, 2016 2017 2018 2019 2020 Thereafter Total $ $ 70 66 62 62 62 426 748 F- 29 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10...

  • Page 105
    ... Facility are collateralized by certain domestic receivables. At both December 31, 2015 and 2014, there were no outstanding borrowings under the Secured Receivables Credit Facility. F- 30 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K 2014 $ 257 364 63 67 59 56 48 277 1,191 $ $ 279 305 4 52...

  • Page 106
    ... from the 2015 Senior Notes. For the year ended December 31, 2015, the Company recorded a loss on retirement of debt in other (expense) income, net of $144 million, principally comprised of premiums paid in connection with these transactions. F- 31 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 107
    ... other comprehensive loss, related to the Company's cash flow hedges as of December 31, 2015 and 2014 was $12 million and $15 million, respectively. The loss recognized on the Company's cash flow hedges for the years ended December 31, 2015, 2014 and 2013, as a result of ineffectiveness, was...

  • Page 108
    ... amount of debt that was retired in the first and second quarters of 2015. These agreements were settled during the first and second quarters of 2015 which resulted in a gain of $3 million which was recognized in other (expense) income, net. F- 33 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 109
    ...2013, the tax effects related to the market valuation adjustments, deferred losses and other were not material. Foreign currency translation adjustments are not adjusted for income taxes since they relate to indefinite investments in non-U.S. subsidiaries. F- 34 QUEST DIAGNOSTICS 2015 ANNUAL REPORT...

  • Page 110
    ... Plan In December 2015, the Company's Board of Directors authorized the Company to repurchase an additional $500 million of the Company's common stock. In August 2013, the Company's Board of Directors authorized the Company to repurchase an additional $1 billion of the Company's common stock...

  • Page 111
    ...less than the fair market value of the Company's common stock on the date of grant. The DLTIP also permits awards of restricted stock and restricted stock units to non-employee directors. Stock options granted under the DLTIP expire on the date F- 36 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 112
    ... the Company's closing common stock price on the last trading day of 2015 and the exercise price, multiplied by the number of inthe-money options) that would have been received by the option holders had all option holders exercised their options on F- 37 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM...

  • Page 113
    ... ended December 31, 2015, 2014 and 2013, 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...

  • Page 114
    ...of the lease. The Company has certain noncancelable commitments to purchase products or services from various suppliers, mainly for consulting and other service agreements, and standing orders to purchase reagents and other laboratory supplies. F- 39 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 115
    ... services industry, including the Company. In June 2010, the Company received a subpoena from the Florida Attorney General's Office seeking documents relating to the Company's pricing and billing practices as they relate to Florida's Medicaid program. The Company cooperated with the requests...

  • Page 116
    ... from providing, or failing to provide, clinical testing services, including inaccurate testing results, and other exposures. The Company's insurance coverage limits its maximum exposure on individual claims; however, the Company is essentially self-insured for a significant portion of these claims...

  • Page 117
    ... 31, 2015 and 2014. 19. BUSINESS SEGMENT INFORMATION The Company's DIS business provides insights through clinical testing and related services to patients, physicians, hospitals, ACOs, IDNs, health plans, employers and others. The Company is the world's leading provider of diagnostic information...

  • Page 118
    ... of certain corporate services, including transition services, for its equity method investees, classified within selling, general and administrative expenses. As of December 31, 2015, there was $32 million of other receivables from equity F- 43 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 119
    ... 26, 2016, the Company developed high-level estimates of the pre-tax charges expected to be incurred in connection with the course of action for 2016 under the Invigorate program. For further details regarding the Invigorate program, see Note 4. F- 44 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10...

  • Page 120
    ... $ $ Third Quarter (d) 1,880 718 354 - 354 12 342 $ $ Fourth Quarter (e) 1,849 699 200 - 200 12 188 $ $ Total Year 7,493 2,836 753 - 753 44 709 F- 45 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 121
    ... to report the results of HemoCue and NID as discontinued operations for all periods presented (see Note 18). In July 2015, the Company contributed its clinical trials testing business to a newly formed global clinical trials central laboratory services joint venture, Q2 Solutions. Subsequent...

  • Page 122
    ... consideration accrual associated with the Summit Health acquisition (see Note 5 and Note 7). Income from continuing operations includes a discrete benefit of $44 million associated with the favorable resolution of certain tax contingencies. F- 47 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 123
    ... End of Year 254 293 (a) $ $ 236 $ 296 $ 282 (a) $ 250 $ 236 $ 270 $ 270 (a) $ 236 (a) Primarily represents the write-off of accounts receivable, net of recoveries. F- 48 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM 10-K

  • Page 124
    ... Exhibit to the Company's current report on Form 8-K (Date of Report: November 17, 2009) and incorporated herein by reference) (Commission file Number 001-12215) Form of 3.200% Senior Note due 2016 (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report: March 21, 2011) and...

  • Page 125
    ... Indenture dated as of April 16, 2004, among Unilab Acquisition Corporation (d/b/a FNA Clinics of America), the Company, The Bank of New York, and the Subsidiary Guarantors (filed as an Exhibit to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 2004 and incorporated...

  • Page 126
    ... and Restated Employee Stock Purchase Plan (filed as an Exhibit to the Company's quarterly report on form 10-Q for the quarter ended June 30, 2015 and incorporated herein by reference) (Commission file number 001-12215) Amended and Restated Quest Diagnostics Incorporated Employee Long-Term Incentive...

  • Page 127
    ... Plan For Directors as amended effective January 1, 2016 Amended and Restated Quest Diagnostics Incorporated Long-Term Incentive Plan for Non-Employee Directors as amended December 3, 2015 Form of Non-Employee Director Equity Award Agreement (filed as an Exhibit to the Company's 2011 annual report...

  • Page 128
    ....LAB* 101.PRE* * ** ‡ dgx-20151231_lab.xml dgx-20151231_pre.xml Filed herewith. 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-5 QUEST DIAGNOSTICS 2015 ANNUAL REPORT ON FORM...

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