Three Months Ended December 31,

Twelve Months Ended December 31,

2019

2018

Change

2019

2018

Change

(dollars in millions, except per share data)

Reported:

Net revenues

$

1,926

$

1,839

4.8

%

$

7,726

$

7,531

2.6

%

Diagnostic information services revenues

$

1,844

$

1,756

5.1

%

$

7,405

$

7,204

2.8

%

Revenue per requisition

1.2

%

(1.3)

%

Requisition volume

4.1

%

4.3

%

Organic requisition volume

3.4

%

3.1

%

Operating income (a)

$

363

$

220

65.1

%

$

1,231

$

1,101

11.8

%

Operating income as a percentage of net revenues
  (a)

18.8

%

12.0

%

6.8

%

15.9

%

14.6

%

1.3

%

Income from continuing operations attributable to 
   Quest Diagnostics (a)

$

253

$

127

98.7

%

$

838

$

736

13.8

%

Diluted EPS from continuing operations (a)

$

1.86

$

0.92

101.2

%

$

6.13

$

5.29

15.9

%

Cash provided by operations

$

348

$

295

17.7

%

$

1,243

$

1,200

3.6

%

Capital expenditures

$

172

$

151

14.2

%

$

400

$

383

4.6

%

Adjusted (b):

Operating income

$

329

$

295

11.5

%

$

1,316

$

1,315

0.1

%

Operating income as a percentage of net revenues

17.0

%

16.0

%

1.0

%

17.0

%

17.5

%

(0.5)

%

Income from continuing operations attributable to
Quest Diagnostics

$

228

$

187

22.1

%

$

896

$

878

2.1

%

Diluted EPS from continuing operations

$

1.67

$

1.36

23.7

%

$

6.56

$

6.31

4.0

%

(a) 

For further details impacting the year-over-year comparisons related to operating income, operating income as a percentage
of net revenues, income from continuing operations attributable to Quest Diagnostics, and diluted EPS from continuing
operations, see note 2 of the financial tables attached below.

(b) 

Beginning in 2019, the company has changed how it presents adjusted income measures to additionally exclude amortization
expense for all periods presented.  We believe this presentation provides investors with additional insight to evaluate our
performance period over period and relative to competitors, as well as to analyze the underlying trends in our business.

Low

High

Net revenues

$7.80 billion

$7.96 billion

Net revenues increase

1.0%

3.0%

Reported diluted EPS

Greater than $5.51

Adjusted diluted EPS

Greater than $6.60

Cash provided by operations

$1.25 billion

$1.30 billion

Capital expenditures

$375 million

$400 million

Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Operations
For the Three and Twelve Months Ended December 31, 2019 and 2018
(in millions, except per share data)
(unaudited)

Three Months Ended December 31,

Twelve Months Ended December 31,

2019

2018

2019

2018

Net revenues

$

1,926

$

1,839

$

7,726

$

7,531

Operating costs and expenses and other operating (income) expense:

Cost of services

1,264

1,235

5,037

4,926

Selling, general and administrative

349

356

1,457

1,424

Amortization of intangible assets

24

24

96

90

Other operating (income) expense, net

(74)

4

(95)

(10)

Total operating costs and expenses, net

1,563

1,619

6,495

6,430

Operating income

363

220

1,231

1,101

Other (expense) income:

Interest expense, net

(42)

(43)

(175)

(167)

Other income (expense), net

7

(10)

20

(8)

Total non-operating expenses, net

(35)

(53)

(155)

(175)

Income from continuing operations before income taxes and equity in
  earnings of equity method investees

328

167

1,076

926

Income tax expense

(72)

(40)

(247)

(182)

Equity in earnings of equity method investees, net of taxes

9

12

57

44

Income from continuing operations

265

139

886

788

Income from discontinued operations, net of taxes

—

—

20

—

Net income

265

139

906

788

Less: Net income attributable to noncontrolling interests

12

12

48

52

Net income attributable to Quest Diagnostics

$

253

$

127

$

858

$

736

Amounts attributable to Quest Diagnostics' common stockholders:

Income from continuing operations

$

253

$

127

$

838

$

736

Income from discontinued operations, net of taxes

—

—

20

—

Net income

$

253

$

127

$

858

$

736

Earnings per share attributable to Quest Diagnostics' common
  stockholders - basic:

Income from continuing operations

$

1.88

$

0.93

$

6.21

$

5.39

Income from discontinued operations

—

—

0.15

—

Net income

$

1.88

$

0.93

$

6.36

$

5.39

Earnings per share attributable to Quest Diagnostics' common
  stockholders - diluted:

Income from continuing operations

$

1.86

$

0.92

$

6.13

$

5.29

Income from discontinued operations

—

—

0.15

—

Net income

$

1.86

$

0.92

$

6.28

$

5.29

Weighted average common shares outstanding:

Basic

134

136

134

136

Diluted

136

137

136

139

Quest Diagnostics Incorporated and Subsidiaries
Consolidated Balance Sheets
December 31, 2019 and 2018
(in millions, except per share data)
(unaudited)

December 31,
2019

December 31,
2018

Assets

Current assets:

Cash and cash equivalents

$

1,192

$

135

Accounts receivable, net

1,063

1,012

Inventories

123

99

Prepaid expenses and other current assets

112

144

Total current assets

2,490

1,390

Property, plant and equipment, net

1,453

1,288

Operating lease right-of-use assets

518

—

Goodwill

6,619

6,563

Intangible assets, net

1,121

1,207

Investment in equity method investees

482

436

Other assets

160

119

Total assets

$

12,843

$

11,003

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable and accrued expenses

$

1,041

$

1,021

Current portion of long-term debt

804

464

Current portion of long-term operating lease liabilities

145

—

Total current liabilities

1,990

1,485

Long-term debt

3,966

3,429

Long-term operating lease liabilities

413

—

Other liabilities

711

745

Redeemable noncontrolling interest

76

77

Stockholders' equity:

Quest Diagnostics stockholders' equity:

Common stock, par value $0.01 per share; 600 shares authorized as of both December 31, 2019
   and 2018; 217 shares issued as of both December 31, 2019 and 2018

2

2

Additional paid-in capital

2,722

2,667

Retained earnings

8,174

7,602

Accumulated other comprehensive loss

(39)

(59)

Treasury stock, at cost; 84 shares and 82 shares as of December 31, 2019 and 2018, respectively

(5,218)

(4,996)

Total Quest Diagnostics stockholders' equity

5,641

5,216

Noncontrolling interests

46

51

Total stockholders' equity

5,687

5,267

Total liabilities and stockholders' equity

$

12,843

$

11,003

Quest Diagnostics Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
For the Twelve Months Ended December 31, 2019 and 2018
(in millions)
(unaudited)

Twelve Months Ended
December 31,

2019

2018

Cash flows from operating activities:

Net income

$

906

$

788

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

329

309

Provision for doubtful accounts

11

6

Deferred income tax provision

15

73

Stock-based compensation expense

56

61

(Gains) losses on sale of property, plant and equipment

(70)

6

Other, net

(39)

6

Changes in operating assets and liabilities:

Accounts receivable

(63)

(65)

Accounts payable and accrued expenses

73

(19)

Income taxes payable

29

4

Other assets and liabilities, net

(4)

31

Net cash provided by operating activities

1,243

1,200

Cash flows from investing activities:

Business acquisitions, net of cash acquired

(58)

(421)

Proceeds from disposition of business

—

2

Proceeds from disposition of property, plant and equipment

91

2

Capital expenditures

(400)

(383)

Increase in investments and other assets

(44)

(1)

Net cash used in investing activities

(411)

(801)

Cash flows from financing activities:

Proceeds from borrowings

2,281

2,090

Repayments of debt

(1,449)

(1,966)

Purchases of treasury stock

(353)

(322)

Exercise of stock options

119

99

Employee payroll tax withholdings on stock issued under stock-based compensation plans

(16)

(21)

Dividends paid

(286)

(266)

Distributions to noncontrolling interest partners

(54)

(54)

Contributions from noncontrolling interest partners

—

16

Other financing activities, net

(17)

23

Net cash provided by (used in) financing activities

225

(401)

Net change in cash and cash equivalents and restricted cash

1,057

(2)

Cash and cash equivalents and restricted cash, beginning of period

135

137

Cash and cash equivalents and restricted cash, end of period

$

1,192

$

135

Cash and cash equivalents

$

1,192

$

135

Restricted cash

—

—

Cash and cash equivalents and restricted cash, end of period

$

1,192

$

135

Cash paid during the period for:

Interest

$

192

$

174

Income taxes

$

202

$

84

Notes to Financial Tables

1)  The computation of basic and diluted earnings per common share is as follows:

Three Months Ended December 31,

Twelve Months Ended December 31,

2019

2018

2019

2018

(in millions, except per share data)

Amounts attributable to Quest Diagnostics' common stockholders:

Income from continuing operations

$

253

$

127

$

838

$

736

Income from discontinued operations, net of taxes

—

—

20

—

Net income attributable to Quest Diagnostics' common stockholders

$

253

$

127

$

858

$

736

Income from continuing operations

$

253

$

127

$

838

$

736

Less: Earnings allocated to participating securities

1

1

3

3

Earnings available to Quest Diagnostics' common stockholders - basic and
  diluted

$

252

$

126

$

835

$

733

Weighted average common shares outstanding - basic

134

136

134

136

Effect of dilutive securities:

Stock options and performance share units

2

1

2

3

Weighted average common shares outstanding - diluted

136

137

136

139

Earnings per share attributable to Quest Diagnostics' common
  stockholders - basic:

Income from continuing operations

$

1.88

$

0.93

$

6.21

$

5.39

Income from discontinued operations

—

—

0.15

—

Net income

$

1.88

$

0.93

$

6.36

$

5.39

Earnings per share attributable to Quest Diagnostics' common
  stockholders - diluted:

Income from continuing operations

$

1.86

$

0.92

$

6.13

$

5.29

Income from discontinued operations

—

—

0.15

—

Net income

$

1.86

$

0.92

$

6.28

$

5.29

2)  The following tables reconcile reported GAAP results to non-GAAP adjusted results:

Three Months Ended December 31, 2019

(dollars in millions, except per share data)

Operating
income

Operating
income as a
percentage of
net revenues

Income tax
expense (c)

Equity in
earnings of
equity
method
investees, net
of taxes

Income from
continuing
operations 
attributable
to Quest
Diagnostics

Diluted EPS
from
continuing
operations

As reported

$

363

18.8

%

$

(72)

$

9

$

253

$

1.86

Restructuring and
integration charges (a)

14

0.7

(4)

—

10

0.07

Other (b)

(72)

(3.8)

18

—

(54)

(0.39)

Amortization expense

24

1.3

(6)

3

21

0.15

ETB

—

—

(2)

—

(2)

(0.02)

As adjusted

$

329

17.0

%

$

(66)

$

12

$

228

$

1.67

Twelve Months Ended December 31, 2019

(dollars in millions, except per share data)

Operating
income

Operating
income as a
percentage of
net revenues

Income tax
expense (c)

Equity in
earnings of
equity
method
investees, net
of taxes

Income from
continuing
operations 
attributable
to Quest
Diagnostics

Diluted EPS
from
continuing
operations

As reported

$

1,231

15.9

%

$

(247)

$

57

$

838

$

6.13

Restructuring and
integration charges (a)

78

1.0

(21)

—

57

0.42

Other (b)

(89)

(1.1)

18

—

(71)

(0.50)

Amortization expense

96

1.2

(26)

15

85

0.61

ETB

—

—

(13)

—

(13)

(0.10)

As adjusted

$

1,316

17.0

%

$

(289)

$

72

$

896

$

6.56

Three Months Ended December 31, 2018

(dollars in millions, except per share data)

Operating
income

Operating
income as a
percentage of
net revenues

Income tax
expense (c)

Equity in
earnings of
equity
method
investees, net
of taxes

Income from
continuing
operations 
attributable
to Quest
Diagnostics

Diluted EPS
from
continuing
operations

As reported

$

220

12.0

%

$

(40)

$

12

$

127

$

0.92

Restructuring and
integration charges (a)

47

2.5

(12)

—

35

0.26

Other (b)

4

0.2

—

—

4

0.02

Amortization expense

24

1.3

(7)

4

21

0.16

ETB

—

—

(1)

—

(1)

(0.01)

Certain income tax items
(d)

—

—

1

—

1

0.01

As adjusted

$

295

16.0

%

$

(59)

$

16

$

187

$

1.36

Twelve Months Ended December 31, 2018

(dollars in millions, except per share data)

Operating
income

Operating
income as a
percentage of
net revenues

Income tax
expense (c)

Equity in
earnings of
equity
method
investees, net
of taxes

Income from
continuing
operations 
attributable
to Quest
Diagnostics

Diluted EPS
from
continuing
operations

As reported

$

1,101

14.6

%

$

(182)

$

44

$

736

$

5.29

Restructuring and
integration charges (a)

122

1.7

(31)

—

91

0.66

Other (b)

2

—

1

—

3

0.01

Amortization expense

90

1.2

(27)

17

80

0.57

ETB

—

—

(18)

—

(18)

(0.13)

Certain income tax items
(d)

—

—

(14)

—

(14)

(0.09)

As adjusted

$

1,315

17.5

%

$

(271)

$

61

$

878

$

6.31

(a)

For the three and twelve months ended December 31, 2019, represents costs primarily associated with systems
conversions and integration incurred in connection with further restructuring and integrating our business.  For the
three and twelve months ended December 31, 2018, represents costs primarily associated with workforce reductions,
systems conversions and integration incurred in connection with further restructuring and integrating our business. 
The following table summarizes the pre-tax impact of restructuring and integration charges on the company's
consolidated statements of operations:

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2019

2018

2019

2018

(dollars in millions)

Cost of services

$

6

$

20

$

35

$

56

Selling, general and administrative

8

27

43

65

Other operating (income) expense, net

—

—

—

1

Operating income

$

14

$

47

$

78

$

122

(b) 

For the three months ended December 31, 2019, primarily represents a gain associated with the sale and leaseback of a property.  For
the twelve months ended December 31, 2019, the pre-tax impact primarily represents a gain associated with the sale and leaseback of
a property, a gain associated with the decrease in the fair value of the contingent consideration accruals associated with
previous acquisitions, and a gain associated with an insurance claim for hurricane related losses, partially offset by
costs incurred related to a data security incident and non-cash asset impairment charges.

For the three months ended December 31, 2018, primarily represents the loss on the sale of a foreign subsidiary.  For
the twelve months ended December 31, 2018, primarily represents costs incurred related to certain legal matters and a
loss on the sale of a foreign subsidiary, which were partially offset by a gain associated with the decrease in the fair
value of the contingent consideration accrual associated with a previous acquisition and an insurance claim for
hurricane related losses.

The following table summarizes the pre-tax impact of these other items on the company's consolidated statement of
operations:

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2019

2018

2019

2018

(dollars in millions)

Cost of services

$

—

$

—

$

—

$

12

Selling, general and administrative

1

—

6

—

Other operating (income) expense, net

(73)

4

(95)

(10)

Operating income

$

(72)

$

4

$

(89)

$

2

(c)

For restructuring and integration charges, other items and amortization expense, income tax impacts, where recorded,
were primarily calculated using combined statutory income tax rates of 25.5% for both 2019 and 2018.  For the gain
associated with an insurance claim for hurricane related losses in 2019, there was no net income tax expense as the
company is able to utilize net operating loss carryforwards for which a valuation allowance had previously been
established.  For the gain in 2019 associated with the decrease in the fair value of the contingent consideration accruals
associated with previous acquisitions, there was no net income tax expense related to acquisitions in which the gain is
non-taxable.

(d)

For the three months ended December 31, 2018, represents an income tax expense associated with finalizing the
impact of the enactment of the Tax Cut and Jobs Act ("TCJA").  For the twelve months ended December 31, 2018,
represents an income tax benefit associated with a change in a tax return accounting method that enabled 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, partially offset by an income tax expense associated with finalizing the impact of the enactment of TCJA.

3)

Discontinued operations, net of taxes, for the twelve months ended December 31, 2019 includes discrete tax benefits of $20
million associated with the favorable resolution of certain tax contingencies related to Nichols Institute Diagnostics, a test kit
manufacturing subsidiary whose operations were discontinued in 2006.

4)

For the three months ended December 31, 2019, the company repurchased 1.9 million shares of its common stock for $200
million.  For the twelve months ended December 31, 2019, the company repurchased 3.5 million shares of its common stock for
$350 million.  As of December 31, 2019, $1.2 billion remained available under the company's share repurchase authorizations.

5)

The outlook for adjusted diluted EPS represents management's estimates for the full year 2020 before the impact of special items,
including ETB and amortization expense.  Further impacts to earnings related to special items may occur throughout 2020. 
Additionally, the amount of ETB is dependent upon employee stock option exercises and the company's stock price, which are
difficult to predict.  The following table reconciles our 2020 outlook for adjusted diluted EPS to the corresponding amounts
determined under GAAP:

Diluted earnings per common share

$

5.51

Restructuring and integration charges (a)

0.55

Amortization expense (b)

0.64

ETB

(0.10)

Adjusted diluted EPS

$

6.60

(a) 

Represents estimated full year pre-tax charges of $100 million primarily associated with systems conversions and
integration costs incurred in connection with further restructuring and integrating our business.  Income tax benefits
were calculated using a combined statutory income tax rate of 25.5%.

(b)

Represents the estimated impact of amortization expense for 2020 on the calculation of adjusted diluted EPS. 
Amortization expense used in the calculation is as follows (dollars in millions):

Amortization of intangible assets

$

107

Amortization expense included in equity in earnings of equity method investees, net of taxes

11

Total pre-tax amortization expense

$

118

Total amortization expense, net of an estimated tax benefit using a combined statutory income tax rate
of 25.5%

$

88