QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

~~In addition, pursuant to certain rules~~The Company accounts for the receipt of the funds under a gain contingency model. Accordingly, such amounts are recognized when the funds are received and ~~regulations promulgated by the U.S. Department of Health and Human Services ("HHS"),~~ the Company ~~applied~~has determined that it has satisfied the associated terms and conditions. During the three months ended June 30, 2020, based on the terms and conditions that were in effect at such time, the Company concluded that it had satisfied such terms and conditions for ~~additional~~the $65 million of funds that were received in April 2020 and, therefore, the Company recognized such amount in other operating expense (income), net during the second quarter. During the three months ended September 30, 2020, the Company reversed the $65 million of funds that had previously been recognized in other operating expense (income), net. As of September 30, 2020, no amounts are recorded in the Company's year-to-date consolidated statement of operations and the entire $138 million of funds that the Company intends to bereturn are recorded in accounts payable and accrued expenses on the Company’s consolidated balance sheet. For the nine months ended September 30, 2020, net cash provided by operating activities included the $138 million that the Company received from the funds that were distributed ~~by the government under the original $100 billion appropriation~~ to healthcare providers under the CARES Act. As of June 30, 2020, the Company had not yet received approval of its application from HHS for the additional funds requested. As such, the Company's consolidated financial statements as of and for the period ended June 30, 2020 exclude any additional funds that may be distributed by the government for related expenses or lost revenues that are attributable to the COVID-19 pandemic under the CARES Act.

12. COMMITMENTS AND CONTINGENCIES

Letters of Credit

The Company can issue letters of credit totaling $100 million under its secured receivables credit facility and $150 million under its senior unsecured revolving credit facility. For further discussion regarding the Company's secured receivables credit facility and senior unsecured revolving credit facility, see Note 13 to the audited consolidated financial statements in the Company's 2019 Annual Report on Form 10-K and Note 8 to the interim unaudited consolidated financial statements.

In support of its risk management program, to ensure the Company’s performance or payment to third parties, $71 million in letters of credit under the secured receivables credit facility were outstanding as of ~~June~~September 30, 2020. The letters of credit primarily represent collateral for current and future automobile liability and workers’ compensation loss payments.

Contingent Lease Obligations

The Company remains subject to contingent obligations under certain real estate leases, including leases that were entered into by certain predecessor companies of a subsidiary prior to the Company's acquisition of the subsidiary. No liability has been recorded for any of these potential contingent obligations. For further details, see Note 18 to the audited consolidated financial statements in the Company’s 2019 Annual Report on Form 10-K.

Certain Legal Matters

The Company may incur losses associated with these proceedings and investigations, but it is not possible to estimate the amount of loss or range of loss, if any, that might result from adverse judgments, settlements, fines, penalties, or other resolution of these proceedings and investigations based on the stage of these proceedings and investigations, the absence of specific allegations as to alleged damages, the uncertainty as to the certification of a class or classes and the size of any certified class, if applicable, and/or the lack of resolution of significant factual and legal issues. The Company has insurance coverage rights in place (limited in amount; subject to deductible) for certain potential costs and liabilities related to these proceedings and investigations.

401(k) Plan Lawsuit

In June 2020, a putative class action lawsuit, House Johnson v. Quest Diagnostics Incorporated, et. al, was filed in the U.S. District Court for New Jersey against the Company and other defendants with respect to the Company’s 401(k) plan. The complaint alleges, among other things, that the fiduciaries of the 401(k) plan breached their duties by failing to disclose the expenses and risks of plan investment options, allowing unreasonable administration expenses to be charged to plan participants, and selecting and retaining high cost and poor performing investments. In July 2020, a putative class action lawsuit, Rice, et. al v. Quest Diagnostics Incorporated, et. al, was filed in the U.S. District Court for New Jersey. The plaintiffs in the Rice case named the same defendants as those named in the House Johnson case and alleged substantially similar claims to those made in the House Johnson matter. In October 2020, the court consolidated the two lawsuits and plaintiffs filed a consolidated amended complaint. The Company plans to vigorously defend this matter.

~~AMCA Data Security Incident~~

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

AMCA Data Security Incident.

On June 3, 2019, the Company reported that Retrieval-Masters Creditors Bureau, Inc./American Medical Collection Agency (“AMCA”) had informed the Company and Optum360 LLC that an unauthorized user had access to AMCA’s system between August 1, 2018 and March 30, 2019 (the “AMCA Data Security Incident”). Optum360 provides revenue management services to the Company, and AMCA provided debt collection services to Optum360. AMCA first informed the Company of the AMCA Data Security Incident on May 14, 2019. AMCA’s affected system included financial information (e.g., credit card numbers and bank account information), medical information and other personal information (e.g., social security numbers). Test results were not included. Neither Optum360’s nor the Company’s systems or databases were involved in the incident. AMCA also informed the Company that information pertaining to other laboratories’ customers was also affected. Following announcement of the AMCA Data Security Incident, AMCA sought protection under the U.S. bankruptcy laws.

~~Following the AMCA Data Security Incident, numerous~~Numerous putative class action lawsuits were filed against the Company related to the ~~incident.~~AMCA Data Security Incident. The U.S. Judicial Panel on Multidistrict Litigation transferred the cases still pending to, and consolidated them for pre-trial proceedings in, the U.S. District Court for New Jersey. In November 2019, the plaintiffs in the multidistrict proceeding filed a consolidated putative class action complaint against the Company and Optum360 that named additional individuals as plaintiffs and that asserted a variety of common law and statutory claims in connection with the AMCA Data Security Incident. In January 2020, the Company moved to dismiss the consolidated complaint.

In addition, certain federal and state governmental authorities are investigating, or otherwise seeking information and/or documents from the Company related to the AMCA Data Security Incident and related matters, including the Office for Civil Rights of the U.S. Department of Health and Human Services, Attorneys General offices from numerous states and the District of Columbia, and certain U.S. senators.

Other Legal Matters

In the normal course of business, the Company has been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with the Company's activities as a provider of diagnostic testing, information and services. These actions could involve claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages, and could have an adverse impact on the Company's client base and reputation.

The Company is also involved, from time to time, in other reviews, investigations and proceedings by governmental agencies regarding the Company's business which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief.

The federal or state governments may bring claims based on the Company's current practices, which it believes are lawful. In addition, certain federal and state statutes, including the qui tam provisions of the federal False Claims Act, allow private individuals to bring lawsuits against healthcare companies on behalf of government or private payers. The Company is aware of lawsuits, and from time to time has received subpoenas, related to billing practices based on the qui tam provisions of the Civil False Claims Act or other federal and state statutes, regulations or other laws. The Company understands that there may be other pending qui tam claims brought by former employees or other "whistle blowers" as to which the Company cannot determine the extent of any potential liability.

Management cannot predict the outcome of such matters. Although management does not anticipate that the ultimate outcome of such matters will have a material adverse effect on the Company's financial condition, given the high degree of judgment involved in establishing loss estimates related to these types of matters, the outcome of such matters may be material to the Company's consolidated results of operations or cash flows in the period in which the impact of such matters is determined or paid.

These matters are in different stages. Some of these matters are in their early stages. Matters may involve responding to and cooperating with various government investigations and related subpoenas. As of ~~June~~September 30, 2020, the Company does not believe that material losses related to legal matters are probable.

~~Reserves for legal matters totaled $2 million and $1 million as of June 30, 2020 and December 31, 2019, respectively.~~

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

Reserves for legal matters totaled $1 million as of both September 30, 2020 and December 31, 2019, respectively.

Reserves for General and Professional Liability Claims

As a general matter, providers of clinical testing services may be subject to lawsuits alleging negligence or other similar legal claims. These suits could involve claims for substantial damages. Any professional liability litigation could also have an adverse impact on the Company's client base and reputation. The Company maintains various liability insurance coverages for, among other things, claims that could result 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. Reserves for such matters, including those associated with both asserted and incurred but not reported claims, are established on an undiscounted basis by considering actuarially determined losses based upon the Company's historical and projected loss experience. Such reserves totaled ~~$136~~$134 million and $132 million as of ~~June~~September 30, 2020 and December 31, 2019, respectively. Management believes that established reserves and present insurance coverage are sufficient to cover currently estimated exposures.

13. BUSINESS SEGMENT INFORMATION

The Company's DIS business is the only reportable segment based on the manner in which the Chief Executive Officer, who is the Company's chief operating decision maker ("CODM"), assesses performance and allocates resources across the organization. The DIS business provides diagnostic information services to a broad range of customers, including patients, clinicians, hospitals, IDNs, health plans, employers and ACOs. The Company is the world's leading provider of diagnostic information services, which includes providing information and insights based on the industry-leading menu of routine, non-routine and advanced clinical testing and anatomic pathology testing, and other diagnostic information services. The DIS business accounted for greater than 95% of net revenues in 2020 and 2019.

All other operating segments include the Company's DS businesses, which consist of its risk assessment services and healthcare information technology businesses. The Company's DS businesses are the leading provider of risk assessment services for the life insurance industry and offer healthcare organizations and clinicians robust information technology solutions.

As of ~~June~~September 30, 2020, substantially all of the Company’s services were provided within the United States, and substantially all of the Company’s assets were located within the United States.

The following table is a summary of segment information for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019. Segment asset information is not presented since it is not used by the CODM at the operating segment level. Operating earnings (loss) of each segment represents net revenues less directly identifiable expenses to arrive at operating income (loss) for the segment. General corporate activities included in the table below are comprised of general management and administrative corporate expenses, amortization and impairment of intangible assets and other operating income and expenses, net of certain general corporate activity costs that are allocated to the DIS and DS businesses. The accounting policies of the segments are the same as those of the Company as set forth in Note 2 to the audited consolidated financial statements contained in the Company’s 2019 Annual Report on Form 10-K and Note 2 to the interim unaudited consolidated financial statements.

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019
Net revenues:	Net revenues:									Net revenues:
DIS business	DIS business	$	1,764	$	1,872	$	3,508	$	3,684	DIS business	$	2,709	$	1,877	$	6,217	$	5,561
All other operating segments	All other operating segments	63		81		141		160		All other operating segments	77		79		218		239
Total net revenues	Total net revenues	$	1,827	$	1,953	$	3,649	$	3,844	Total net revenues	$	2,786	$	1,956	$	6,435	$	5,800

Operating earnings (loss):	Operating earnings (loss):									Operating earnings (loss):
DIS business	DIS business	$	280	$	338	$	485	$	618	DIS business	$	840	$	345	$	1,325	$	963
All other operating segments	All other operating segments	4		12		13		21		All other operating segments	16		10		29		31
General corporate activities	General corporate activities	(1)		(43)		(40)		(84)		General corporate activities	(138)		(42)		(178)		(126)
Total operating income	Total operating income	283		307		458		555		Total operating income	718		313		1,176		868
Non-operating expenses, net		(28)		(42)		(85)		(77)
Non-operating income (expense), net										Non-operating income (expense), net	35		(43)		(50)		(120)
Income from continuing operations before income taxes and equity in earnings of equity method investees	Income from continuing operations before income taxes and equity in earnings of equity method investees	255		265		373		478		Income from continuing operations before income taxes and equity in earnings of equity method investees	753		270		1,126		748
Income tax expense	Income tax expense	(66)		(63)		(92)		(113)		Income tax expense	(177)		(62)		(269)		(175)
Equity in earnings of equity method investees, net of taxes	Equity in earnings of equity method investees, net of taxes	4		17		18		30		Equity in earnings of equity method investees, net of taxes	15		18		33		48
Income from continuing operations	Income from continuing operations	193		219		299		395		Income from continuing operations	591		226		890		621
Income from discontinued operations, net of taxes	Income from discontinued operations, net of taxes	—		20		—		20		Income from discontinued operations, net of taxes	0		0		0		20
Net income	Net income	193		239		299		415		Net income	591		226		890		641
Less: Net income attributable to noncontrolling interests	Less: Net income attributable to noncontrolling interests	8		13		15		25		Less: Net income attributable to noncontrolling interests	23		11		38		36
Net income attributable to Quest Diagnostics	Net income attributable to Quest Diagnostics	$	185	$	226	$	284	$	390	Net income attributable to Quest Diagnostics	$	568	$	215	$	852	$	605

14. RELATED PARTIES

The Company's equity method investees primarily consist of its clinical trials central laboratory services joint venture and its diagnostic information services joint ventures, which are accounted for under the equity method of accounting. During the three months ended ~~June~~September 30, 2020 and 2019, the Company recognized net revenues of $6$10 million and $9$8 million, respectively, associated with diagnostic information services provided to its equity method investees. During the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, the Company recognized net revenues of ~~$15~~$25 million and ~~$18~~$26 million, respectively, associated with diagnostic information services provided to its equity method investees. As of ~~June~~both September 30, 2020 and December 31, 2019, there was ~~$5 million and~~ $4 million ~~respectively,~~ of accounts receivable from equity method investees related to such services. During both the three months ended ~~June~~September 30, 2020 net revenues recognized by the Company associated with diagnostic information services provided to a noncontrolling interest partner in a joint venture were not material. For the three months ended June 30,and 2019, the Company recognized net revenues of $2$1 million associated with diagnostic information services provided to a noncontrolling interest partner in a joint venture. During the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, the Company recognized net revenues of $1$2 million and $5$6 million, respectively, associated with diagnostic information services provided to a noncontrolling interest partner in a joint venture. As of December 31, 2019, there was $4 million of receivables from the noncontrolling interest partner included in accounts receivable and other assets related to such services.

During both the three months ended ~~June~~September 30, 2020 and 2019, the Company recognized income of $4 million associated with the performance of certain corporate services, including transition services, for its equity method investees, classified within selling, general and administrative expenses. During both the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, the Company recognized income of $8$12 million associated with the performance of certain corporate services, including transition services, for its equity method investees, classified within selling, general and administrative expenses. As of ~~June~~September 30, 2020 and December 31, 2019, there was $2 million and $1 million, respectively, of other receivables from equity method investees included in prepaid expenses and other current assets related to these service agreements and other transition related items. In addition, accounts payable and accrued expenses as of ~~both June~~September 30, 2020 and December 31, 2019 included $1 million and $2 million, respectively, due to equity method investees.

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

During the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, the Company received dividends from its equity method investees of ~~$13~~$34 million and ~~$17~~$27 million, respectively.

15. REVENUE RECOGNITION AND ALLOWANCE FOR CREDIT LOSSES

DIS

Net revenues in the Company’s DIS business accounted for over 95% of the Company’s total net revenues for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019 and are primarily comprised of a high volume of relatively low-dollar transactions. The DIS business, which provides clinical testing services and other services, satisfies its performance obligations and recognizes revenues primarily upon completion of the testing process, when results are reported, or when services have been rendered. The Company estimates the amount of consideration it expects to be entitled to receive from customer groups, using the portfolio approach, in exchange for providing services. These estimates include the impact of contractual allowances, including payer denials and price concessions. The portfolios determined using the portfolio approach consist of the following groups of customers: healthcare insurers, government payers (Medicare and Medicaid programs), client payers and patients.

The Company’s DS businesses primarily satisfy their performance obligations and recognize revenues when delivery has occurred or services have been rendered.

The approximate percentage of net revenue by type of customer was as follows:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019
Healthcare insurers:	Healthcare insurers:									Healthcare insurers:
Fee-for-service	Fee-for-service	32	%	32	%	32	%	33	%	Fee-for-service	33	%	32	%	33	%	33	%
Capitated	Capitated	3		3		3		3		Capitated	2		3		3		3
Total healthcare insurers	Total healthcare insurers	35		35		35		36		Total healthcare insurers	35		35		36		36
Government payers	Government payers	12		15		13		15		Government payers	10		15		12		15
Client payers	Client payers	39		32		36		32		Client payers	40		33		37		32
Patients	Patients	11		14		12		13		Patients	12		13		12		13
Total DIS	Total DIS	97		96		96		96		Total DIS	97		96		97		96
DS	DS	3		4		4		4		DS	3		4		3		4
Net revenues	Net revenues	100	%	100	%	100	%	100	%	Net revenues	100	%	100	%	100	%	100	%

The approximate percentage of net accounts receivable by type of customer was as follows:


		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019

Healthcare Insurers	Healthcare Insurers	31	%	22	%	Healthcare Insurers	30	%	22	%
Government Payers	Government Payers	8		11		Government Payers	6		11
Client Payers	Client Payers	42		42		Client Payers	48		42
Patients (including coinsurance and deductible responsibilities)	Patients (including coinsurance and deductible responsibilities)	15		20		Patients (including coinsurance and deductible responsibilities)	12		20
Total DIS	Total DIS	96		95		Total DIS	96		95
DS	DS	4		5		DS	4		5
Net accounts receivable	Net accounts receivable	100	%	100	%	Net accounts receivable	100	%	100	%

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

Allowance for Credit Losses Policy

When estimating its allowance for credit losses, the Company pools its trade receivables based on the following customer types: healthcare insurers, government payers, client payers and patients.

For the healthcare insurers and government payers, collection of the Company’s net revenues is normally a function of providing the complete and correct billing information within the various filing deadlines, and provided that the Company has billed the payers accurately with complete information prior to the established filing deadline, there has historically been little to no collection risk.

Client payers primarily include physicians, hospitals, IDNs, ACOs, employers, other commercial laboratories and institutions for which services are performed on a wholesale basis and are billed based on negotiated fee schedules. Credit risk and ability to pay are more of a consideration for these payers.

With respect to patients, implicit price concessions, which represent differences between amounts billed and the estimated consideration the Company expects to receive from patients, are recognized as a reduction of revenue. Estimates of implicit price concessions consider historical collection experience (including the period the receivables have been outstanding) and other factors including current market conditions.

The Company principally estimates the allowance for credit losses by pool based on historical collection experience, the current credit worthiness of the customers, current economic conditions, expectations of future economic conditions and the period that the receivables have been outstanding. To the extent that any individual payers are identified that have deteriorated in credit quality, the Company removes the customers from their respective pools and establishes allowances based on the individual risk characteristics of such customers.

Although the Company believes that its estimates for contractual allowances and patient price concessions as well as its allowance for credit losses are appropriate, it is possible that the Company will experience an ~~adverse~~ impact on cash collections as a result of the impact of the COVID-19 pandemic.

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(unaudited)

(in millions, unless otherwise indicated)

16. TAXES ON INCOME

For the three months ended ~~June~~September 30, 2020 and 2019, the effective income tax rate was ~~25.5%~~23.7% and ~~23.6%~~22.9%, respectively. The effective income tax rate for the three months ended ~~June~~September 30, 2020, ~~and 2019~~ benefited from $4a lower effective income tax rate associated with a $70 million gain recognized as a result of the remeasurement of the Company's previously held equity interest in MACL to fair value (see Note 5); and $5$3 million ~~respectively,~~ of excess tax benefits associated with stock-based compensation arrangements. The effective income tax rate for the three months ended September 30, 2019 benefited from a $6 million income tax benefit due to the release of a valuation allowance associated with net operating loss carryforwards; and $3 million of excess tax benefits associated with stock-based compensation arrangements.

For the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, the effective income tax rate was ~~24.4%~~23.9% and ~~23.6%~~23.4%, respectively. The effective income tax rate for the ~~six~~nine months ended ~~June~~September 30, 2020, ~~and 2019~~ benefited from ~~$12~~a lower effective income tax rate associated with a $70 million gain recognized as a result of the remeasurement of the Company's previously held equity interest in MACL to fair value (see Note 5); and $8$15 million ~~respectively,~~ of excess tax benefits associated with stock-based compensation arrangements. The effective income tax rate for the nine months ended September 30, 2019 benefited from $11 million of excess tax benefits associated with stock-based compensation arrangements; and a $10 million income tax benefit due to the release of valuation allowances associated with net operating loss carryforwards.

The effective income tax rate associated with the $70 million gain recognized as a result of the remeasurement of the Company's previously held equity interest in MACL to fair value was 11.8% due to a permanent difference in the financial reporting and tax basis of goodwill.

For the three and ~~six~~nine months ended ~~June~~September 30, 2020, the Company utilized the most likely estimate of its annual income before taxes to determine the annual effective income tax rate for 2020. As a result of uncertainty associated with the impact of the COVID-19 pandemic, it is possible that the Company will experience variability in the annual projections and, as a result, the annual effective income tax rate. ~~The Company will update the annual effective income tax rate each quarter during 2020 for changes in the latest projections for the Company.~~

17. DISCONTINUED OPERATIONS

During the third quarter of 2006, the Company completed the wind down of Nichols Institute Diagnostics ("NID"), a test kit manufacturing subsidiary, which was reported as a discontinued operation for the ~~three and six~~nine months ended ~~June~~September 30, 2019. Discontinued operations, net of taxes, for the ~~three and six~~nine months ended ~~June~~September 30, 2019 includes discrete tax benefits of $20 million associated with the favorable resolution of certain tax contingencies related to NID. In addition, net cash provided by operating activities in the consolidated statement of cash flows for the ~~six~~nine months ended ~~June~~September 30, 2019 included a $28 million refund from the taxing authorities related to discontinued operations.

18. SUBSEQUENT EVENTS

During October 2020, the Company amended its $600 million secured receivables credit facility in order to extend the maturity dates for each underlying commitment by one year while maintaining the borrowing capacity under the facility at $600 million. Under the secured receivables credit facility, the Company can borrow against a $250 million loan commitment maturing October 2021 and a $250 million loan commitment maturing October 2022. Additionally, the Company can issue up to $100 million of letters of credit through October 2022. Borrowings under the facility are collateralized by certain domestic receivables. Interest on borrowings under the facility is based on either commercial paper rates for highly-rated issuers or LIBOR, plus a spread of 0.825% to 0.95%.

In October 2020, the Company issued a redemption notice to the holders of the Company's $550 million aggregate principal amount of 4.70% senior notes due April 2021, to redeem such notes in November 2020. Upon redemption, the Company will recognize a loss on extinguishment of debt based on the difference between the reacquisition price of the debt and the net carrying amount. The Company will pay a redemption premium in accordance with the requirements of such notes using a treasury rate calculated on the third business day preceding the redemption date.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our Company

Diagnostic Information Services

Quest Diagnostics empowers people to take action to improve health outcomes. We use our extensive database of clinical lab results to derive diagnostic insights that reveal new avenues to identify and treat disease, inspire healthy behaviors and improve healthcare management. Our diagnostic information services business ("DIS") provides information and insights based on the industry-leading menu of routine, non-routine and advanced clinical testing and anatomic pathology testing, and other diagnostic information services. We provide services to a broad range of customers, including patients, clinicians, hospitals, independent delivery networks ("IDNs"), health plans, employers and accountable care organizations ("ACOs"). We offer the broadest access in the United States to diagnostic information services through our nationwide network of laboratories, patient service centers and phlebotomists in physician offices and our connectivity resources, including call centers and mobile paramedics, nurses and other health and wellness professionals. We are the world's leading provider of diagnostic information services. We provide interpretive consultation with one of the largest medical and scientific staffs in the industry. Our DIS business makes up over 95% of our consolidated net revenues.

We assess our revenue performance for the DIS business based upon, among other factors, volume (measured by test requisitions) and revenue per requisition.

Each requisition accompanies patient specimens, indicating the test(s) to be performed and the party to be billed for the test(s). Management utilizes requisition data to assist with assessing the growth of the business. Therefore, we believe that the change in the number of requisitions from period to period is useful information for investors as it allows them to assess our growth.

Revenue per requisition is impacted by various factors, including, among other items, the impact of fee schedule changes (i.e. unit price), test mix, payer mix, and the number of tests per requisition. Management utilizes revenue per requisition data in order to assist with assessing various factors impacting the performance of the business, including pricing and trends impacting mix. Therefore, we believe that the change in this metric from period to period is useful information for investors as it allows them to assess such factors, which are relevant to assessing the revenue performance of the business.

Diagnostic Solutions

In our Diagnostic Solutions ("DS") businesses, which represents the balance of our consolidated net revenues, we are the leading provider of risk assessment services for the life insurance industry and we offer healthcare organizations and clinicians robust information technology solutions.

~~Second~~Third Quarter Highlights

•Our total net revenues of ~~$1.83~~$2.79 billion were ~~down 6.4%~~up 42.5% from the prior year period.

•In DIS:

◦Revenues of ~~$1.76~~$2.71 billion ~~decreased~~increased by ~~5.7%~~44.3% compared to the prior year period, driven by demand for COVID-19 molecular and antibody testing, and, to a ~~decrease in organic volume (volume excluding~~lesser extent, the impact of ~~acquisitions);~~recent acquisitions, partially offset by ~~an increase~~a decline in ~~revenue per requisition~~testing volume in our base business (which excludes COVID-19 molecular and ~~the impact of acquisitions.~~antibody testing).

◦Volume, measured by the number of requisitions, ~~decreased~~increased by ~~17.7%~~19.7% compared to the prior year period, with organic growth (which excludes the impact of recent acquisitions) and acquisitions contributing approximately 16.6% and 3.1%, respectively. Organic volume ~~down approximately 18.2%,~~growth was driven by demand for COVID-19 molecular testing, partially offset by ~~volume associated with recent acquisitions of 0.5%. Organic volume was negatively impacted by a material decline~~declines in ~~testing volumes due to the COVID-19 pandemic, with~~ testing volumes in the base business. Testing volumes in the base business ~~(which excludes~~were negatively impacted by the COVID-19 ~~molecular~~pandemic and ~~antibody testing) down approximately 34%~~declined by 5% compared to the prior year period.

◦Revenue per requisition increased by ~~15.3%~~20.9% compared to the prior year period driven, in large part, by ~~reimbursement for~~ COVID-19 molecular testing.

•DS revenues of ~~$63~~$77 million decreased by ~~21.8%~~1.9% compared to the prior year period.

•Income from continuing operations attributable to Quest Diagnostics' stockholders was ~~$185~~$568 million, or ~~$1.36~~$4.14 per diluted share, in 2020, compared to ~~$206~~$215 million, or ~~$1.51~~$1.56 per diluted share, in the prior year period.

•For the ~~six~~nine months ended ~~June~~September 30, 2020, net cash provided by operating activities was ~~$602~~$1,464 million, compared to ~~$596~~$895 million in the prior year period.

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Impact of COVID - 19

As a novel strain of coronavirus (“COVID-19”) continues to spread and severely impact the economy of the United States and other countries around the world, we are committed to being a part of the coordinated public and private sector response to this unprecedented challenge. We have made substantial investments to expand the amount of COVID-19 testing available to the country and are currently capable of performing ~~up to 130,000~~more than 200,000 COVID-19 molecular diagnostic tests per day to aid in the diagnosis of COVID-19 and approximately 200,000 COVID-19 antibody tests per day to aid in the detection of immune response. Despite our increase in capacity, surging demand for COVID-19 molecular diagnostic tests recently has increased faster than our capacity to perform the testing, which has impacted the time it takes for us to deliver test results to patients. We are continuing to invest in ways to increase our ability to bring more COVID-19 molecular testing to patients and speed the delivery of test results. However, global supply constraints have limited, and may continue to limit, our ability to do so. In the near future, we expect to have the capacity to perform approximately 150,000 molecular diagnostic tests per day. We have been effectively managing challenges in the global supply chain; and, at this point, we have sufficient supplies to conduct our business.

We have put preparedness plans in place at our facilities to maintain continuity of operations, while also taking steps to keep colleagues and customers healthy and safe. In line with recommendations to reduce large gatherings and increase social distancing, ~~we have transitioned~~ many of our office-based colleagues toare working in a remote ~~work~~ environment. We are evaluating the best way to bring them back into the office.

During January and February 2020, we experienced growth in DIS revenues and volumes compared to the prior year period. However, in March and April 2020, we experienced a material decline in testing volumes due to the COVID-19 pandemic. During the last two weeks of March, volumes declined in excess of 40% compared to the prior year period, inclusive of COVID-19 testing, which continued in April with volume declines in the range of 50 to 60% compared to the prior year period as government policies were implemented to reduce the transmission of COVID-19. During May and June 2020, we began to experience a recovery in base testing volumes (which excludes COVID-19 molecular and antibody testing), ~~as well as~~which continued in the third quarter of 2020. Additionally, beginning during the second quarter, we experienced growing demand for COVID-19 testing ~~services.~~services and have expanded our capacity in order to satisfy such demand. Volumes in our base business for the second and third quarters of 2020 decreased approximately 34% and 5%, respectively, compared to the prior year periods.

The ~~recovery~~decrease in base testing volumes was more significant in the geographies where governmental policies designed to reduce the transmission of COVID-19 were eased more quickly than other geographies. Volumes in our base business (which excludes COVID-19 molecular and antibody testing) for the second quarter of 2020 decreased approximately 34% compared to the prior year period, which was partially offsetdriven by ~~COVID-19 molecular and antibody testing, as well as an increase in revenue per requisition driven in large part by reimbursement for COVID-19 molecular testing.~~

DIS revenues were positively impacted in the period as a result of the April 2020 announcement by the Centers for Medicare and Medicaid Services that it would increase the reimbursement for certain COVID-19 molecular tests making use of high-throughput technologies developed by the private sector that allow for increased testing capacity, faster results, and more effective means of combatting the spread of the virus to $100 per test, effective April 14, 2020 through the duration of the COVID-19 national emergency. If the current public health emergency is not renewed, reimbursement for such tests will revert to the initial rate of $51 per test.

~~Federal,~~federal, state and local governmental policies and initiatives designed to reduce the transmission of COVID-19 which have resulted in, among other things, a significant reduction in physician office visits, the cancellation of elective medical procedures, customers closing or severely curtailing their operations (voluntarily or in response to government orders), and the adoption of work-from-home policies, all of which have had, and we believe will continue to have, an impact on our operating results, financial position and cash flows, including continued declines in base testing ~~volumes (which excludes COVID-19 molecular and antibody testing).~~volumes. It is also possible that we will experience an ~~adverse~~ impact on cash collections as a result of the impact of the COVID-19 pandemic.

During the second quarter of 2020, the decrease in base testing volumes was partially offset by COVID-19 molecular and antibody testing, including an increase in revenue per requisition driven in large part by COVID-19 molecular testing. During the third quarter of 2020, the decrease in base testing volumes was more than offset by the impact of the COVID-19 testing.

In April 2020 the Centers for Medicare and Medicaid Services ("CMS") announced that it would increase the reimbursement for certain COVID-19 molecular tests making use of high-throughput technologies developed by the private sector that allow for increased testing capacity, faster results, and more effective means of combating the spread of the virus to $100 per test, effective April 14, 2020. In October 2020, CMS announced that, beginning January 1, 2021, Medicare will change the base reimbursement rate for COVID-19 diagnostic tests run on high-throughput technologies to $75 per test with an additional payment of $25 per test if certain additional requirements are met. In conjunction with our trade association, we are currently reviewing how this reimbursement policy will impact laboratories and the patients we serve.

In order to mitigate the impact that the COVID-19 pandemic had on our business, we implemented a series of temporary actions in April 2020 to manage our workforce costs and preserve cash including temporary salary reductions; suspension of certain benefits; reduced hours for employees whose work has significantly declined; and approved furloughs for employees with diminished work requirements who expressed an interest. ~~Recently, as~~As our testing volumes started to recover, we ~~have~~ recalled the vast majority of employees from furlough and reinstated full working hours for almost all employees who were asked to work reduced hours. ~~Salary has been~~By the end of the third quarter of 2020, salaries were restored for ~~the majority of~~all exempt employees that had temporary salary ~~reductions, with the remainder scheduled to be restored by the end of July 2020.~~reductions.

We believe the COVID-19 pandemic’s impact on our consolidated results of operations, financial position and cash flows will be primarily driven by: the severity and duration of the COVID-19 pandemic; the COVID-19 pandemic’s impact on the U.S. healthcare system and the U.S. economy; and the timing, scope and effectiveness of federal, state and local

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governmental responses to the COVID-19 pandemic. We may also be impacted by changes in the severity of the COVID-19

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pandemic at different times in the various cities and regions where we operate and offer services. Even after the COVID-19 pandemic has moderated and the business and social distancing restrictions have eased, we may continue to experience similar ~~adverse~~ effects to our businesses, consolidated results of operations, financial position and cash flows resulting from a recessionary economic environment that may persist. In the longer term, given the many challenges that hospitals will face, we may have more opportunities to partner with hospitals to help achieve their laboratory strategies, and the COVID-19 pandemic may also be a further catalyst for consolidation in the laboratory testing industry.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

In March 2020, in response to the COVID-19 pandemic, the CARES Act was signed into law. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain payroll tax credits associated with the retention of employees. ~~During~~Beginning in the ~~three months ended June 30,~~second quarter of 2020, we started taking advantage of the temporary suspension of payment requirements for the employer portion of Social Security taxes.

The CARES Act also includes a number of benefits that are applicable to us and other healthcare providers including, but not limited to:

•providing coverage for COVID-19 testing at no out-of-pocket cost to nearly all patients;

•providing clinical laboratories a one-year reprieve from the reporting requirements under the Protecting Access to Medicare Act ("PAMA") as well as a one-year delay of reimbursement rate reductions for clinical laboratory services provided under Medicare that were scheduled to take place in 2021. Further revisions of the Medicare Clinical Laboratory Fee Schedule for years after 2021 will be based on future surveys of market rates. Reimbursement reduction from 2022-2024 is capped by PAMA at 15% annually;

•appropriating $100 billion to health care providers for related expenses or lost revenues that are attributable to the COVID-19 pandemic. In April 2020 and August 2020, we received approximately $65 million ~~from the initial tranche~~and $73 million, respectively, of funds ~~from the government~~ that were distributed to ~~health care providers. In addition, pursuant~~healthcare providers for related expenses or lost revenues that are attributable to ~~certain rules and regulations promulgated by~~ the ~~U.S. Department of Health and Human Services ("HHS"), we applied for additional funds to be distributed by the government under the original $100 billion appropriation to healthcare providers~~COVID-19 pandemic under the CARES Act. In October 2020, we announced that we plan to return the entire $138 million of funds received. During the three months ended June 30, 2020, we recognized $65 million in other operating expense (income), net related to the first tranche of funds. During the three months ended September 30, 2020, we reversed the $65 million of funds that had previously been recognized in other operating expense (income), net. As of September 30, 2020, no amounts are recorded in our year-to-date consolidated statement of operations and the entire $138 million of funds that we intend to return are recorded in accounts payable and accrued expenses on our consolidated balance sheet; and

•suspending Medicare sequestration from May 2020 to December 2020. ~~We estimate that the~~The suspension of the Medicare sequestration ~~will result~~has resulted in a small benefit to us in the form of higher reimbursement rates for diagnostic testing services performed on behalf of Medicare beneficiaries.

Retirement of Debt

During January 2020, we redeemed in full the outstanding indebtedness under our senior notes due January 2020 and senior notes due March 2020 using proceeds from the issuance, in December 2019, of the 2.95% senior notes due June 2030, along with cash on hand. For the ~~six~~nine months ended ~~June~~September 30, 2020, we recorded a loss on retirement of debt, principally comprised of premiums paid, of $1 million in other income, ~~(expense),~~ net.

Senior Notes Offering

During May 2020, we completed a senior notes offering, consisting of $550 million aggregate principal amount of 2.80% senior notes due June 2031 (the “2031 Senior Notes”), which were issued at an original issue discount of $1 million. ~~We expect~~In October 2020, we issued a redemption notice to ~~use~~ the ~~net proceeds from the offering for general corporate purposes, which may include the redemption or repayment~~holders of ~~indebtedness including~~ our $550 million aggregate principal amount of 4.70% senior notes due April ~~2021.~~2021, to redeem such notes in November 2020. We intend to use the net proceeds from the 2031 Senior Notes, along with cash on hand, to satisfy the redemption.

For further details regarding our debt, see ~~Note~~Notes 8 and 18 to the interim unaudited consolidated financial statements.

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Acquisition of Blueprint Genetics Oy

On January 21, 2020, we completed the acquisition of Blueprint Genetics Oy ("Blueprint Genetics"), in an all cash transaction for $108 million, net of $3 million cash acquired. Blueprint Genetics is a leading specialty genetic testing company with deep expertise in gene variant interpretation based on next generation sequencing and proprietary bioinformatics. Through the acquisition, we acquired all of Blueprint Genetics' operations. The acquired business is included in our DIS business.

Acquisition of the Outreach Laboratory Services Business of Memorial Hermann Health System

On April 6, 2020, we completed the acquisition of select assets which constitute substantially all of the operations of Memorial Hermann Diagnostic Laboratories, the outreach laboratory division of Memorial Hermann Health System ("Memorial Hermann") in an all cash transaction for $120 million. Memorial Hermann is a not-for-profit health system in Southeast Texas. The acquired business is included in our DIS business.

~~Agreement to Acquire~~Acquisition of the Remaining 56% Interest in Mid America Clinical Laboratories, LLC

On ~~June 22,~~August 1, 2020, we ~~entered into definitive agreements with our joint venture partners to acquire their~~completed the acquisition of the remaining 56% interest in Mid America Clinical Laboratories, LLC ("MACL")~~, which~~ from our joint venture partners in an all cash transaction for $93 million, net of $18 million cash acquired. MACL is the largest independent clinical laboratory provider in Indiana. Prior to the acquisition, we ~~currently account~~accounted for our 44% interest in MACL as an equity method ~~investment. Closing of the transaction,~~investment which is expected to occur during the third quarter of 2020, remains subject to customary closing conditions. Upon close of the transaction, MACL will become a wholly owned subsidiary of the Company and we expect to remeasure our previously held equity interest in MACLwas remeasured to its fair value of $87 million on the acquisition date, ~~fair value and recognize~~resulting in a gain of $70 million that was recognized in ~~our~~other income, net in the consolidated statements of operations. As a result of the acquisition, MACL became our wholly owned subsidiary. The acquired business is included in our DIS business.

For further details regarding our acquisitions, see Note 5 to the interim unaudited consolidated financial statements and Note 6 to the audited consolidated financial statements in our 2019 Annual Report on Form 10-K.

Invigorate Program

We are engaged in a multi-year program called Invigorate, which is designed to reduce our cost structure and improve our performance. We currently aim annually to save approximately 3% of our costs. We are assessing whether the COVID-19 pandemic will impact our ability to achieve that objective in 2020.

Invigorate has consisted of several flagship programs, with structured plans in each, to drive savings and improve performance across the customer value chain. These flagship programs include: organization excellence; information technology excellence; procurement excellence; field and customer service excellence; lab excellence; and revenue services excellence. In addition to these programs, we identified key themes to change how we operate including reducing denials and patient concessions; further digitizing our business; standardization and automation; and optimization initiatives in our lab network and patient service center network. We believe that our efforts to standardize our information technology systems, equipment and data also foster our efforts to strengthen our foundation for growth and support the value creation initiatives of our clinical franchises by enhancing our operational flexibility, empowering and enhancing the customer experience, facilitating the delivery of actionable insights and bolstering our large data platform.

For the ~~six~~nine months ended ~~June~~September 30, 2020, we incurred ~~$21~~$34 million of pre-tax charges under our Invigorate program primarily consisting of systems conversion and integration costs, all of which result in cash expenditures. Additional restructuring charges may be incurred in future periods as we identify additional opportunities to achieve further cost savings.

For further details of the Invigorate program and associated costs, see Note 4 to the interim unaudited consolidated financial statements.

Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies from those disclosed in our 2019 Annual Report on Form 10-K except for the adoption of new accounting standards as described in Note 2 to the interim unaudited consolidated financial statements.

Revenues and accounts receivable associated with DIS

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The process for estimating revenues and the ultimate collection of receivables associated with our DIS business involves significant assumptions and judgments. We recognize as revenue the amount of consideration to which we expect to be entitled primarily upon completion of the testing process, when results are reported, or when services have been rendered. We estimate the amount of consideration we expect to be entitled to receive from customer groups, using the portfolio approach, in exchange for providing services. These estimates include the impact of contractual allowances, including payer denials, and price concessions. The portfolios determined using the portfolio approach consist of the following customers:

•Healthcare Insurers

•Government Payers (Medicare and Medicaid programs)

•Client Payers

•Patients

We have a standardized approach to estimate the amount of consideration that we expect to be entitled to; this standardized approach considers, among other things, the impact of contractual allowances, including payer denials, and price concessions. Historical collection and payer reimbursement experience (along with the period the receivables have been outstanding), as well as other factors including current market conditions, are integral parts of the estimation process related to revenues and receivables. Adjustments to our estimated contractual allowances and implicit price concessions are recorded in the current period as changes in estimates. Further adjustments, based on actual receipts, may be recorded upon settlement.

Although we believe that our estimates for contractual allowances and patient price concessions as well as our allowance for credit losses are appropriate, it is possible that we will experience an ~~adverse~~ impact on cash collections as a result of the impact of the COVID-19 pandemic. For further details on revenue and receivables, see Note 15 to the interim unaudited consolidated financial statements.

Accounting for and recoverability of goodwill

We do not amortize goodwill, but evaluate the recoverability and measure the potential impairment of our goodwill annually, or more frequently, in the case of other events that indicate a potential impairment.

Goodwill is evaluated for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The annual impairment test includes an option to perform a qualitative assessment of whether it is more likely than not that a reporting unit's fair value is less than its carrying value; the qualitative analysis may be performed prior to, or as an alternative to, performing a quantitative goodwill impairment test. In evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying value, we assess relevant events and circumstances, such as: (a) macroeconomic conditions; (b) industry and market considerations; (c) cost factors; (d) overall financial performance; (e) other relevant entity-specific events; (f) events affecting a reporting unit; and (g) a sustained decrease in share price. If, after assessing the totality of events or circumstances, we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we are required to perform the quantitative goodwill impairment test. Otherwise, no further analysis is required.

On a quarterly basis, we perform a review of our business to determine if events or changes in circumstances have occurred that indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value. If such events or changes in circumstances were deemed to have occurred, we would perform an impairment test of goodwill and record any noted impairment loss. In conjunction with the preparation of our ~~June~~September 30, 2020 financial statements, we performed such review and concluded that no impairment test was necessary. However, should the impact of the COVID-19 pandemic be significantly worse than currently expected, it is possible that we could incur impairment charges in the future.

Impact of New Accounting Standards

The adoption of new accounting standards is discussed in Note 2 to the interim unaudited consolidated financial statements.

The impact of recent accounting pronouncements not yet effective on our consolidated financial statements is discussed in Note 2 to the interim unaudited consolidated financial statements.

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Results of Operations

The following tables set forth certain results of operations data for the periods presented:


		Three Months Ended June 30,																		Six Months Ended June 30,																			Three Months Ended September 30,				Nine Months Ended September 30,
		2020			2019			$ Change		% Change		2020			2019			$ Change		% Change			2020			2019			$ Change		% Change		2020			2019			$ Change		% Change
		(dollars in millions, except per share amounts)																																							(dollars in millions, except per share amounts)
Net revenues:	Net revenues:																					Net revenues:
DIS business	DIS business	$	1,764		$	1,872		$	(108)	(5.7)	%	$	3,508		$	3,684		$	(176)	(4.8)	%	DIS business	$	2,709		$	1,877		$	832	44.3	%	$	6,217		$	5,561		$	656	11.8	%
DS businesses	DS businesses	63			81			(18)		(21.8)		141			160			(19)		(12.0)		DS businesses	77			79			(2)		(1.9)		218			239			(21)		(8.6)
Total net revenues	Total net revenues	$	1,827		$	1,953		$	(126)	(6.4)	%	$	3,649		$	3,844		$	(195)	(5.1)	%	Total net revenues	$	2,786		$	1,956		$	830	42.5	%	$	6,435		$	5,800		$	635	11.0	%

Operating costs and expenses and other operating income:	Operating costs and expenses and other operating income:																					Operating costs and expenses and other operating income:
Cost of services	Cost of services	$	1,221		$	1,265		$	(44)	(3.5)	%	$	2,491		$	2,509		$	(18)	(0.7)	%	Cost of services	$	1,580		$	1,264		$	316	25.0	%	$	4,071		$	3,773		$	298	7.9	%
Selling, general and administrative	Selling, general and administrative	360			362			(2)		(0.5)		707			746			(39)		(5.2)		Selling, general and administrative	396			362			34		9.5		1,103			1,108			(5)		(0.4)
Amortization of intangible assets	Amortization of intangible assets	25			25			—		4.2		50			49			1		2.6		Amortization of intangible assets	27			23			4		12.8		77			72			5		5.9

Other operating income, net		(62)			(6)			(56)		NM		(57)			(15)			(42)		NM
Other operating expense (income), net																						Other operating expense (income), net	65			(6)			71		NM		8			(21)			29		NM
Total operating costs and expenses, net	Total operating costs and expenses, net	$	1,544		$	1,646		$	(102)	(6.2)	%	$	3,191		$	3,289		$	(98)	(3.0)	%	Total operating costs and expenses, net	$	2,068		$	1,643		$	425	25.9	%	$	5,259		$	4,932		$	327	6.6	%

Operating income	Operating income	$	283		$	307		$	(24)	(7.6)	%	$	458		$	555		$	(97)	(17.5)	%	Operating income	$	718		$	313		$	405	129.5	%	$	1,176		$	868		$	308	35.5	%

Other income (expense):	Other income (expense):																					Other income (expense):
Interest expense, net	Interest expense, net	$	(41)		$	(45)		$	4	(9.7)	%	$	(82)		$	(89)		$	7	(8.2)	%	Interest expense, net	$	(42)		$	(44)		$	2	(3.3)	%	$	(124)		$	(133)		$	9	(6.6)	%
Other income (expense), net		13			3			10		NM		(3)			12			(15)		NM
Total non-operating expenses, net		$	(28)		$	(42)		$	14	(33.6)	%	$	(85)		$	(77)		$	(8)	9.5	%
Other income, net																						Other income, net	77			1			76		NM		74			13			61		NM
Total non-operating income (expense), net																						Total non-operating income (expense), net	$	35		$	(43)		$	78	NM		$	(50)		$	(120)		$	70	NM

Income tax expense	Income tax expense	$	(66)		$	(63)		$	(3)	4.5	%	$	(92)		$	(113)		$	21	(19.3)	%	Income tax expense	$	(177)		$	(62)		$	(115)	187.2	%	$	(269)		$	(175)		$	(94)	54.0	%

Effective income tax rate	Effective income tax rate	25.5		%	23.6		%					24.4		%	23.6		%					Effective income tax rate	23.7		%	22.9		%					23.9		%	23.4		%

Equity in earnings of equity method investees, net of taxes	Equity in earnings of equity method investees, net of taxes	$	4		$	17		$	(13)	(76.9)	%	$	18		$	30		$	(12)	(41.8)	%	Equity in earnings of equity method investees, net of taxes	$	15		$	18		$	(3)	(9.1)	%	$	33		$	48		$	(15)	(29.9)	%

Amounts attributable to Quest Diagnostics’ common stockholders:	Amounts attributable to Quest Diagnostics’ common stockholders:																					Amounts attributable to Quest Diagnostics’ common stockholders:
Income from continuing operations	Income from continuing operations	$	185		$	206		$	(21)	(10.1)	%	$	284		$	370		$	(86)	(23.3)	%	Income from continuing operations	$	568		$	215		$	353	164.7	%	$	852		$	585		$	267	45.6	%
Income from discontinued operations, net of taxes	Income from discontinued operations, net of taxes	$	—		$	20		$	(20)	NM		$	—		$	20		$	(20)	NM		Income from discontinued operations, net of taxes	$	—		$	—		$	—	NM		$	—		$	20		$	(20)	NM

Diluted earnings per common share from continuing operations attributable to Quest Diagnostics' common stockholders	Diluted earnings per common share from continuing operations attributable to Quest Diagnostics' common stockholders	$	1.36		$	1.51		$	(0.15)	(9.7)	%	$	2.09		$	2.71		$	(0.62)	(23.0)	%	Diluted earnings per common share from continuing operations attributable to Quest Diagnostics' common stockholders	$	4.14		$	1.56		$	2.58	164.6	%	$	6.25		$	4.27		$	1.98	46.0	%

NM - Not Meaningful	NM - Not Meaningful																					NM - Not Meaningful

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The following table sets forth certain results of operations data as a percentage of net revenues for the periods presented:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019
Net revenues:	Net revenues:									Net revenues:
DIS business	DIS business	96.5	%	95.9	%	96.1	%	95.8	%	DIS business	97.2	%	96.0	%	96.6	%	95.9	%
DS businesses	DS businesses	3.5		4.1		3.9		4.2		DS businesses	2.8		4.0		3.4		4.1
Total net revenues	Total net revenues	100.0	%	100.0	%	100.0	%	100.0	%	Total net revenues	100.0	%	100.0	%	100.0	%	100.0	%

Operating costs and expenses and other operating income:	Operating costs and expenses and other operating income:									Operating costs and expenses and other operating income:
Cost of services	Cost of services	66.8	%	64.8	%	68.3	%	65.3	%	Cost of services	56.7	%	64.6	%	63.3	%	65.1	%
Selling, general and administrative	Selling, general and administrative	19.7		18.6		19.4		19.4		Selling, general and administrative	14.2		18.5		17.1		19.1
Amortization of intangible assets	Amortization of intangible assets	1.4		1.3		1.4		1.3		Amortization of intangible assets	1.0		1.2		1.2		1.2

Other operating income, net		(3.4)		(0.4)		(1.6)		(0.4)
Other operating expense (income), net										Other operating expense (income), net	2.3		(0.3)		0.1		(0.4)
Total operating costs and expenses, net	Total operating costs and expenses, net	84.5	%	84.3	%	87.5	%	85.6	%	Total operating costs and expenses, net	74.2	%	84.0	%	81.7	%	85.0	%

Operating income	Operating income	15.5	%	15.7	%	12.5	%	14.4	%	Operating income	25.8	%	16.0	%	18.3	%	15.0	%


Delaware			16-1387862
(State of Incorporation)			(I.R.S. Employer Identification Number)
500 Plaza Drive
Secaucus,	NJ	07094
(973)	520-2700


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 Par Value	DGX	New York Stock Exchange


		Page
Item 1. Financial Statements (unaudited)

	Index to unaudited consolidated financial statements filed as part of this report:

	Consolidated Statements of Operations for the Three and ~~Six~~Nine Months Ended ~~June~~ September 30,, 2020 and 2019	2

	Consolidated Statements of Comprehensive Income for the Three and ~~Six~~ Nine Months Ended ~~June~~September 30,, 2020 and 2019	3

	Consolidated Balance Sheets as of ~~Jun~~e September 30,, 2020 and December 31, 2019	4

	Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~June~~ September 30,, 2020 and 2019	5

	Consolidated Statements of Stockholders’ Equity for the Three and ~~Six~~ Nine Months Ended ~~June~~ September 30,, 2020 and 2019	6

	Notes to Consolidated Financial Statements (unaudited)	8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2930

Item 3. Quantitative and Qualitative Disclosures About Market Risk

	See Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”	4445

Item 4. Controls and Procedures

	Controls and Procedures	45


		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	988	$	1,192	Cash and cash equivalents	$	1,605	$	1,192
Accounts receivable, net of allowance for credit losses of $24 and $15 as of June 30, 2020 and December 31, 2019, respectively		1,126		1,063
Accounts receivable, net of allowance for credit losses of $27 and $15 as of September 30, 2020 and December 31, 2019, respectively						Accounts receivable, net of allowance for credit losses of $27 and $15 as of September 30, 2020 and December 31, 2019, respectively	1,421		1,063
Inventories	Inventories	154		123		Inventories	205		123
Prepaid expenses and other current assets	Prepaid expenses and other current assets	112		112		Prepaid expenses and other current assets	117		112

Total current assets	Total current assets	2,380		2,490		Total current assets	3,348		2,490
Property, plant and equipment, net	Property, plant and equipment, net	1,505		1,453		Property, plant and equipment, net	1,544		1,453
Operating lease right-of-use assets	Operating lease right-of-use assets	522		518		Operating lease right-of-use assets	535		518
Goodwill	Goodwill	6,789		6,619		Goodwill	6,880		6,619
Intangible assets, net	Intangible assets, net	1,141		1,121		Intangible assets, net	1,192		1,121
Investments in equity method investees	Investments in equity method investees	495		482		Investments in equity method investees	480		482
Other assets	Other assets	158		160		Other assets	164		160

Total assets	Total assets	$	12,990	$	12,843	Total assets	$	14,143	$	12,843

Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable and accrued expenses	Accounts payable and accrued expenses	$	1,142	$	1,041	Accounts payable and accrued expenses	$	1,686	$	1,041
Current portion of long-term debt	Current portion of long-term debt	555		804		Current portion of long-term debt	555		804
Current portion of long-term operating lease liabilities	Current portion of long-term operating lease liabilities	146		145		Current portion of long-term operating lease liabilities	148		145

Total current liabilities	Total current liabilities	1,843		1,990		Total current liabilities	2,389		1,990
Long-term debt	Long-term debt	4,020		3,966		Long-term debt	4,018		3,966
Long-term operating lease liabilities	Long-term operating lease liabilities	416		413		Long-term operating lease liabilities	428		413
Other liabilities	Other liabilities	753		711		Other liabilities	782		711

Commitments and contingencies	Commitments and contingencies					Commitments and contingencies
Redeemable noncontrolling interest	Redeemable noncontrolling interest	77		76		Redeemable noncontrolling interest	80		76
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Quest Diagnostics stockholders’ equity:	Quest Diagnostics stockholders’ equity:					Quest Diagnostics stockholders’ equity:
Common stock, par value $0.01 per share; 600 shares authorized as of both June 30, 2020 and December 31, 2019; 217 shares issued as of both June 30, 2020 and December 31, 2019		2		2
Common stock, par value $0.01 per share; 600 shares authorized as of both September 30, 2020 and December 31, 2019; 217 shares issued as of both September 30, 2020 and December 31, 2019						Common stock, par value $0.01 per share; 600 shares authorized as of both September 30, 2020 and December 31, 2019; 217 shares issued as of both September 30, 2020 and December 31, 2019	2		2
Additional paid-in capital	Additional paid-in capital	2,764		2,722		Additional paid-in capital	2,801		2,722
Retained earnings	Retained earnings	8,307		8,174		Retained earnings	8,800		8,174
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(55)		(39)		Accumulated other comprehensive loss	(42)		(39)
Treasury stock, at cost; 83 and 84 shares as of June 30, 2020 and December 31, 2019, respectively		(5,187)		(5,218)
Treasury stock, at cost; 82 and 84 shares as of September 30, 2020 and December 31, 2019, respectively						Treasury stock, at cost; 82 and 84 shares as of September 30, 2020 and December 31, 2019, respectively	(5,161)		(5,218)
Total Quest Diagnostics stockholders’ equity	Total Quest Diagnostics stockholders’ equity	5,831		5,641		Total Quest Diagnostics stockholders’ equity	6,400		5,641
Noncontrolling interests	Noncontrolling interests	50		46		Noncontrolling interests	46		46
Total stockholders’ equity	Total stockholders’ equity	5,881		5,687		Total stockholders’ equity	6,446		5,687
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	12,990	$	12,843	Total liabilities and stockholders’ equity	$	14,143	$	12,843


		Six Months Ended June 30,							Nine Months Ended September 30,
		2020		2019			2020		2019
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	299	$	415	Net income	$	890	$	641
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	174		165		Depreciation and amortization	263		247
Provision for credit losses	Provision for credit losses	13		5		Provision for credit losses	18		9
Deferred income tax provision	Deferred income tax provision	23		13		Deferred income tax provision	12		15
Stock-based compensation expense	Stock-based compensation expense	31		32		Stock-based compensation expense	63		44

Other, net	Other, net	3		(33)		Other, net	(60)		(44)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(75)		(81)		Accounts receivable	(355)		(113)
Accounts payable and accrued expenses	Accounts payable and accrued expenses	42		27		Accounts payable and accrued expenses	514		80
Income taxes payable	Income taxes payable	51		15		Income taxes payable	95		9
Termination of interest rate swap agreements	Termination of interest rate swap agreements	40		—		Termination of interest rate swap agreements	40		0
Other assets and liabilities, net	Other assets and liabilities, net	1		38		Other assets and liabilities, net	(16)		7
Net cash provided by operating activities	Net cash provided by operating activities	602		596		Net cash provided by operating activities	1,464		895

Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Business acquisitions, net of cash acquired	Business acquisitions, net of cash acquired	(228)		(56)		Business acquisitions, net of cash acquired	(329)		(56)

Capital expenditures	Capital expenditures	(165)		(132)		Capital expenditures	(256)		(228)

Increase in investments and other assets	Increase in investments and other assets	(18)		(14)		Increase in investments and other assets	(19)		(27)
Net cash used in investing activities	Net cash used in investing activities	(411)		(202)		Net cash used in investing activities	(604)		(311)

Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from borrowings	Proceeds from borrowings	749		1,484		Proceeds from borrowings	749		1,484
Repayments of debt	Repayments of debt	(1,001)		(1,448)		Repayments of debt	(1,002)		(1,448)
Purchases of treasury stock	Purchases of treasury stock	(75)		(103)		Purchases of treasury stock	(75)		(153)
Exercise of stock options	Exercise of stock options	117		66		Exercise of stock options	144		98
Employee payroll tax withholdings on stock issued under stock-based compensation plans	Employee payroll tax withholdings on stock issued under stock-based compensation plans	(13)		(16)		Employee payroll tax withholdings on stock issued under stock-based compensation plans	(13)		(16)
Dividends paid	Dividends paid	(146)		(143)		Dividends paid	(222)		(215)
Distributions to noncontrolling interest partners	Distributions to noncontrolling interest partners	(10)		(27)		Distributions to noncontrolling interest partners	(34)		(39)

Other financing activities, net	Other financing activities, net	(16)		(69)		Other financing activities, net	6		4
Net cash used in financing activities	Net cash used in financing activities	(395)		(256)		Net cash used in financing activities	(447)		(285)

Net change in cash and cash equivalents and restricted cash	Net change in cash and cash equivalents and restricted cash	(204)		138		Net change in cash and cash equivalents and restricted cash	413		299

Cash and cash equivalents and restricted cash, beginning of period	Cash and cash equivalents and restricted cash, beginning of period	1,192		135		Cash and cash equivalents and restricted cash, beginning of period	1,192		135
Cash and cash equivalents and restricted cash, end of period	Cash and cash equivalents and restricted cash, end of period	$	988	$	273	Cash and cash equivalents and restricted cash, end of period	$	1,605	$	434


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549


For the Three Months Ended June 30, 2020			Quest Diagnostics Stockholders’ Equity
For the Three Months Ended September 30, 2020																			For the Three Months Ended September 30, 2020		Quest Diagnostics Stockholders’ Equity
		Shares of Common Stock Outstanding	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Compre- hensive Loss		Treasury Stock, at Cost		Non- controlling Interests		Total Stock- holders’ Equity		Redeemable Non-controlling Interest			Shares of Common Stock Outstanding	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Compre- hensive Loss		Treasury Stock, at Cost		Non- controlling Interests		Total Stock- holders’ Equity		Redeemable Non-controlling Interest
Balance, March 31, 2020		134	$	2	$	2,738	$	8,197	$	(58)	$	(5,222)	$	46	$	5,703	$	76
Balance, June 30, 2020																			Balance, June 30, 2020	134	$	2	$	2,764	$	8,307	$	(55)	$	(5,187)	$	50	$	5,881	$	77
Net income	Net income						185						7		192		1		Net income						568						18		586		5
Other comprehensive income, net of taxes	Other comprehensive income, net of taxes								3						3				Other comprehensive income, net of taxes								13						13
Dividends declared	Dividends declared						(75)								(75)				Dividends declared						(75)								(75)
Distributions to noncontrolling interest partners	Distributions to noncontrolling interest partners												(3)		(3)				Distributions to noncontrolling interest partners												(22)		(22)		(2)
Issuance of common stock under benefit plans	Issuance of common stock under benefit plans				3						4				7				Issuance of common stock under benefit plans	1			1						3				4
Stock-based compensation expense	Stock-based compensation expense				17										17				Stock-based compensation expense				32										32
Exercise of stock options	Exercise of stock options				6						31				37				Exercise of stock options				4						23				27

Balance, June 30, 2020		134	$	2	$	2,764	$	8,307	$	(55)	$	(5,187)	$	50	$	5,881	$	77
Balance, September 30, 2020																			Balance, September 30, 2020	135	$	2	$	2,801	$	8,800	$	(42)	$	(5,161)	$	46	$	6,446	$	80

For the Six Months Ended June 30, 2020			Quest Diagnostics Stockholders’ Equity
For the Nine Months Ended September 30, 2020																			For the Nine Months Ended September 30, 2020		Quest Diagnostics Stockholders’ Equity
		Shares of Common Stock Outstanding	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Compre- hensive Loss		Treasury Stock, at Cost		Non- controlling Interests		Total Stock- holders’ Equity		Redeemable Non-controlling Interest			Shares of Common Stock Outstanding	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Compre- hensive Loss		Treasury Stock, at Cost		Non- controlling Interests		Total Stock- holders’ Equity		Redeemable Non-controlling Interest
Balance, December 31, 2019	Balance, December 31, 2019	133	$	2	$	2,722	$	8,174	$	(39)	$	(5,218)	$	46	$	5,687	$	76	Balance, December 31, 2019	133	$	2	$	2,722	$	8,174	$	(39)	$	(5,218)	$	46	$	5,687	$	76
Net income	Net income						284						13		297		2		Net income						852						31		883		7
Other comprehensive loss, net of taxes	Other comprehensive loss, net of taxes								(16)						(16)				Other comprehensive loss, net of taxes								(3)						(3)
Dividends declared	Dividends declared						(151)								(151)				Dividends declared						(226)								(226)
Distributions to noncontrolling interest partners	Distributions to noncontrolling interest partners												(9)		(9)		(1)		Distributions to noncontrolling interest partners												(31)		(31)		(3)
Issuance of common stock under benefit plans	Issuance of common stock under benefit plans				6						7				13				Issuance of common stock under benefit plans	1			7						10				17
Stock-based compensation expense	Stock-based compensation expense				31										31				Stock-based compensation expense				63										63
Exercise of stock options	Exercise of stock options	2			18						99				117				Exercise of stock options	2			22						122				144
Shares to cover employee payroll tax withholdings on stock issued under stock-based compensation plans	Shares to cover employee payroll tax withholdings on stock issued under stock-based compensation plans				(13)										(13)				Shares to cover employee payroll tax withholdings on stock issued under stock-based compensation plans				(13)										(13)
Purchases of treasury stock	Purchases of treasury stock	(1)									(75)				(75)				Purchases of treasury stock	(1)									(75)				(75)
Balance, June 30, 2020		134	$	2	$	2,764	$	8,307	$	(55)	$	(5,187)	$	50	$	5,881	$	77
Balance, September 30, 2020																			Balance, September 30, 2020	135	$	2	$	2,801	$	8,800	$	(42)	$	(5,161)	$	46	$	6,446	$	80


For the Three Months Ended June 30, 2019			Quest Diagnostics Stockholders’ Equity
For the Three Months Ended September 30, 2019																			For the Three Months Ended September 30, 2019		Quest Diagnostics Stockholders’ Equity
		Shares of Common Stock Outstanding	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Compre- hensive Loss		Treasury Stock, at Cost		Non- controlling Interests		Total Stock- holders’ Equity		Redeemable Non-controlling Interest			Shares of Common Stock Outstanding	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Compre- hensive Loss		Treasury Stock, at Cost		Non- controlling Interests		Total Stock- holders’ Equity		Redeemable Non-controlling Interest
Balance, March 31, 2019		134	$	2	$	2,671	$	7,694	$	(55)	$	(5,022)	$	51	$	5,341	$	77
Balance, June 30, 2019																			Balance, June 30, 2019	135	$	2	$	2,686	$	7,849	$	(58)	$	(5,020)	$	50	$	5,509	$	76
Net income	Net income						226						12		238		1		Net income						215						10		225		1
Other comprehensive loss, net of taxes									(3)						(3)
Other comprehensive income, net of taxes																			Other comprehensive income, net of taxes								3						3
Dividends declared	Dividends declared						(71)								(71)				Dividends declared						(72)								(72)
Distributions to noncontrolling interest partners	Distributions to noncontrolling interest partners												(13)		(13)		(2)		Distributions to noncontrolling interest partners												(11)		(11)		(1)
Issuance of common stock under benefit plans	Issuance of common stock under benefit plans				2						5				7				Issuance of common stock under benefit plans				3						3				6
Stock-based compensation expense	Stock-based compensation expense				15										15				Stock-based compensation expense				12										12
Exercise of stock options	Exercise of stock options	1			(1)						47				46				Exercise of stock options	1			4						28				32
Shares to cover employee payroll tax withholdings on stock issued under stock-based compensation plans					(1)										(1)

Purchases of treasury stock	Purchases of treasury stock										(50)				(50)				Purchases of treasury stock	(1)									(50)				(50)
Balance, June 30, 2019		135	$	2	$	2,686	$	7,849	$	(58)	$	(5,020)	$	50	$	5,509	$	76
Balance, September 30, 2019																			Balance, September 30, 2019	135	$	2	$	2,705	$	7,992	$	(55)	$	(5,039)	$	49	$	5,654	$	76

For the Six Months Ended June 30, 2019			Quest Diagnostics Stockholders’ Equity
For the Nine Months Ended September 30, 2019																			For the Nine Months Ended September 30, 2019		Quest Diagnostics Stockholders’ Equity
		Shares of Common Stock Outstanding	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Compre- hensive Loss		Treasury Stock, at Cost		Non- controlling Interests		Total Stock- holders’ Equity		Redeemable Non-controlling Interest			Shares of Common Stock Outstanding	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Compre- hensive Loss		Treasury Stock, at Cost		Non- controlling Interests		Total Stock- holders’ Equity		Redeemable Non-controlling Interest
Balance, December 31, 2018	Balance, December 31, 2018	135	$	2	$	2,667	$	7,602	$	(59)	$	(4,996)	$	51	$	5,267	$	77	Balance, December 31, 2018	135	$	2	$	2,667	$	7,602	$	(59)	$	(4,996)	$	51	$	5,267	$	77
Net income	Net income						390						22		412		3		Net income						605						32		637		4
Other comprehensive income, net of taxes	Other comprehensive income, net of taxes								1						1				Other comprehensive income, net of taxes								4						4
Dividends declared	Dividends declared						(143)								(143)				Dividends declared						(215)								(215)
Distributions to noncontrolling interest partners	Distributions to noncontrolling interest partners												(23)		(23)		(4)		Distributions to noncontrolling interest partners												(34)		(34)		(5)
Issuance of common stock under benefit plans	Issuance of common stock under benefit plans				4						9				13				Issuance of common stock under benefit plans				7						12				19
Stock-based compensation expense	Stock-based compensation expense				31						1				32				Stock-based compensation expense				43						1				44
Exercise of stock options	Exercise of stock options	1									66				66				Exercise of stock options	2			4						94				98
Shares to cover employee payroll tax withholdings on stock issued under stock-based compensation plans	Shares to cover employee payroll tax withholdings on stock issued under stock-based compensation plans				(16)										(16)				Shares to cover employee payroll tax withholdings on stock issued under stock-based compensation plans				(16)										(16)
Purchases of treasury stock	Purchases of treasury stock	(1)									(100)				(100)				Purchases of treasury stock	(2)									(150)				(150)
Balance, June 30, 2019		135	$	2	$	2,686	$	7,849	$	(58)	$	(5,020)	$	50	$	5,509	$	76
Balance, September 30, 2019																			Balance, September 30, 2019	135	$	2	$	2,705	$	7,992	$	(55)	$	(5,039)	$	49	$	5,654	$	76


				Basis of Fair Value Measurements													Basis of Fair Value Measurements

				Quoted Prices in Active Markets for Identical Assets/Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs					Quoted Prices in Active Markets for Identical Assets/Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
June 30, 2020		Total		Level 1		Level 2		Level 3
September 30, 2020										September 30, 2020	Total		Level 1		Level 2		Level 3
Assets:	Assets:									Assets:

Trading securities	Trading securities	$	58	$	58	$	—	$	—	Trading securities	$	60	$	60	$	0	$	0
Cash surrender value of life insurance policies	Cash surrender value of life insurance policies	42		—		42		—		Cash surrender value of life insurance policies	45		0		45		0

Available-for-sale debt securities	Available-for-sale debt securities	12		—		—		12		Available-for-sale debt securities	12		0		0		12

Total	Total	$	112	$	58	$	42	$	12	Total	$	117	$	60	$	45	$	12

Liabilities:	Liabilities:									Liabilities:
Deferred compensation liabilities	Deferred compensation liabilities	$	108	$	—	$	108	$	—	Deferred compensation liabilities	$	114	$	0	$	114	$	0

Contingent consideration		6		—		—		6

Total		$	114	$	—	$	108	$	6

Redeemable noncontrolling interest	Redeemable noncontrolling interest	$	77	$	—	$	—	$	77	Redeemable noncontrolling interest	$	80	$	0	$	—	$	80


Business Acquisition	Business Acquisition	Benchmark	Comparable Company Revenue Volatility	Discount rate	Maximum Contingent Consideration Payment		Business Acquisition	Benchmark	Comparable Company Revenue Volatility	Discount rate	Maximum Contingent Consideration Payment

Certain assets of the clinical and anatomic pathology laboratory business of Shiel Holdings, LLC		Volume	6.9%	4.5%	$	15

ReproSource, Inc.	ReproSource, Inc.	Revenue	8.5%	6.5%	$	10	ReproSource, Inc.	Revenue	8.5%	6.5%	$	10


	Contingent Consideration






Balance, December 31, 2019	$	7

Settlements	(6)
Total (gains)/losses included in earnings - realized/unrealized	(1)
Balance, ~~June~~September 30, 2020	$	60


		Weighted Average Amortization Period (in years)	June 30, 2020															December 31, 2019												Weighted Average Amortization Period (in years)		September 30, 2020					December 31, 2019
					Cost			Accumulated Amortization			Net			Cost			Accumulated Amortization			Net			Weighted Average Amortization Period (in years)			Cost		Accumulated Amortization				Cost		Accumulated Amortization		Net
Amortizing intangible assets:	Amortizing intangible assets:																					Amortizing intangible assets:
Customer-related	Customer-related	17	$	1,403		$	(596)		$	807		$	1,367		$	(556)		$	811	Customer-related	17			$	1,479	$	(617)	$	862	$	1,367	$	(556)	$	811
Non-compete agreements	Non-compete agreements	9	3			(2)			1			3			(2)			1		Non-compete agreements	9			3		(2)		1		3		(2)		1
Technology	Technology	15	138			(60)			78			104			(56)			48		Technology	15			140		(63)		77		104		(56)		48
Other	Other	9	110			(91)			19			110			(85)			25		Other	9			110		(94)		16		110		(85)		25
Total	Total	17	1,654			(749)			905			1,584			(699)			885		Total	17			1,732		(776)		956		1,584		(699)		885

Intangible assets not subject to amortization:	Intangible assets not subject to amortization:																								Intangible assets not subject to amortization:
Trade names	Trade names		235			—			235			235			—			235		Trade names				235		—		235		235		—		235

Other	Other		1			—			1			1			—			1		Other				1		—		1		1		—		1
Total intangible assets	Total intangible assets		$	1,890		$	(749)		$	1,141		$	1,820		$	(699)		$	1,121	Total intangible assets				$	1,968	$	(776)	$	1,192	$	1,820	$	(699)	$	1,121


Year Ending December 31,	Year Ending December 31,			Year Ending December 31,
Remainder of 2020	Remainder of 2020	$	51	Remainder of 2020	$	27
2021	2021	96		2021	101
2022	2022	93		2022	98
2023	2023	91		2023	96
2024	2024	88		2024	93
2025	2025	86		2025	91
Thereafter	Thereafter	400		Thereafter	450
Total	Total	$	905	Total	$	956


As of:						Applicable Covenant:
~~June 30, 2020~~						~~no more than 5 times EBITDA~~
September 30, 2020						no more than 5.5 times EBITDA
December 31, 2020						no more than 6.5 times EBITDA
March 31, 2021						no more than 6.25 times EBITDA
June 30, 2021						no more than 4.5 times EBITDA


		Carrying Amount of Hedged Long-Term Debt			Hedge Accounting Basis Adjustment (a)			Carrying Amount of Hedged Long-Term Debt			Hedge Accounting Basis Adjustment (a)				Carrying Amount of Hedged Long-Term Debt	Hedge Accounting Basis Adjustment (a)		Carrying Amount of Hedged Long-Term Debt		Hedge Accounting Basis Adjustment (a)
Balance Sheet Classification	Balance Sheet Classification		June 30, 2020			June 30, 2020			December 31, 2019			December 31, 2019		Balance Sheet Classification		September 30, 2020		September 30, 2020		December 31, 2019		December 31, 2019
Long-term debt	Long-term debt		$	—		$	59		$	1,186		$	(3)	Long-term debt		$	0	$	56	$	1,186	$	(3)


		Six Months Ended June 30,								Change		Nine Months Ended September 30,						Change
		2020		2019				Change			2020			2019			Change
		(dollars in millions)										(dollars in millions)
Net cash provided by operating activities	Net cash provided by operating activities	$	602	$	596	$	6	Net cash provided by operating activities	$	1,464		$	895		$	569
Net cash used in investing activities	Net cash used in investing activities	(411)		(202)		(209)		Net cash used in investing activities	(604)			(311)			(293)
Net cash used in financing activities	Net cash used in financing activities	(395)		(256)		(139)		Net cash used in financing activities	(447)			(285)			(162)
Net change in cash and cash equivalents and restricted cash	Net change in cash and cash equivalents and restricted cash	$	(204)	$	138	$	(342)	Net change in cash and cash equivalents and restricted cash	$	413		$	299		$	114


		Payments due by period																			Payments due by period
Contractual Obligations	Contractual Obligations	Total		Remainder of 2020		1-3 years		4-5 years		After 5 years		Contractual Obligations	Total		Remainder of 2020		1-3 years		4-5 years		After 5 years
		(dollars in millions)																			(dollars in millions)
Outstanding debt	Outstanding debt	$	4,526	$	—	$	551	$	300	$	3,675	Outstanding debt	$	4,526	$	—	$	551	$	300	$	3,675
Finance lease obligations	Finance lease obligations	31		2		5		3		21		Finance lease obligations	31		1		5		4		21
Interest payments on outstanding debt	Interest payments on outstanding debt	1,748		92		321		301		1,034		Interest payments on outstanding debt	1,716		60		321		301		1,034
Operating leases	Operating leases	720		101		310		188		121		Operating leases	748		41		335		215		157
Purchase obligations	Purchase obligations	1,769		172		628		491		478		Purchase obligations	1,677		86		625		494		472
Merger consideration obligations		6		6		—		—		—

Total contractual obligations	Total contractual obligations	$	8,800	$	373	$	1,815	$	1,283	$	5,329	Total contractual obligations	$	8,698	$	188	$	1,837	$	1,314	$	5,359


ISSUER PURCHASES OF EQUITY SECURITIES	ISSUER PURCHASES OF EQUITY SECURITIES													ISSUER PURCHASES OF EQUITY SECURITIES
Period	Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands)		Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands)
April 1, 2020 – April 30, 2020
July 1, 2020 – July 31, 2020								July 1, 2020 – July 31, 2020
Share Repurchase Program (A)	Share Repurchase Program (A)	—	$	—	—	$	1,167,138	Share Repurchase Program (A)	—	$	—	—	$	1,167,138
Employee Transactions (B)	Employee Transactions (B)	—	$	—	N/A	N/A		Employee Transactions (B)	—	$	—	N/A	N/A
May 1, 2020 – May 31, 2020
August 1, 2020 – August 31, 2020								August 1, 2020 – August 31, 2020
Share Repurchase Program (A)	Share Repurchase Program (A)	—	$	—	—	$	1,167,138	Share Repurchase Program (A)	—	$	—	—	$	1,167,138
Employee Transactions (B)	Employee Transactions (B)	1,161	$	108.57	N/A	N/A		Employee Transactions (B)	875	$	120.58	N/A	N/A
June 1, 2020 – June 30, 2020
September 1, 2020 – September 30, 2020								September 1, 2020 – September 30, 2020
Share Repurchase Program (A)	Share Repurchase Program (A)	—	$	—	—	$	1,167,138	Share Repurchase Program (A)	—	$	—	—	$	1,167,138
Employee Transactions (B)	Employee Transactions (B)	—	$	—	N/A	N/A		Employee Transactions (B)	—	$	—	N/A	N/A
Total	Total							Total
Share Repurchase Program (A)	Share Repurchase Program (A)	—	$	—	—	$	1,167,138	Share Repurchase Program (A)	—	$	—	—	$	1,167,138
Employee Transactions (B)	Employee Transactions (B)	1,161	$	108.57	N/A	N/A		Employee Transactions (B)	875	$	120.58	N/A	N/A


31.1			Rule 13a-14(a) Certification of Chief Executive Officer

31.2			Rule 13a-14(a) Certification of Chief Financial Officer

32.1			Section 1350 Certification of Chief Executive Officer

32.2			Section 1350 Certification of Chief Financial Officer

10.1			Amendment No. 6 to The Profit Sharing Plan of Quest Diagnostics Incorporated

101.INS			Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH			Inline XBRL Taxonomy Extension Schema Document - ~~dgx-20200630.xsd~~dgx-20200930.xsd

101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document - ~~dgx-20200630_cal.xml~~dgx-20200930_cal.xml

101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document - ~~dgx-20200630_def.xml~~dgx-20200930_def.xml

101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document - ~~dgx-20200630_lab.xml~~dgx-20200930_lab.xml

101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document - ~~dgx-20200630_pre.xml~~dgx-20200930_pre.xml

104			Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)


By			/s/ Stephen H. Rusckowski
			Stephen H. Rusckowski
			Chairman, Chief Executive Officer
			and President


By			/s/ Mark J. Guinan
			Mark J. Guinan
			Executive Vice President and
			Chief Financial Officer