What changed in this filing

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Item 9A. Controls and Procedures

2022-02-28 compared with 2021-02-22 · 448 added, 883 removed, 1642 unchanged (45% of the section changed)

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Other Information

On February 24, 2022, the Company's Board of Directors increased the Company's share repurchase authorization by $1 billion.

The increased authority is an addition to the $0.7 billion that was available as of December 31, 2021 under the Company's share repurchase program.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

Directors, Executive Officers and Corporate Governance

16 unchanged sentences

Financial Statements

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Fir m ( PCAOB ID 238 )

Consolidated Balance Sheets

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Notes to Consolidated Financial Statements

Supplementary Data:

Quarterly Operating Results (unaudited)

Financial Statement Schedule.

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December 9, 2019) and incorporated herein by reference) (Commission File Number 001-12215)

4.9 Form of 2.800% Senior Note due 2031 (filed as an Exhibit to the Company’s current re port on Form 8-K (Date of Report:

4.9 Form of 2.800% Senior Note due 2031 (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report:

May 11, 2020) and incorporated herein by reference) (Commission File Number 001-12215)

28 unchanged sentences

4.25 Fifteenth Supplemental Indenture dated as of November 30, 2011, among the Company, The Bank of New York Mellon Trust Company, N.A., as successor trustee to The Bank of New York, and the Subsidiary Guarantors (filed as an Exhibit to the Company's 2011 annual report on Form 10-K and incorporated herein by reference) (Commission File Number 001-12215)

4.26 Sixteenth Supplemental Indenture dated as of March 17, 2014, b etween the Company, The Bank of New York Mellon Trust Company, N.A., (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report:

4.26 Sixteenth Supplemental Indenture dated as of March 17, 2014, between the Company, The Bank of New York Mellon Trust Company, N.A., (filed as an Exhibit to the Company's current report on Form 8-K (Date of Report:

March 12, 2014) and incorporated herein by reference) (Commission File Number 001-12215)

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May 23, 2016) and incorporated herein by reference) (Commission File Number 001-12215)

4.29 Nineteenth Supplemental Indenture dated as of March 12 2019, b etween the Company and The Bank of New York Mellon (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report:

4.29 Nineteenth Supplemental Indenture dated as of March 12 2019, between the Company and The Bank of New York Mellon (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report:

March 7, 2019) and incorporated herein by reference) (Commission File Number 001-12215)

7 unchanged sentences

10.3‡ Form of Equity Award Agreement dated as of February 19, 2018 (filed as an Exhibit to the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2018 and incorporated herein by reference) (Commission file number 001-12215)

10.4‡* Quest Diagnostics Supplemental Deferred Compensation Plan (Post 2004) amended and restated as of January 15, 2020

10.5‡* Quest Diagnostics Supplemental Deferred Compensation Plan (Pre-2005) amended and restated January 15, 2020

10.4‡ Form of Equity Award Agreement dated as of February ___, 2021 (filed as an Exhibit to the Company’s q uarterly report on Form 10-Q for the quarter ended March 31, 2021 and incorporated herein by reference) (Commission file number 001-12215)

10.5‡ Quest Diagnostics Supplemental Deferred Compensation Plan (Post 2004) amended and restated as of December 1 , 2020 (filed as an Exhibit to the Company’s quarterly report on Form 10-Q for the quarter ending September 30, 2021 and incorporated herein by reference) (Commission File Number 001-12215)

10.6‡ Quest Diagnostics Supplemental Deferred Compensation Plan (Pre-2005) amended and restated December 1, 2020 (filed as an Exhibit to the Company’s 2020 annual report on Form 10-K and incorporated herein by reference) (Commission File Number 001-12215)

10.7‡ Quest Diagnostics Incorporated Senior Management Incentive Plan, as amended and restated February 18, 2019 (filed as an Exhibit to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 2019 and incorporated herein by reference) (Commission File Number 001-12215)

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November 19, 2019) and incorporated herein by reference) (Commission File Number 001-12215)

10.8‡ The Profit Sharing Plan of Quest Diagnostics Incorporated (Amendment and Restatement, effective as of January 1, 2016) (filed as an Exhibit to the Company’s 2015 annual report on Form 10-K and incorporated herein by reference) (Commission File Number 001-12215)

10.9‡ Amendment No.

1 to The Profit Sharing Plan of Quest Diagnostics Incorporated, effective as of January 1, 2018 (filed as an Exhibit to the Company's 2017 annual report on Form 10-K and incorporated herein by reference) (Commission file number 001-12215)

10.10‡ Amendment No.

2 to The Profit Sharing Plan of Quest Diagnostics Incorporated, as amended December 20, 2018 (filed as an Exhibit to the Company's 2018 annual report on Form 10-K and incorporated herein by reference)(Commission file number 001-12215)

10.11‡ Amendment No.

3 to The Profit Sharing Plan of Quest Diagnostics Incorporated effective January 1, 2020 (filed as an Exhibit to the Company’s 2019 annual report on Form 10-K and incorporated herein by reference) (Commission File Number 001-12215)

10.12‡ Amendment No.

4 to The Profit Sharing Plan of Quest Diagnostics Incorporated effective March 1, 2020 (filed as an Exhibit to the Company’s 2020 quarterly report on Form 10-Q for the quarter ended March 31, 2020 and incorporated herein by reference) (Commission File Number 001-12215)

10.13‡ Amendment No.

5 to The Profit Sharing Plan of Quest Diagnostics Incorporated effective January 1, 2020 (filed as an Exhibit to the Company’s 2020 quarterly report on Form 10-Q for the quarter ended March 31, 2020 and incorporated herein by reference) (Commission File Number 001-12215)

10.14‡ Amendment No.

6 to The Profit Sharing Plan of Quest Diagnostics Incorporated effective January 1, 2021 (filed as an Exhibit to the Company’s 2020 quarterly report on Form 10-Q for the quarter ended September 30, 2020 and incorporated herein by reference) (Commission File Number 001-12215)

10.15‡* Amendment No.

7 to The Profit Sharing Plan of Quest Diagnostics Incorporated effective January 1, 2021

10.9‡ The Quest Diagnostics Incorporated Profit Sharing Plan (Amendment and Restatement, effective as of August 15, 2021) (filed as an Exhibit to the Company’s quarterly report on Form 10-Q for the quarter ending September 30, 2021 and incorporated herein by reference) (Commission File Number 001-12215)

10.10‡ Quest Diagnostics Incorporated Amended and Restated Deferred Compensation Plan For Directors as amended effective February 18, 2020 (filed as an Exhibit to the Company’s 2019 annual report on Form 10-K and incorporated herein by reference) (Commission File Number 001-12215)

10.17‡* Amended and Restated Quest Diagnostics Incorporated Long-Term Incentive Plan for Non-Employee Directors, as amended and restated as of November 18, 2020

10.11‡ Amended and Restated Quest Diagnostics Incorporated Long-Term Incentive Plan for Non-Employee Directors, as amended and restated as of November 18, 2020 (filed as an Exhibit to the Company’s 2020 annual report on Form 10-K and incorporated herein by reference) (Commission File Number 001-12215)

10.12‡ Form of Non-Employee Director Equity Award Agreement (filed as an Exhibit to the Company's 2011 annual report on Form 10-K and incorporated herein by reference) (Commission File Number 001-12215)

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21.1* Subsidiaries of Quest Diagnostics Incorporated

22* Subsidiary Guarantors of Securities

23.1* Consent of PricewaterhouseCoopers LLP

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32.2** Section 1350 Certification of Chief Financial Officer

99.1‡ Fourth Amended and Restated Receivables Sales Agreement, dated as of October 28, 2015, between Quest Diagnostics Incorporated and the subsidiaries identified therein, as Sellers, and Quest Diagnostics Receivables Inc., as Buyer (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report:

99.1 Fourth Amended and Restated Receivables Sa le Agreement, dated as of October 28, 2015, between Quest Diagnostics Incorporated and the subsidiaries party thereto from time to time , as Sellers, and Quest Diagnostics Receivables Inc., as Buyer (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report:

May 4, 2020) and incorporated herein by reference) (Commission File Number 001-12215)

99.2 Amendment No.

1 to Fourth Amended and Restated Receivables Sales Agreement, dated October 25, 2019 (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report:

1 to Fourth Amended and Restated Receivables Sale Agreement, dated October 25, 2019 (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report:

May 4, 2020) and incorporated herein by reference) (Commission File Number 001-12215)

99.3‡ Sixth Amended and Restated Credit and Security Agreement, dated as of October 27, 2017 among Quest Diagnostics Receivables Inc., Quest Diagnostics Incorporated, as Initial Servicer, MUFG Bank, LTD., as Administrative Agent, the Lenders party thereto, the financial institutions party thereto as agents for the conduit lenders (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report:

99.3 Sixth Amended and Restated Credit and Security Agreement, dated as of October 27, 2017 among Quest Diagnostics Receivables Inc., as Borrower, Quest Diagnostics Incorporated, as Initial Servicer, MUFG Bank, Ltd.

(formerly known as The Bank of Tokyo Mitsubishi UFJ, Ltd.), as Administrative Agent, the Lenders party thereto, the financial institutions party thereto as agents for the conduit lenders (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report:

May 4, 2020) and incorporated herein by reference) (Commission File Number 001-12215)

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99.7 Amendment No.

4 to Sixth Amended and Restated Credit and Security Agreement, dated as of October 22, 2020

4 to Sixth Amended and Restated Credit and Security Agreement, dated as of October 22, 2020 (filed a s an Exhibit to the Compan y's 2020 annual report of Form 10-K and incorporated herei n by reference) (Commission File Num ber 001-12215)

99.8 Amendment No.

1, dated as of April 30, 2020, relating to the Second Amended and Restated Credit Agreement, dated as of March 22, 2018, among Quest Diagnostics Incorporated, as Borrower, the lenders identified therein, JPMorgan Chase Bank, N.A., as Administrative Agent, and other agents party thereto and which includes, as Exhibit A, the Second Restated Credit Agreement marked to show the amended text (filed as an Exhibit to the Company’s current report on Form 8-K (Date of Report:

May 4, 2020) and incorporated herein by reference) (Commission File Number 001-12215)

5 to Sixth Amended and Restated Credit and Security Agreement, dated as of August 13, 2021 (filed as an Exhibit to the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2021 and incorporated herein by reference) (Commission File Number 001-12215)

99.9* Amendment No.

6 to Sixth Amended and Restated Credit and Security Agreement, dated as of October 21, 2021

99.10* Amendment and Restatement Agreement, dated as of November 23, 2021, relating to the Second Amended and Restated Credit Agreement, dated as of March 22, 2018, among Quest Diagnostics Incorporated, as Borrower, the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and other agents party thereto and which includes, as Exhibit A, the Third Restated Credit Agreement

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/s/Timothy M.

SELECTED HISTORICAL FINANCIAL DATA OF OUR COMPANY

The following table summarizes selected historical financial data of our Company and our subsidiaries at the dates and for each of the periods presented.

The selected historical financial data is only a summary and should be read together with the audited consolidated financial statements and related notes of our Company and management's discussion and analysis of financial condition and results of operations included elsewhere in this Annual Report on Form 10-K.

Year Ended December 31,

2020 2019 2018 2017 2016

(dollars in millions, except per share data)

Operations Data:

(a) (b) (c) (a) (d) (e) (a) (f) (g) (a) (h) (i) (a) (j) (k)

Net revenues $ 9,437 $ 7,726 $ 7,531 $ 7,402 $ 7,214

Operating income 1,971 1,231 1,101 1,165 1,277

Income from continuing operations

1,499 886 788 824 696

Income from discontinued operations, net of taxes

Net income 1,499 906 788 824 696

Net income attributable to noncontrolling interests

68 48 52 52 51

Net income attributable to Quest Diagnostics

$ 1,431 $ 858 $ 736 $ 772 $ 645

Amounts attributable to Quest Diagnostics' common stockholders:

Income from continuing operations

$ 1,431 $ 838 $ 736 $ 772 $ 645

Income from discontinued operations, net of taxes

Net income $ 1,431 $ 858 $ 736 $ 772 $ 645

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

Income from continuing operations

$ 10.62 $ 6.21 $ 5.39 $ 5.63 $ 4.58

Income from discontinued operations

Net income $ 10.62 $ 6.36 $ 5.39 $ 5.63 $ 4.58

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

Income from continuing operations

$ 10.47 $ 6.13 $ 5.29 $ 5.50 $ 4.51

Income from discontinued operations

Net income $ 10.47 $ 6.28 $ 5.29 $ 5.50 $ 4.51

Dividends per common share

$ 2.24 $ 2.12 $ 2.03 $ 1.80 $ 1.65

Year Ended December 31,

2020 2019 2018 2017 2016

(dollars in millions)

Balance Sheet Data (at end of year):

(a) (b) (c) (a) (d) (e) (a) (f) (g) (a) (h) (i) (a) (j) (k)

Cash and cash equivalents $ 1,158 $ 1,192 $ 135 $ 137 $ 359

Total assets 14,026 12,843 11,003 10,503 10,100

Long-term debt 4,013 3,966 3,429 3,748 3,728

Total debt 4,015 4,770 3,893 3,784 3,734

Redeemable noncontrolling interest 82 76 77 80 77

Net cash provided by operating activities

$ 2,005 $ 1,243 $ 1,200 $ 1,175 $ 1,116

Net cash used in investing activities

(772) (411) (801) (830) (127)

Net cash (used in) provided by financing activities (1,267) 225 (401) (592) (738)

Capital expenditures 418 400 383 252 293

Purchases of treasury stock

325 353 322 465 590

Dividends paid

297 286 266 247 223

(a) On January 1, 2019, we adopted a new lease accounting standard, which required us to recognize an asset and a liability for most operating leases on our balance sheet.

As of December 31, 2019, operating lease right-of-use assets and operating lease liabilities totaled $518 million and $558 million, respectively.

Periods prior to 2019 have not been restated.

During the third quarter of 2006, we completed the wind down of Nichols Institute Diagnostics ("NID"), a test kit manufacturing subsidiary, which was reported as discontinued operations through 2019, at which point certain income tax contingencies related to NID were resolved.

During 2020, our results were materially impacted by the COVID-19 pandemic including a decline in testing volume in our base business (which excludes COVID-19 molecular and antibody testing) which was more than offset by COVID-19 molecular and antibody testing.

(b) On January 21, 2020, we completed the acquisition of Blueprint Genetics Oy ("Blueprint Genetics").

On April 6, 2020, we completed the acquisition of select assets which constitute substantially all of the operations of Memorial Hermann Diagnostics Laboratories, the outreach laboratory division of Memorial Hermann Health System ("Memorial Hermann").

On August 1, 2020, we completed the acquisition of the remaining 56% interest in Mid America Clinical Laboratories, LLC ("MACL") from our joint venture partners.

Consolidated operating results for 2020 included the results of operations of Blueprint Genetics, Memorial Hermann and MACL subsequent to the closing of these acquisitions.

Prior to the acquisition, we accounted for our 44% interest in MACL as an equity method investment.

For further details regarding our acquisitions, see Note 6 to the audited consolidated financial statements.

During January 2020, we redeemed in full the outstanding indebtedness under our senior notes due January 2020 and senior notes due March 2020 using the net proceeds from the issuance, in December 2019, of the 2.95% senior notes due June 2030, along with cash on hand.

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").

During November 2020, the net proceeds from the 2031 Senior Notes, along with cash on hand, were used to redeem in full the outstanding indebtedness under our senior notes due April 2021.

• pre-tax amortization expense of $103 million;

• pre-tax charges of $76 million, representing the impact of certain items resulting from the COVID-19 pandemic, principally including expense associated with payments to eligible employees to help offset expenses they incurred as a result of COVID-19, incremental costs incurred primarily to protect the health and safety of our employees and customers, and certain asset impairment charges;

• pre-tax charges of $58 million, primarily associated with systems conversions and integration incurred in connection with further restructuring and integrating our business;

• pre-tax charges of $2 million, associated with Quest for Health Equity (our recently announced initiative with the Quest Diagnostics Foundation to reduce health disparities in underserved communities).

In addition to the items included in operating income, income from continuing operations included:

• a pre-tax gain of $70 million recognized upon the acquisition of the remaining 56% interest in MACL as a result of the remeasurement of our previously held equity interest to fair value;

• pre-tax amortization expense of $11 million included in equity in earnings of equity method investees, net of taxes;

• a net pre-tax gain of $4 million principally related to a gain recognized by an equity method investee to adjust certain of its investments to fair value, partially offset by a loss on the retirement of debt ;

• a pre-tax gain of $4 million in equity in earnings of equity method investees, net of taxes, representing the impact of certain items resulting from the COVID-19 pandemic;

• excess tax benefits associated with stock-based compensation arrangements of $23 million.

Net cash provided by operating activities included $40 million of proceeds received from the termination of interest rate swap agreements.

(d) On February 11, 2019, we completed the acquisition of certain assets of the clinical laboratory services business of Boyce & Bynum Pathology Laboratories, P.C.

("Boyce & Bynum").

Consolidated operating results for 2019 included the results of operations of Boyce & Bynum subsequent to the closing of the acquisition.

For further details regarding our acquisitions, see Note 6 to the audited consolidated financial statements.

In December 2019, we completed a senior notes offering, consisting of $800 million aggregate principal amount of 2.95% senior notes due June 2030.

(e) Operating income included (for 2019):

• pre-tax amortization expense of $96 million;

• pre-tax charges of $78 million, primarily associated with systems conversions and integration incurred in connection with further restructuring and integrating our business;

• a net pre-tax gain of $89 million, primarily due to a gain associated with the sale and leaseback of a property, a gain associated with the decrease in the fair value of the contingent consideration accruals associated with previous acquisitions, and a gain associated with proceeds from an insurance claim for hurricane related losses, partially offset by costs incurred related to a data security incident and non-cash asset impairment charges.

In addition to the items included in operating income, income from continuing operations included:

• pre-tax amortization expense of $15 million included in equity in earnings of equity method investees, net of taxes;

• excess tax benefits associated with stock-based compensation arrangements of $13 million.

Discontinued operations, net of taxes, for the year ended December 31, 2019 includes discrete tax benefits of $20 million associated with the favorable resolution of certain tax contingencies related to NID.

(f) On February 1, 2018, we completed the acquisition of Mobile Medical Examination Services, LLC.

On June 18, 2018, we completed the acquisition of the outreach laboratory services business of Cape Cod Healthcare, Inc.

On September 19, 2018, we completed the acquisition of ReproSource, Inc.

("ReproSource").

On November 6, 2018, we completed the acquisition of the U.S.

laboratory services business of Oxford Immunotec, Inc.

Consolidated operating results for 2018 include the results of operations of MedXM, the outreach laboratory services business of Cape Cod Healthcare, Inc., ReproSource and Oxford subsequent to the closing of the applicable acquisition.

For further details regarding our acquisitions, see Note 6 to the audited consolidated financial statements.

(g) Operating income included (for 2018):

• pre-tax charges of $122 million, primarily associated with workforce reductions, systems conversions and integration incurred in connection with further restructuring and integrating our business;

• pre-tax amortization expense of $90 million;

• pre-tax charges of $2 million, primarily associated with costs incurred related to certain legal matters and a loss on the sale of a foreign subsidiary, partially offset by a gain associated with the decrease in the fair value of the contingent consideration accrual associated with a previous acquisition and proceeds from an insurance claim for hurricane related losses.

In addition to the items included in operating income, income from continuing operations included:

• pre-tax amortization expense of $17 million included in equity in earnings of equity method investees, net of taxes;

• excess tax benefits associated with stock-based compensation arrangements of $18 million;

• an income tax benefit of $14 million primarily associated with a change in a tax return accounting method that enabled us to accelerate the deduction of certain expenses on our 2017 tax return at the federal corporate statutory income tax rate in effect during 2017, partially offset by an income tax expense associated with finalizing the impact of the enactment of the Tax Cuts and Jobs Act ("TCJA").

Pursuant to the TCJA, among other changes to U.S.

corporate income tax laws, the federal corporate statutory income tax rate was reduced from 35% to 21% effective for 2018.

(h) On May 1, 2017, we completed the acquisition of the outreach laboratory services business of PeaceHealth Laboratories ("PHL").

On July 14, 2017, we completed the acquisition of Med Fusion, LLC and Clearpoint Diagnostic Laboratories, LLC ("Med Fusion").

On September 28, 2017, we completed the acquisition of the outreach laboratory services businesses of two hospitals of Hartford HealthCare Corporation ("HHC"), The William W.

Backus Hospital and The Hospital of Central Connecticut.

On December 1, 2017, we completed the acquisition of Cleveland HeartLab, Inc.

On December 7, 2017, we completed the acquisition of certain assets of the clinical and anatomic pathology laboratory business of Shiel Holdings, LLC ("Shiel").

Consolidated operating results for 2017 include the results of operations of PHL, Med Fusion, the outreach laboratory services businesses of The William W.

Backus Hospital and The Hospital of Central Connecticut, CHL and Shiel subsequent to the closing of the applicable acquisition.

For further details regarding our acquisitions, see Note 5 to the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017.

(i) Operating income included (for 2017):

• pre-tax charges of $105 million, primarily associated with systems conversions, integration and workforce reductions incurred in connection with further restructuring and integrating our business;

• pre-tax amortization expense of $74 million;

• pre-tax charges of $12 million, primarily a result of non-cash asset impairment charges, incremental costs incurred as a result of hurricanes and costs incurred related to certain legal matters.

In addition to the items included in operating income, income from continuing operations included:

• pre-tax amortization expense of $16 million included in equity in earnings of equity method investees, net of taxes;

• a net pre-tax gain of $2 million, primarily a result of a gain on the sale of an interest in an equity method investment, partially offset by non-cash asset impairment charges associated with an investment;

• $1 million of pre-tax restructuring and integration charges associated with our Q 2 Solutions joint venture;

• a provisional estimated income tax benefit of $106 million associated with the TCJA, including a deferred income tax benefit of $115 million primarily due to the remeasurement of our net deferred tax liabilities and reserves at the new combined federal and state statutory income tax rate, partially offset by $9 million of current income tax expense primarily due to the mandatory repatriation toll charge on undistributed foreign earnings and profits;

• excess tax benefits associated with stock-based compensation arrangements of $37 million;

• income tax expense of $3 million primarily a result of recording a valuation allowance against certain net operating loss carryforwards in a geography impacted by hurricanes.

Net cash provided by operating activities benefited from a decrease in tax payments associated with the realization of a $62 million deferred tax benefit.

(j) On February 29, 2016, we completed the acquisition of the outreach laboratory services business of Clinical Laboratory Partners, LLC ("CLP"), a wholly-owned subsidiary of HHC.

Consolidated operating results for 2016 include the results of operations of CLP subsequent to the closing of the acquisition.

For further details regarding acquisitions, see Note 5 to the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016.

On May 13, 2016, we completed the sale of our Focus Diagnostics products business ("Focus Sale").

Our Focus Diagnostics products business was not classified as a discontinued operation.

For further details regarding dispositions, see Note 6 to the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016.

(k) Operating income included (for 2016):

• a pre-tax gain of $118 million associated with the Focus Sale;

• pre-tax amortization expense of $72 million;

• pre-tax charges of $78 million, primarily associated with systems conversions and integration incurred in connection with further restructuring and integrating our business;

• a net pre-tax gain of $7 million, primarily a result of a non-taxable gain on an escrow recovery associated with an acquisition, partially offset by costs associated with winding down subsidiaries, non-cash asset impairment charges and costs incurred related to certain legal matters.

In addition to the items included in operating income, income from continuing operations included:

• pre-tax amortization expense of $16 million included in equity in earnings of equity method investees, net of taxes;

• income tax expense of $84 million associated with the Focus Sale, consisting of $91 million of current income tax expense and a deferred income tax benefit of $7 million;

• $48 million of pre-tax charges on the retirement of debt and the related income tax benefit of $18 million;

• non-cash pre-tax asset impairment charges of $7 million associated with certain investments;

• $4 million of pre-tax restructuring and integration charges associated with our Q 2 Solutions joint venture;

• excess tax benefits associated with stock-based compensation arrangements of $9 million.

Net cash provided by operating activities included:

• a $17 million cash tax benefit on the retirement of debt;

• $54 million of proceeds received from the termination of interest rate swap agreements;

• $91 million of income taxes paid in connection with the Focus Sale.

Net cash used in investing activities included proceeds from the sale of businesses of $295 million, principally related to the Focus Sale.

Net cash used in financing activities included $43 million of pre-tax cash charges on the retirement of debt, principally comprised of premiums paid to retire the debt.

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

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The United States clinical testing industry consists of two segments.

One segment, which we believe makes up approximately 36% of the total industry, includes hospital inpatient and outpatient testing.

The second segment, which we believe makes up approximately 64% of the total industry, includes testing of persons who are not hospital patients, including testing done in commercial clinical laboratories, physician-office laboratories and other locations, as well as hospital outreach (non-hospital patients) testing.

We believe that hospital-affiliated laboratories account for approximately 36% of the second segment, commercial clinical laboratories approximately 53% and physician-office laboratories and other locations account for the balance.

Our estimates of the clinical laboratories industry do not include the impact of COVID-19 testing.

One segment includes hospital inpatient and outpatient testing.

The second segment includes testing of persons who are not hospital patients, including testing done in commercial clinical laboratories, physician-office laboratories and other locations, as well as hospital outreach (non-hospital patients) and consumer-initiated testing.

The clinical testing industry is subject to seasonal fluctuations in operating results and cash flows.

1 unchanged sentence

Testing volume is also subject to declines due to severe weather or other events (such as public health emergencies and health pandemics), which can deter patients from having testing performed and which can vary in duration and severity from year to year.

Additionally, orders for clinical testing generated from clinician offices, hospitals and employers can be affected by factors such as changes in the United States economy and regulatory environment, which affect the number of unemployed and uninsured, and design changes in healthcare plans, which affect utilization as well as patient responsibility for healthcare costs.

Additionally, orders for clinical testing generated from clinician offices, hospitals, employers and consumers can be affected by factors such as changes in the United States economy and regulatory environment, which affect the number of unemployed and uninsured, and design changes in healthcare plans, which affect utilization as well as patient responsibility for healthcare costs.

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

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Therefore, we believe that information related to changes in these metrics from period to period are useful information for investors as it allows them to assess the performance of the business.

A summary of our revenue performance over the past three years is as follows:

Diagnostic Solutions

In our Diagnostic Solutions ("DS") businesses, which represent the balance of our consolidated net revenues, we offer a variety of solutions for life insurers and healthcare organizations and clinicians.

We are the leading provider of risk assessment services for the life insurance industry.

In addition, we offer healthcare organizations and clinicians robust information technology solutions.

2021 Highlights

Year Ended December 31,

2021 2020 2019

(dollars in millions)

(dollars in millions, except per share data)

Net revenues $10,788 $9,437 $7,726

Base business revenues (a) $8,018 $6,714 $7,726

COVID-19 testing revenues $2,770 $2,723 $—

DIS revenues $10,494 $9,139 $7,405

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Organic requisition volume change 13.6% 4.5% 3.1%

The impact that the COVID-19 pandemic had on our DIS revenues, including requisition volume and revenue per requisition are discussed further below under "2020 Highlights" and "Impact of COVID-19".

Diagnostic Solutions

We are the leading provider of risk assessment services for the life insurance industry.

In addition, we offer healthcare organizations and clinicians robust information technology solutions.

2020 Highlights

• Our total net revenues of $9.4 billion were up 22.1% from the prior year.

◦ Revenues of $9.1 billion increased by 23.4% compared to the prior year, driven by demand for COVID-19 molecular and antibody testing, and, to a lesser extent, the impact of recent acquisitions, partially offset by a decline in testing volume in our base business (which excludes COVID-19 molecular and antibody testing).

◦ Volume, measured by the number of requisitions, increased by 6.6% compared to the prior year, with organic growth (which excludes the impact of recent acquisitions) and acquisitions contributing approximately 4.5% and 2.1%, respectively.

Organic volume growth was driven by demand for COVID-19 molecular testing, partially offset by declines in testing volume in the base business.

Testing volume in the base business were negatively impacted by the COVID-19 pandemic and declined by 11.4% compared to the prior year.

◦ Revenue per requisition increased by 16.2% compared to the prior year driven, in large part, by COVID-19 molecular testing.

• DS revenues of $298 million decreased by 7.0% compared to the prior year and were negatively impacted by the COVID-19 pandemic.

• Income from continuing operations attributable to Quest Diagnostics' stockholders was $1,431 million, or $10.47 per diluted share, in 2020, compared to $838 million, or $6.13 per diluted share, in 2019.

• Net cash provided by operating activities was approximately $2.0 billion in 2020, compared to $1.2 billion in 2019.

DS revenues $294 $298 $321

Income from continuing operations attributable to Quest Diagnostics $1,995 $1,431 $838

Diluted earnings per share from continuing operations $15.55 $10.47 $6.13

Net cash provided by operating activities $2,233 $2,005 $1,243

(a) Excludes COVID-19 testing.

The impact that the COVID-19 pandemic had on our DIS revenues, including requisition volume and revenue per requisition are discussed further below under "Impact of COVID-19" and "Results of Operations".

For further discussion of the year-over-year changes for the year ended December 31, 2021 compared to the year ended December 31, 2020, see "Results of Operations" below.

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 approximately 225,000 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.

As a novel strain of coronavirus (COVID-19) continues to 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 and maintain the amount of COVID-19 testing available to the country.

We have been effectively managing challenges in the global supply chain;

and, at this point, we have sufficient supplies to conduct our business.

During 2020, our testing volume and revenues were materially impacted by the COVID-19 pandemic including a decline in testing volume in our base business (which excludes COVID-19 molecular and antibody testing) which was more than offset by COVID-19 molecular and antibody testing.

During January and February 2020, we experienced growth in DIS revenues and volume compared to the prior year period.

However, in March and April 2020, we experienced a material decline in testing volume due to the COVID-19 pandemic.

During May and June 2020, we began to experience a recovery in base testing volume, which continued in the second half of 2020.

Volume in our base business (which includes the impact of recent acquisitions) for the second, third and fourth quarters of 2020 decreased approximately 34%, 5% and 2%, respectively, compared to the prior year periods.

However, at the end of November and into December 2020, the trend of recovery in our base business volume was impacted somewhat due to the increase in COVID-19 infections across the country.

The decrease in base testing volume was driven by federal, state and local governmental policies and initiatives designed to reduce the transmission of COVID-19, 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 base testing volume.

Beginning during the second quarter of 2020, we experienced growing demand for COVID-19 testing services, which partially offset the decrease in base testing volume during that period.

During the second half of 2020, as we have expanded our capacity in order to satisfy such demand, the impact of COVID-19 testing more than offset the decrease in base testing volume.

Additionally, the impact of COVID-19 molecular testing drove an increase in revenue per requisition compared to the prior year.

During 2020 and 2021, our testing volume and revenues were materially impacted by the COVID-19 pandemic.

Beginning in March 2020, we experienced a material decline in base testing volume (which excludes COVID-19 testing) due to the COVID-19 pandemic.

The decrease in base testing volume was driven by federal, state and local governmental policies and initiatives designed to reduce the transmission of COVID-19, 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), increased unemployment and loss of healthcare insurance and the adoption of work-from-home policies, all of which have had, and may continue to have, an impact on our operating results, financial position and cash flows.

During May and June 2020, we began to experience a recovery in base testing volume, which continued in 2021.

The recovery has been driven by people returning to the healthcare system as well as contributions from new Professional Laboratory Services arrangements.

For the first, second, third and fourth quarters of 2021, our base testing volume, excluding volume associated with recent acquisitions, was 2.8% below, 1.9% above, 3.8% above and 4.8% above our historical first, second, third and fourth quarter of 2019 levels, respectively.

Recent agreements associated with our Professional Laboratory Services offerings contributed 5.2%, 5.8%, 5.2% and 5.6% volume growth for the first, second, third and fourth quarters of 2021 compared to 2019, respectively.

Unless there is a change in the severity of the COVID-19 pandemic, we believe that there will be a continued return to healthcare with, in some cases, patients pursuing care delayed during the COVID-19 pandemic.

Beginning in the second quarter of 2020, we experienced growing demand for COVID-19 testing services and we expanded our capacity throughout 2020 in order to satisfy the demand, which has had a significant impact on our testing volumes.

During 2021, demand for our COVID-19 testing has generally fluctuated in line with changes in the prevalence of the virus and related variants.

We expect demand to trend down in 2022 and beyond.

Additionally, our revenue per requisition has been positively impacted by COVID-19 molecular 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.

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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 severity and duration of the COVID-19 pandemic (including any variants);

healthcare insurer, government, and client payer reimbursement rates for COVID-19 molecular testing;

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healthcare system and the U.S.

and the timing, scope and effectiveness of federal, state and local governmental responses to the COVID-19 pandemic.

We may also be impacted by changes in the severity of the COVID-19 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 effects to our businesses, consolidated results of operations, financial position and cash flows resulting from a recessionary economic environment that may persist.

the timing, scope and effectiveness of federal, state and local governmental responses to the COVID-19 pandemic;

and effective and comprehensive COVID-19 vaccination across the U.S.

We may also be impacted by changes in the severity of the COVID-19 pandemic at different times in the various cities and regions where we operate and offer services, and by challenges faced in implementing nationwide COVID-19 vaccinations, including the degree to which the public is vaccinated and the effectiveness of vaccines at preventing infection or illness in connection with new or existing variants of COVID-19.

Even as the COVID-19 pandemic moderates over time and the business and social distancing restrictions ease, we may continue to experience similar effects to our businesses, consolidated results of operations, financial position and cash flows arising from long-term changes in behavior by consumers or other healthcare system participants and 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.

Beginning in the 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 2022 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 healthcare 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 and $73 million, respectively, of funds that were distributed to healthcare providers for related expenses or lost revenues that are attributable to the COVID-19 pandemic under the CARES Act.

During the fourth quarter of 2020, we returned the entire $138 million of funds;

• suspending Medicare sequestration from May 2020 to December 2020.

In December 2020, the suspension of the Medicare sequestration, which 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, was extended through March 2021.

Senior Notes Offerings and 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 the net proceeds from the issuance, in December 2019, of $800 million aggregate principal amount of 2.95% senior notes due June 2030 (the "2030 Senior Notes"), along with cash on hand.

For the year ended December 31, 2020, we recorded a loss on retirement of debt in connection with the transaction, principally comprised of premiums paid, of $1 million in other income (expense), net.

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.

During November 2020, the net proceeds from the 2031 Senior Notes, along with cash on hand, were used to redeem in full the outstanding indebtedness under our senior notes due April 2021.

For the year ended December 31, 2020, we recorded a loss on retirement of debt in connection with the transaction, principally comprised of premiums paid, of $8 million in other income (expense), net.

For further details regarding our debt, see Note 13 to the audited consolidated financial statements.

Medicare Sequestration

Reimbursement for Medicare services is subject to annual reduction (sequestration) of 2% under the Budget Control Act of 2011.

Beginning in May 2020, there has been a suspension of sequestration, which 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.

During December 2021, the suspension of Medicare sequestration was further extended through March 31, 2022 and it was reduced to 1% from April 1, 2022 to June 30, 2022, with the full annual 2% reduction in rates resuming thereafter.

Two Point Strategy

Our two point strategy is described in detail in " Item 1.

Our Strategy ." We continued to execute our strategy during 2020 as follows:

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 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.

Our two point strategy and our operating principles are described in detail in " Item 1.

We continued to execute our strategy and leverage our operating principles during 2021 as follows:

Acquisition of the Outreach Services Business of Mercy Health

On June 1, 2021, we completed the acquisition of the outreach laboratory services business of Mercy Health, which serves providers and patients in Arkansas, Kansas, Missouri and Oklahoma, in an all-cash transaction for $225 million.

The acquired business is included in our DIS business.

Acquisition of the Remaining 56% Interest in Mid America Clinical Laboratories, LLC

On August 1, 2020, we completed the acquisition of the remaining 56% interest in Mid America Clinical Laboratories, LLC ("MACL") 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 accounted for our 44% interest in MACL as an equity method investment, which was remeasured to its fair value of $87 million on the acquisition date, resulting in a gain of $70 million that was recognized in other income (expense), net in the consolidated statements of operations.

As a result of the acquisition, MACL became our wholly owned subsidiary.

For further details, see Note 5 to the audited consolidated financial statements.

Acquisition of Assets of Labtech Diagnostics, LLC ("Labtech")

On December 13, 2021, we completed the acquisition of assets of Labtech, an independent clinical diagnostics laboratory provider serving physicians and patients primarily in South Carolina, North Carolina, Florida and Georgia, in an all cash transaction for $85 million, which consisted of cash consideration of $80 million and contingent consideration initially estimated at $5 million.

The contingent consideration arrangement is dependent upon the achievement of certain testing volume benchmarks.

The acquired business is included in our DIS business.

For further details regarding our acquisitions, see Note 6 to the audited consolidated financial statements.

For further details, see Note 5 to the audited consolidated financial statements.

Investments to Accelerate Growth

In addition to our normal expenditures to operate the business, we have been making additional investments to accelerate growth, particularly in the advanced diagnostics and consumer-initiated testing areas which we believe represent long term growth opportunities for us.

During 2021, such investments totaled approximately $70 million and, during 2022, such investments are expected to approximate $160 million.

Sale of Ownership Interest in Q 2 Solutions ® ("Q 2 Solutions") to IQVIA Holdings, Inc.

On April 1, 2021, we sold our 40% ownership interest in Q 2 Solutions, our clinical trials central laboratory services joint venture, to IQVIA, our joint venture partner, for $760 million in an all-cash transaction.

The sales price is subject to customary post-closing adjustments.

Prior to the transaction, we accounted for our minority interest as an equity method investment.

As a result of the transaction, during the year ended December 31, 2021, we recorded a $314 million pre-tax gain in other income, net in the consolidated statement of operations based on the difference between the net sales proceeds and the carrying value of the investment, including $20 million of cumulative translation losses which were previously recorded in accumulated other comprehensive loss.

During the year ended December 31, 2021, we also recorded $55 million of income tax expense related to the gain, consisting of $127 million of current income tax expense, partially offset by $72 million of deferred income tax benefit.

Under a multi-year agreement, we will remain the strategic preferred laboratory provider for Q 2 Solutions' clients, providing a range of lab testing capabilities to augment Q 2 Solutions' core offerings and extend its industry leading suite of services.

For further details, see Note 6 to the audited consolidated financial statements.

Accelerated Share Repurchase Agreements ("ASRs")

In April 2021, we entered into ASRs with several financial institutions to repurchase our common stock as part of our share repurchase program.

Each of the ASRs was structured to permit us to purchase shares immediately with the final purchase price of those shares determined by the volume-weighted average price of our common stock during the repurchase period, less a fixed discount.

During the year ended December 31, 2021, we paid $1.5 billion to the financial institutions and received 10.7 million shares of our common stock under the ASRs.

For further details regarding the ASRs and our repurchases of our common stock, see Note 16 to the audited consolidated financial statements.

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, and in 2020 we achieved that goal.

We currently aim annually to achieve savings and productivity improvements of approximately 3% of our costs and in 2021 we exceeded that goal.

Invigorate has consisted of several flagship programs, with structured plans in each, to drive savings and improve performance across the customer value chain.

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organization excellence;

information technology excellence;

technology excellence;

procurement excellence;

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For the year ended December 31, 2021, we incurred $56 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 5 to the audited consolidated financial statements.

Additional restructuring charges may be incurred in future periods as we identify additional opportunities to achieve further productivity improvements and savings.

Outlook and Trends

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Healthcare market participants, including governments, are focusing on controlling costs, including potentially by reducing reimbursement for healthcare services, changing reimbursement for healthcare services (including but not limited to a shift from fee-for-service to capitation), changing medical coverage policies ( e.g ., healthcare benefits design), denying coverage for services, requiring preauthorization of laboratory testing, requiring co-pays, introducing laboratory spend management utilities and payment and patient care innovations such as ACOs, DCEs and patient-centered medical homes.

The ongoing trend of rising patient responsibility and increasing payer denials has resulted in an increase in our reserves for patient price concessions.

In recent years, there has been an ongoing trend of rising patient responsibility (including attributable to payer denials) which has resulted in an increase in our reserves for patient price concessions.

As health plans and government programs require greater levels of patient cost-sharing, our patient price concessions may continue to be negatively impacted and adversely impact our results of operations.

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In both 2021 and 2020, we derived approximately 3% of our consolidated net revenues from capitated payment arrangements.

In 2020 and 2019, we derived approximately 8% and 10%, respectively, of our testing volume from capitated payment arrangements.

In both 2021 and 2020, we derived approximately 8% of our testing volume from capitated payment arrangements.

Historically, the Medicare Clinical Laboratory Fee Schedule ("CLFS") and the Medicare Physician Fee Schedule established under Part B of the Medicare program have been subject to change, including each year.

Pursuant to PAMA, the Centers for Medicare and Medicaid Services ("CMS") promulgated revised reimbursement schedules for 2018-2020 for clinical laboratory testing services provided under Medicare.

Under the revised Medicare Clinical Laboratory Fee Schedule (in 2020 CLFS revenues comprised 8% of our consolidated net revenues), reimbursement rates for clinical laboratory testing were

reduced in 2018, 2019 and 2020.

Pursuant to the Protecting Access to Medicare Act ("PAMA"), CMS promulgated revised reimbursement schedules for 2018-2020 for clinical laboratory testing services provided under Medicare.

Under the revised Medicare Clinical Laboratory Fee Schedule (in 2021 CLFS revenues comprised 7% of our consolidated net revenues), reimbursement rates for clinical laboratory testing were reduced from 2018 - 2020.

PAMA calls for further revision of the CLFS for years after 2020, based on future surveys of market rates;

reimbursement reduction from 2022-24 is capped by PAMA at 15%.

In late 2019, the Laboratory Access for Beneficiaries Act (the “LAB Act”) was signed into law.

The LAB Act delayed PAMA's next data collection and reporting period until January 1, 2021 and ordered a study to determine ways to improve future collection of more representative market rate data under PAMA.

In 2020, the CARES Act provided clinical laboratories with a one-year reprieve from the reporting requirements under PAMA as well as a one-year delay of reimbursement rate reductions that were scheduled to take place in 2021.

Overall, we expect total reimbursement rate pressure for 2021 from all payers on a combined basis to be approximately 1%.

reimbursement reduction from 2023 - 2025 is capped by PAMA at 15% annually.

PAMA's next data collection and reporting period have been delayed, most recently by federal legislation adopted in 2021, which further delayed the reimbursement rate reductions and reporting requirements until 2023.

Overall, we expect total reimbursement rate pressure (i.e., unit price changes) for 2022 from all payers on a combined basis to be less than 1%.

In addition, the trend of consolidating, converging and diversifying among our customers, payers and other healthcare industry participants has continued and may result in increased price transparency and bargaining power, and may encourage internalization of clinical testing.

We also believe that PAMA may be a further catalyst for consolidation as diagnostic information services providers realize lower Medicare reimbursement rates and large diagnostic information services providers may be able to increase their share of the overall diagnostic information services industry due to their large networks and lower cost structures.

We also believe that PAMA, among other factors, may be a further catalyst for consolidation as diagnostic information services providers realize lower Medicare reimbursement rates and large diagnostic information services providers may be able to increase their share of the overall diagnostic information services industry due to their large networks and lower cost structures.

For a discussion of the impact of the COVID-19 pandemic on our business, see " Impact of COVID-19" above.

We believe that inflation generally has not had a material adverse effect on our results of operations or financial condition.

Given the current environment, we expect wage inflation (excluding the impact of changes in performance-based compensation) of 3% to 4% during 2022.

For additional information on our key trends, which present both opportunities and risks, see " Item 1.

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We have a standardized approach to estimate the amount of consideration that we expect to be entitled to, including the impact of contractual allowances (including payer denials), and patient price concessions.

Historical collection and payer reimbursement experience (along with the period the receivables have been outstanding) is an integral part of the estimation process related to revenues and receivables.

Historical collection and payer reimbursement experience (along with the period of time that the receivables have been outstanding) is an integral part of the estimation process related to revenues and receivables.

Adjustments to our estimated contractual allowances and implicit patient price concessions are recorded in the current period as changes in estimates.

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We believe that the collectability of our receivables is directly linked to the quality of our billing processes, most notably those related to obtaining the correct information in order to bill effectively for the services we provide.

As such, we continue to implement “best practices” and endeavor to increase the use of electronic ordering to reduce the number of requisitions that we receive from healthcare providers with missing or incorrect billing information.

As such, we strive to implement “best practices” and endeavor to increase the use of electronic ordering to reduce the number of requisitions that we receive from healthcare providers with missing or incorrect billing information.

We believe that our collection and revenue estimation processes, along with our close monitoring of our billing operations, help to reduce the risk associated with material adjustments to reserve estimates.

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Under capitated payment arrangements, the healthcare insurers typically reimburse us in the same month services are performed, essentially giving rise to no outstanding accounts receivable at the end of a reporting period.

If any capitated

payments are not received on a timely basis, we determine the cause and make a separate determination as to whether or not the collection of the amount from the healthcare insurer is at risk and, if so, would reserve accordingly.

If any capitated payments are not received on a timely basis, we determine the cause and make a separate determination as to whether or not the collection of the amount from the healthcare insurer is at risk and, if so, would reserve accordingly.

Government payers

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Collection of consideration we expect to receive generally occurs within 60 to 90 days of billing.

We principally estimate the allowance for credit losses for client payers 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 client payers are identified that have deteriorated in credit quality, we establish allowances based on the individual risk characteristics of such customers.

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Net revenues consist of amounts billed net of discounts provided to uninsured patients in accordance with our policies and implicit price concessions.

Implicit price concessions represent differences between amounts billed and the estimated consideration we expect to receive from patients, which considers historical collection experience (along with the period the receivables have been outstanding) and other factors including current market conditions.

Patient billings are generally fully reserved for when the related billing reaches 210 days outstanding.

Implicit price concessions represent differences between amounts billed and the estimated consideration we expect to receive from patients, which considers historical collection experience (along with the period of time that the receivables have been outstanding) and other factors including current market conditions.

Patient billings are generally fully reserved for when the related service reaches 210 days outstanding.

Balances are automatically written off when they are sent to collection agencies.

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Collection of consideration we expect to receive generally occurs within 30 to 60 days of billing.

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 impact on cash collections as a result of the impact of the COVID-19 pandemic.

For further details on revenue and receivables, see Note 3 to the audited consolidated financial statements.

Reserves for general and professional liability claims

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Although we believe that our present reserves and insurance coverage are sufficient to cover currently estimated exposures, it is possible that we may incur liabilities in excess of our recorded reserves or insurance coverage.

Changes in the facts and circumstances associated with claims could have a material

impact on our results of operations (principally costs of services), cash flows and financial condition in the period that reserve estimates are adjusted or paid.

Changes in the facts and circumstances associated with claims could have a material impact on our results of operations (principally costs of services), cash flows and financial condition in the period that reserve estimates are adjusted or paid.

See Note 18 to the audited consolidated financial statements for a discussion of our reserves for general and professional liability claims.

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In addition, these laws and regulations may be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that could require us to make changes in our operations, including our pricing and/or billing practices.

We have, in the past, entered into several settlement agreements with various government and private payers relating to industry-wide billing and marketing practices that had been substantially discontinued.

The federal or state governments may bring claims based on our current practices, which we believe are lawful.

In addition, certain federal and state statutes, including the qui tam provisions of federal and state false claims acts, allow private individuals to bring lawsuits against healthcare companies on behalf of government or private payers alleging inappropriate billing practices.

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The process of analyzing, assessing and establishing reserve estimates relative to legal proceedings involves a high degree of judgment.

Management has established reserves for legal proceedings in accordance with generally accepted accounting principles.

Management has established reserves for legal proceedings in accordance with generally accepted accounting principles in the United States.

Changes in facts and circumstances related to such proceedings could lead to significant adjustments to reserve estimates for such matters and could have a material impact on our results of operations, cash flows and financial condition in the period that reserve estimates are adjusted or paid.

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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.

We have identified the following reporting units for goodwill impairment testing in 2020:

We identified the following reporting units for goodwill impairment testing in 2021:

• DIS business;

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If the carrying value is greater than our estimate of fair value, an impairment loss will be recognized in the amount of the excess.

We calculate the fair value of each reporting unit using either (i) a discounted cash flows analysis that converts future cash flow

amounts into a single discounted present value amount or (ii) a market approach.

We calculate the fair value of each reporting unit using either (i) a discounted cash flows analysis that converts future cash flow amounts into a single discounted present value amount or (ii) a market approach.

We assess the valuation methodology based upon the relevance and availability of the data at the time we perform the valuation.

The discounted cash flows analysis includes several unobservable inputs related to our own assumptions.

The assumptions and estimates used in the discounted cash flows model are based upon the best available information in the circumstances and include a forecast of expected future cash flows, long-term growth rates, discount rates that are commensurate with economic risks, assumed income tax rates and estimates of capital expenditures and working capital.

estimates of capital expenditures and working capital.

The fair values of the reporting units could be different if, for example, forecasted revenue growth rates, economic conditions, government regulations or actions by payers to control utilization of or reimbursement for healthcare services, turn out to be different than our assumptions or estimates.

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We perform our annual impairment test during the fourth quarter of the fiscal year.

For the year ended December 31, 2020, in accordance with our policy to perform the quantitative test on a periodic basis, we updated the fair value calculation of our reporting units, performed the quantitative impairment test and concluded that goodwill was not impaired.

As a sensitivity, if the estimated fair values of each of our reporting units decreased by 10%, we would have concluded that our goodwill was not impaired.

For the year ended December 31, 2021, we performed the qualitative assessment for our DIS and risk assessment services reporting units.

Based on the totality of the information available for each reporting unit, we concluded that it was more likely than not that the estimated fair values were greater than the carrying values of the reporting units, and as such, no further analysis was required.

As a sensitivity, in conjunction with the most recent quantitative test performed for the year ended December 31, 2020, if the estimated fair values of each of our reporting units decreased by 10%, we would have concluded that our goodwill was not impaired.

Results of Operations

For the discussions on the year-over-year changes for the year ended December 31, 2019 compared to December 31, 2018 and the results of operations for the year ended December 31, 2018, see Item 7 - Management's Discussion and Analysis of Financial Condition and Result of Operations of our Annual Report on Form 10-K for the year ended December 31, 2019.

For a comparison of results of operations for the year ended December 31, 2020 compared to December 31, 2019, along with the results of operations for the year ended December 31, 2019, see "Item 7 - Management's Discussion and Analysis of Financial Condition and Result of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2020.

See "Available Information."

Basis of Presentation

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Amortization of intangible assets 103 103 — —

Other operating expense (income), net 9 (95) 104 NM

Other operating (income) expense, net (2) 9 (11) NM

Total operating costs and expenses, net $ 8,407 $ 7,466 $ 941 12.6 %

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Other income, net 369 76 293 NM

Total non-operating expense, net $ (87) $ (155) $ 68 (43.9) %

Total non-operating income (expense), net $ 218 $ (87) $ 305 NM

Income tax expense $ (597) $ (460) $ (137) 29.6 %

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$ 78 $ 75 $ 3 4.7 %

Amounts attributable to Quest Diagnostics' common stockholders

Income from continuing operations $ 1,431 $ 838 $ 593 70.8 %

Income from discontinued operations, net of taxes $ — $ 20 $ (20) NM

Diluted earnings per common share from continuing operations attributable to Quest Diagnostics’ common stockholders

$ 10.47 $ 6.13 $ 4.34 70.8 %

Net income attributable to Quest Diagnostics $ 1,995 $ 1,431 $ 564 39.4 %

Diluted earnings per share attributable to Quest Diagnostics’ common stockholders $ 15.55 $ 10.47 $ 5.08 48.5 %

NM - Not Meaningful

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Amortization of intangible assets 1.0 1.1

Other operating expense (income), net 0.1 (1.2)

Other operating (income) expense, net (0.1) 0.1

Total operating costs and expenses, net

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Operating Results

Results for the year ended December 31, 2020 were affected by certain items that on a net basis decreased diluted earnings per share from continuing operations by $0.71 as follows:

Results for the year ended December 31, 2021 were affected by certain items that on a net basis increased diluted earnings per share by $1.31 as follows:

• a pre-tax gain recorded in other income, net of $314 million, or $2.02 per diluted share, on the sale of our 40% ownership interest in Q 2 Solutions;

• a net pre-tax gain of $23 million (a $39 million gain recorded in other income, net, partially offset by $16 million of costs recorded in selling, general and administrative expenses), or $0.16 per diluted share, primarily representing changes in the carrying value of our strategic investments, and a gain recognized by an equity method investee to adjust certain of its investments to fair value, partially offset by costs associated with donations, contributions and other financial support through Quest for Health Equity (our initiative with the Quest Diagnostics Foundation to reduce health disparities in underserved communities), and a non-cash impairment charge to the carrying value of an equity method investment;

• excess tax benefits associated with stock-based compensation arrangements of $19 million, or $0.14 per diluted share, recorded in income tax expense;

partially offset by

• pre-tax amortization expense of $105 million ($103 million in amortization of intangible assets and $2 million in equity in earnings of equity method investees, net of taxes) or $0.62 per diluted share;

• net pre-tax charges of $72 million ($57 million of charges in cost of services, $10 million of charges in selling, general and administrative expenses and $9 million of charges in other operating expense (income), net, partially offset by a $4 million gain in equity in earnings of equity method investees, net of taxes), or $0.39 per diluted share, representing the impact of certain items resulting from the COVID-19 pandemic, principally including expense associated with payments to eligible employees to help offset expenses they incurred as a result of COVID-19, incremental costs incurred primarily to protect the health and safety of our employees and customers, and certain asset impairment charges;

• pre-tax charges of $61 million ($30 million in cost of services and $31 million in selling, general and administrative expenses), or $0.36 per diluted share, primarily associated with systems conversions and integration incurred in connection with further restructuring and integrating our business;

partially offset by

• a pre-tax gain of $70 million, or $0.46 per diluted share, recognized in other income (expense), net upon the acquisition of the remaining 56% interest in MACL as a result of the remeasurement of our previously held equity interest to fair value;

• excess tax benefits associated with stock-based compensation arrangements of $23 million, or $0.17 per diluted share, recorded in income tax expense;

• a net pre-tax gain of $2 million (a $14 million gain in equity in earnings of equity method investees, net of taxes, partially offset by a $10 million loss in other income (expense), net and $2 million of charges in selling, general and administrative expenses) primarily due to a gain recognized by an equity method investee to adjust certain of its investments to fair value, a loss on retirement of debt, and, to a lesser extent, costs associated with Quest for Health Equity, our recently announced initiative with the Quest Diagnostics Foundation to reduce health disparities in underserved communities.

Results for the year ended December 31, 2019 were affected by certain items that on a net basis reduced diluted earnings per share from continuing operations by $0.43 as follows:

• pre-tax charges of $4 million in cost of services, or $0.03 per diluted share, representing the impact of certain items resulting from the COVID-19 pandemic, including incremental costs incurred to protect the health and safety of our employees and customers.

For the year ended December 31, 2021, diluted earnings per share benefited from the impact of the ASRs on our weighted average shares outstanding as compared to the prior year.

Results for the year ended December 31, 2020 were affected by certain items that on a net basis decreased diluted earnings per share by $0.71 as follows:

• pre-tax amortization expense of $114 million ($103 million in amortization of intangible assets and $11 million in equity in earnings of equity method investees, net of taxes) or $0.63 per diluted share;

• net pre-tax charges of $72 million ($57 million of charges in cost of services, $10 million of charges in selling, general and administrative expenses and $9 million of charges in other operating (income) expense, net, partially offset by a $4 million gain in equity in earnings of equity method investees, net of taxes), or $0.39 per diluted share, representing the impact of certain items resulting from the COVID-19 pandemic, principally including expense associated with payments to eligible employees to help offset expenses they incurred as a result of COVID-19, incremental costs incurred primarily to protect the health and safety of our employees and customers, and certain asset impairment charges;

• pre-tax charges of $58 million ($27 million in cost of services and $31 million in selling, general and administrative expenses), or $0.32 per diluted share, primarily associated with systems conversions and integration incurred in connection with further restructuring and integrating our business;

partially offset by

• a net pre-tax gain of $89 million (a $95 million gain in other operating expense (income), net offset by a $6 million charge in selling, general and administrative expenses), or $0.50 per diluted share, primarily due to a gain associated with the sale and leaseback of a property, a gain associated with the decrease in the fair value of the contingent consideration accruals associated with previous acquisitions, and a gain associated with proceeds from an insurance claim for hurricane related losses, partially offset by costs incurred related to a data security incident, and non-cash asset impairment charges;

• a pre-tax gain of $70 million, or $0.46 per diluted share, recognized in other income, net, based on the difference between the fair value and the carrying value of an equity interest;

• excess tax benefits associated with stock-based compensation arrangements of $23 million, or $0.17 per diluted share, recorded in income tax expense;

• a net pre-tax gain of $2 million (a $14 million gain in equity in earnings of equity method investees, net of taxes, partially offset by a $10 million loss in other income, net, and $2 million of charges in selling, general and administrative expenses) primarily due to a gain recognized by an equity method investee to adjust certain of its investments to fair value, a loss on retirement of debt, and, to a lesser extent, costs associated with Quest for Health Equity.

Net revenues for the year ended December 31, 2021 increased by 14.3% compared to the prior year.

DIS revenues for the year ended December 31, 2020 increased by 23.4% compared to the prior year driven by demand for COVID-19 molecular and antibody testing, and, to a lesser extent, the impact of recent acquisitions, partially offset by a decline in testing volume in our base business (which excludes COVID-19 molecular and antibody testing).

• Organic revenue and acquisitions contributed approximately 21.6% and 1.8%, respectively, to DIS revenue growth.

• DIS volume increased by 6.6%, with organic growth and acquisitions contributing approximately 4.5% and 2.1%, respectively.

Organic volume growth was driven by demand for COVID-19 molecular testing, partially offset by declines in testing volume in the base business.

Testing volume in the base business was negatively impacted by the COVID-19 pandemic and declined by 11.4% compared to the prior year.

• Revenue per requisition increased by 16.2% compared to the prior year primarily due to favorable mix, driven in large part by COVID-19 molecular testing, partially offset by reimbursement pressure, including unit price reductions associated with PAMA and all other sources, of approximately 1.7%.

DIS revenues for the year ended December 31, 2021 increased by 14.8% compared to the prior year.

For the year ended December 31, 2021:

• Organic revenue and acquisitions contributed approximately 13.0% and 1.8%, respectively, to DIS revenue growth compared to the prior year.

Organic revenue growth was driven by growth in the base business and, to a lesser extent, demand for COVID-19 molecular testing.

• Revenues in the base business (including the impact of recent acquisitions) increased by 20.4% compared to the prior year, which was negatively impacted as a result of the COVID-19 pandemic.

Compared to historical levels in 2019, revenues in the base business, excluding revenue associated with recent acquisitions, increased by 0.4%.

Recent agreements associated with our Professional Laboratory Services offerings contributed 2.3% revenue growth compared to 2019.

• DIS volume increased by 16.5% with organic volume and acquisitions contributing approximately 13.6% and 2.9%, respectively.

Organic volume growth was driven by growth in the base business.

• Testing volume in the base business (including the impact of recent acquisitions) continued to recover and was up 19.7% compared to the prior year, which was negatively impacted as a result of the COVID-19 pandemic.

Compared to historical levels in 2019, testing volume in the base business, excluding volume associated with recent acquisitions, increased by 2.0%.

Recent agreements associated with our Professional Laboratory Services offerings contributed 5.5% volume growth compared to 2019.

• Revenue per requisition decreased by 1.6% compared to the prior year primarily due to growth in our Professional Laboratory Services engagements, which carry a lower revenue per requisition than the average for the remainder of the DIS business, and pricing pressure of approximately 1.1%, partially offset by favorable test mix.

Cost of Services

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Cost of services increased by $775 million for the year ended December 31, 2021 compared to the prior year.

The increase was primarily driven by higher variable expenses related to increased testing volume as well as test mix and a higher supply cost associated with COVID-19 testing, additional operating costs associated with our acquisitions, higher performance-based compensation, and incremental costs incurred related to the COVID-19 pandemic including expense associated with payments to eligible employees to help offset expenses they incurred as a result of COVID-19 and costs incurred to protect the health and safety of our employees and customers.

These increases were partially offset by lower compensation and benefit costs as a result of a series of temporary actions implemented to manage our workforce costs.

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 had significantly declined;

and approved furloughs for employees with diminished work requirements who expressed an interest.

As our testing volume started to recover, we recalled the vast majority of employees from furlough and reinstated full working hours for almost all employees who were asked to work reduced hours.

By the end of the third quarter of 2020, salaries were restored for all exempt employees that had temporary salary reductions.

The increase was primarily driven by higher variable expenses related to increased testing volumes, higher compensation and benefits costs (primarily related to wage increases), and, to a lesser extent, additional operating costs associated with our acquisitions.

Selling, General and Administrative Expenses ("SG&A")

SG&A consists principally of the costs associated with our sales and marketing efforts, billing operations, credit loss expense and general management and administrative support, as well as administrative facility costs.

SG&A increased by $93 million for the year ended December 31, 2020, compared to the prior year, primarily driven by higher performance-based compensation and additional operating costs associated with our acquisitions.

SG&A increased by $177 million for the year ended December 31, 2021, compared to the prior year, primarily driven by higher variable expenses to support our increase in testing volumes, investments in our strategic growth initiatives and higher compensation and benefit costs (including headcount and wage increases).

Amortization of Intangible Assets

The $7 million increase in amortization of intangible assets for the year ended December 31, 2020 compared to the prior year was a result of recent acquisitions.

Other Operating Expense (Income), Net

Other operating expense (income), net includes miscellaneous income and expense items and other charges related to operating activities.

For the year ended December 31, 2020, other operating expense (income), net primarily represents impairment charges due to the impact of the COVID-19 pandemic.

For the year ended December 31, 2019, other operating expense (income), net included a $73 million gain associated with the sale and leaseback of a property, a $12 million gain associated with proceeds from an insurance claim for hurricane related losses and a $12 million gain associated with the decrease in the fair value of the contingent consideration accruals associated with previous acquisitions, partially offset by non-cash asset impairment charges of $2 million.

For the year ended December 31, 2021, amortization expense was flat compared to the prior year.

Other Operating (Income) Expense, Net

Other operating (income) expense, net includes miscellaneous income and expense items and other charges related to operating activities.

For the year ended December 31, 2020, other operating (income) expense, net primarily represents impairment charges due to the impact of the COVID-19 pandemic.

Interest Expense, Net

Interest expense, net decreased by $12 million for the year ended December 31, 2020 compared to the prior year, primarily driven by lower interest rates associated with our variable rate indebtedness, partially offset by higher average outstanding indebtedness.

Interest expense, net decreased by $12 million for the year ended December 31, 2021 compared to the prior year, primarily due to lower average outstanding indebtedness and, to a lesser extent, lower interest rates due to recent refinancing transactions, including the termination of our interest rate swap agreements in April 2020, which resulted in a deferred gain that is being amortized as a reduction of interest expense, net over the remaining term of the associated debt.

Other Income, Net

Other income, net represents miscellaneous income and expense items related to non-operating activities, such as gains and losses associated with investments and other non-operating assets.

For the year ended December 31, 2020, other income, net included a $70 million gain recognized as a result of the remeasurement of our previously held equity interest in MACL to fair value (see Note 6 to the audited consolidated financial statements) and gains associated with investments in our deferred compensation plans, partially offset by a $9 million loss on the retirement of debt, principally due to premiums paid.

For the year ended December 31, 2019, other income, net included $19 million of gains associated with investments in our deferred compensation plans.

For the year ended December 31, 2021, other income, net included a $314 million pre-tax gain on the sale of our 40% ownership interest in Q 2 Solutions, our clinical trials central laboratory services joint venture, to IQVIA, our joint venture partner (see Note 6 to the audited consolidated financial statements), $39 million in gains associated with changes in the carrying value of our strategic investments, and $17 million in gains associated with investments in our deferred compensation plans.

For the year ended December 31, 2020, other income, net included a $70 million gain recognized as a result of the remeasurement of our previously held equity interest in Mid America Clinical Laboratories, LLC ("MACL") to fair value (see Note 5 to the audited consolidated financial statements) and $15 million in gains associated with investments in our deferred compensation plans, partially offset by a $9 million loss on the retirement of debt, principally due to premiums paid.

Income Tax Expense

Income tax expense for the years ended December 31, 2021 and 2020 was $597 million and $460 million, respectively.

The increase in income tax expense compared to the prior year was primarily driven by an increase in income from continuing operations before income taxes and equity in earnings of equity method investees.

The increase in income tax expense compared to the prior year was primarily driven by an increase in income before income taxes and equity in earnings of equity method investees.

The effective income tax rate for the years ended December 31, 2021 and 2020 was 23.0% and 24.5%, respectively.

The effective income tax rate for the year ended December 31, 2020 benefited from a lower effective income tax rate (11.8%) associated with a $70 million gain recognized as a result of the remeasurement of our previously held equity interest in MACL to fair value due to a permanent difference in the financial reporting and tax basis of goodwill, and $23 million of excess tax benefits associated with stock-based compensation arrangements.

The effective income tax rate for the year ended December 31, 2019 benefited from a $12 million release of valuation allowances associated with net operating loss carryforwards, and $13 million of excess tax benefits associated with stock-based compensation arrangements.

The effective income tax rate for the year ended December 31, 2021 benefited from a lower effective income tax rate, 17.6%, on the gain on the sale of our 40% ownership interest in Q 2 Solutions.

The effective income tax rate for the year ended December 31, 2020 benefited from a lower effective income tax rate, 11.8%, associated with a $70 million gain recognized as a result of the remeasurement of our previously held equity interest in MACL to fair value.

In addition, the effective income tax rates benefited from $19 million and $23 million of excess tax benefits associated with stock-based compensation arrangements for the years ended December 31, 2021 and 2020, respectively.

Equity in Earnings of Equity Method Investees, Net of Taxes

For the year ended December 31, 2020, there was an $18 million increase in equity in earnings of equity method investees, net of taxes, compared to the prior year primarily due to a $14 million gain recognized by an equity method investee to adjust certain of its investments to fair value.

Discontinued Operations

During the third quarter of 2006, we completed the wind down of Nichols Institute Diagnostics ("NID"), a test kit manufacturing subsidiary, which was classified as discontinued operations for the year ended December 31, 2019.

Income from discontinued operations, net of taxes, for the year ended December 31, 2019 includes discrete income tax benefits of $20 million associated with the favorable resolution of certain tax contingencies related to NID.

For the year ended December 31, 2021, there was a $3 million increase in equity in earnings of equity method investees, net of taxes, compared to the prior year primarily due to the demand for COVID-19 testing services and recovery in the base business of the investees, partially offset by lower equity earnings as a result of the sale of our 40% ownership interest in Q 2 Solutions.

Quantitative and Qualitative Disclosures About Market Risk

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Borrowings under our secured receivables credit facility and our senior unsecured revolving credit facility are subject to variable interest rates.

Interest on our secured receivables credit facility is based on either commercial paper rates for highly-rated issuers or LIBOR, plus a spread.

As of December 31, 2020, interest on our senior unsecured revolving credit facility is based on certain published rates plus an applicable margin based on changes in our public debt ratings and our leverage ratio.

As such, our borrowing cost under this credit arrangement is subject to fluctuations in interest rates, our leverage ratio and changes in our public debt ratings.

Interest on our secured receivables credit facility is based on either commercial paper rates for highly rated issuers, or London Interbank Offered Rate ("LIBOR"), plus a spread.

As of December 31, 2021, interest on our senior unsecured revolving credit facility is based on certain published rates plus an applicable margin based on changes in our public debt ratings.

As such, our borrowing cost under this credit arrangement is subject to fluctuations in interest rates and changes in our public debt ratings.

As of December 31, 2021, the borrowing rates under these debt instruments were:

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As of December 31, 2021, there were no borrowings outstanding under either our $600 million secured receivables credit facility or our $750 million senior unsecured revolving credit facility.

In April 2020, we terminated our existing fixed-to-variable interest rate swap agreements.

Based on our remaining net exposure to interest rate changes, a hypothetical 10% change to the variable rate component of our variable rate indebtedness would not materially change annual interest expense.

During March 2020, we entered into a forward-starting interest rate swap agreement with a financial institution for a total notional amount of $25 million.

Additionally, during May 2020, we entered into interest rate lock agreements with several financial institutions for a total notional amount of $275 million.

The forward-starting interest rate swap agreement and the interest rate lock agreements were entered into in order to hedge a portion of our interest rate exposure associated with variability in future cash flows attributable to changes in interest rates over a ten-year period related to an anticipated issuance of debt and were accounted for as cash flow hedges.

In connection with the issuance of the 2031 Senior Notes, these agreements were settled and we received net proceeds of $1 million.

The net gain is deferred in stockholders' equity, net of taxes, as a component of accumulated other comprehensive loss, and is being amortized as an adjustment to interest expense, net over a ten-year period.

A hypothetical 10% change to the variable rate component of our variable rate indebtedness would not materially change our annual interest expense.

For further details regarding our outstanding debt and our financial instruments and hedging activities, see Notes 13 and 15, respectively, to the audited consolidated financial statements.

Risk Associated with Investment Portfolio

Our investment portfolio primarily includes equity investments comprised mostly of strategic holdings in privately and publicly held companies.

These securities are exposed to price fluctuations and are generally concentrated in the life sciences and healthcare industries.

Equity investments that do not have readily determinable fair values are measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes.

We regularly evaluate these equity investments to determine if there are any indicators that the investment is impaired.

Our investment portfolio primarily includes equity investments comprised mostly of strategic holdings in companies concentrated in the life sciences and healthcare industries.

Equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) with readily determinable fair values are measured at fair value in prepaid expenses and other current assets in our consolidated balance sheet with changes in fair value recorded in current earnings in our consolidated statement of operations.

Equity investments that do not have readily determinable fair values (which consist of investments in preferred and common shares of private companies) are measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes.

During the year ended December 31, 2021, certain of our equity investments became publicly-traded and, based on the readily determinable fair values of such investments, we recognized gains of $39 million in other income, net in our consolidated statement of operations.

For further details, see Notes 2 and 7 to the audited consolidated financial statements.

We regularly evaluate equity investments that do not have readily determinable fair values to determine if there are any indicators that the investments are impaired.

The carrying value of our equity investments that do not have readily determinable fair values was $4 million as of December 31, 2021.

We do not hedge our equity price risk.

The impact of an adverse movement in equity prices on our holdings in privately held companies cannot be easily quantified, as our ability to realize returns on investments depends on, among other things, the enterprises’ ability to raise additional capital or derive cash inflows from continuing operations or through liquidity events such as initial public offerings, mergers or private sales.

In conjunction with the preparation of our audited consolidated financial statements for the year ended December 31, 2020, we considered whether the carrying values of our investments were impaired and concluded that no impairment existed.

However, should the impact of the COVID-19 pandemic be worse than currently expected, it is possible that we could incur impairment charges in the future.

As of December 31, 2021, a 10% change in the fair values of our equity investments with readily determinable fair values would have impacted our consolidated income before income taxes and equity in earnings of equity method investees by $4 million.

The impact of an adverse movement in equity prices on our holdings in privately held companies cannot be easily quantified, as our ability to realize returns on investments depends on,

among other things, the enterprises’ ability to raise additional capital or derive cash inflows from continuing operations or through liquidity events such as initial public offerings, mergers or private sales.

In conjunction with the preparation of our audited consolidated financial statements for the year ended December 31, 2021, we considered whether the carrying values of our investments were impaired and concluded that no such impairment existed.

Liquidity and Capital Resources

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Net cash provided by operating activities $ 2,233 $ 2,005 $ 228

Net cash used in investing activities (772) (411) (361)

Net cash (used in) provided by financing activities (1,267) 225 (1,492)

Net cash provided by (used in) investing activities 21 (772) 793

Net cash used in financing activities (2,540) (1,267) (1,273)

Net change in cash and cash equivalents and restricted cash $ (286) $ (34) $ (252)

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• higher operating income in 2021 as compared to 2020;

and, to a lesser extent

• a $100 million increase due to the temporary suspension in 2020 of certain payment requirements for the employer portion of Social Security taxes;

• $40 million of proceeds received in 2020 from the termination of interest rate swap agreements;

• the timing of movements in our working capital accounts;

partially offset by

• a $158 million increase in income tax payments;

• a $349 million increase in income tax payments due to higher income in 2021 as compared to 2020, as well as timing of payments;

• higher performance-based compensation payments in 2021 compared to 2020.

• a $28 million refund received in the prior year period from the taxing authorities associated with the favorable resolution of certain tax contingencies related to a discontinued operation.

Days sales outstanding, a measure of billing and collection efficiency, was 46 days as of December 31, 2020 and 54 days as of December 31, 2019.

The decrease in DSO is partially due to recent fluctuations in our monthly revenue due to the impact of the COVID-19 pandemic.

Although we believe that our current revenue reserves and allowance for credit losses are appropriate, it is possible that we will experience an impact on cash collections as a result of the impact of the COVID-19 pandemic.

Days sales outstanding ("DSO"), a measure of billing and collection efficiency, was 48 days as of December 31, 2021 and 46 days as of December 31, 2020.

Recent changes in our DSO are partially due to fluctuations in our monthly revenue due to the impact of the COVID-19 pandemic.

Cash Flows from Investing Activities

Net cash used in investing activities for the year ended December 31, 2020 was $772 million, compared to $411 million for the year ended December 31, 2019.

This $361 million increase in cash used in investing activities was primarily a result of:

• a $272 million increase in net cash paid for business acquisitions;

• an $88 million decrease in proceeds from disposition of property, plant and equipment, primarily due to proceeds in the prior year period associated with the sale and leaseback of a property.

Net cash provided by investing activities for the year ended December 31, 2021 was $21 million, compared to net cash used in investing activities of $772 million for the year ended December 31, 2020.

This $793 million change in cash provided by (used in) investing activities was primarily a result of $755 million of net cash proceeds received during 2021 from the sale of our 40% ownership interest in Q 2 Solutions.

Cash Flows from Financing Activities

Net cash used in financing activities for the year ended December 31, 2020 was $1,267 million, compared to net cash provided by financing activities of $225 million for the year ended December 31, 2019.

This $1,492 million change in cash flows from financing activities was primarily a result of:

• $805 million of net debt repayments (repayments of debt less proceeds from borrowings) in 2020 compared to $832 million of net borrowings in 2019;

Net cash used in financing activities for the year ended December 31, 2021 was $2,540 million, compared to $1,267 million for the year ended December 31, 2020.

This $1,273 million increase in cash used in financing activities was primarily a result of:

• a $1,874 million increase in repurchases of our common stock (see "Share Repurchases" for further details);

and, to a lesser extent,

• a $103 million change in bank overdrafts, which are generally settled in cash the following day;

• a $60 million decrease in proceeds from the exercise of stock options, which was a result of a decrease in the volume of stock options exercised compared to the prior year;

• a $41 million increase in distributions to noncontrolling interest partners;

partially offset by

• a $76 million increase in overdrafts, which are generally settled in cash the following day;

• a $70 million increase in proceeds from the exercise of stock options, which was a result of an increase in the volume of stock options exercised and the average exercise price compared to the prior year.

During January 2020, we redeemed in full the outstanding indebtedness under our senior notes due January 2020 and senior notes due March 2020 using net proceeds from the issuance, in December 2019, of the 2030 Senior Notes, along with cash on hand.

During May 2020, we completed the issuance of the 2031 Senior Notes, the net proceeds from which were used during November 2020, along with cash on hand, to redeem in full the outstanding indebtedness under our senior notes due April 2021.

• $805 million of net debt repayments (repayments of debt less proceeds from borrowings) in 2020 compared to $2 million of net debt repayments in 2021.

During the year ended December 31, 2021, there were no borrowings or repayments under our secured receivables credit facility or senior unsecured revolving credit facility.

During May 2020, we completed the issuance of the $550 million aggregate principal amount of 2.80% senior notes due June 2031, the net proceeds from which were used during November 2020, along with cash on hand, to redeem in full the outstanding indebtedness under our senior notes due April 2021.

Additionally, during the year ended December 31, 2020, we borrowed $100 million under our secured receivables credit facility and $100 million under our senior unsecured revolving credit facility, both of which were repaid prior to December 31, 2020.

During March 2019, we completed the issuance of the $500 million aggregate principal amount of 4.20% senior notes due June 2029 and repaid in full, at maturity, our senior notes due April 2019.

In December 2019, we completed the issuance of the 2030 Senior Notes.

In addition, during the year ended December 31, 2019 we borrowed a total of $985 million under our secured receivables credit facility to fund periodic working capital requirements, as well as our 2019 acquisition, and repaid $1,145 million under our secured receivables credit facility.

During the year ended December 31, 2019, there were no borrowings or repayments under our senior unsecured revolving credit facility.

For details regarding our debt and related transactions, see Note 13 to the audited consolidated financial statements.

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Share Repurchases

In each of February and March 2021, our Board of Directors increased the size of our share repurchase program by $1 billion.

As of December 31, 2021, $0.7 billion remained available under our share repurchase authorization.

In February 2022, our Board of Directors authorized us to repurchase an additional $1 billion of our common stock.

For the year ended December 31, 2020, we repurchased 2.7 million shares of our common stock for $325 million.

For the year ended December 31, 2021, we repurchased 16.0 million shares of our common stock for $2.2 billion, including 10.7 million shares repurchased under ASRs.

See "2021 Highlights" above for further details.

For the year ended December 31, 2020, we repurchased 2.7 million shares of our common stock for $325 million.

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Contractual Obligations and Commitments

The following table summarizes certain of our contractual obligations as of December 31, 2020 (dollars in millions):

Payments due by period

Contractual Obligations Total Less than

1 year 1-3 years 4-5 years After 5 years

Outstanding debt $ 3,976 $ — $ — $ 901 $ 3,075

Finance lease obligations 27 2 2 3 20

Interest payments on outstanding debt 1,648 154 307 277 910

Operating leases 837 195 314 165 163

Purchase obligations 1,545 334 547 418 246

Total contractual obligations $ 8,033 $ 685 $ 1,170 $ 1,764 $ 4,414

Interest payments on our outstanding debt include interest associated with finance lease obligations and have been calculated using the interest rates as of December 31, 2020 applied to the December 31, 2020 balances, which are assumed to remain outstanding through their maturity dates.

A description of the terms of our indebtedness and related debt service requirements is contained in Note 13 to the audited consolidated financial statement

Operating lease obligations include variable charges (primarily maintenance fees and utilities associated with our real estate leases) in effect as of December 31, 2020.

A discussion and analysis regarding our operating lease obligations is contained in Note 14 to the audited consolidated financial statements.

Purchase obligations include our noncancellable commitments to purchase products or services as described in Note 18 to the audited consolidated financial statements.

As of December 31, 2020, our total liabilities associated with unrecognized tax benefits were approximately $93 million, which were excluded from the table above.

We expect that these liabilities may decrease by less than $15 million within the next twelve months, primarily as a result of payments, settlements, expiration of statutes of limitations and/or the conclusion of tax examinations on certain tax positions.

For the remainder, we cannot make reasonably reliable estimates of the timing of the future payments of these liabilities.

See Note 8 to the audited consolidated financial statements for information regarding our contingent tax liability reserves.

In connection with the sale of an 18.9% noncontrolling interest in a subsidiary to UMass Memorial Medical Center ("UMass"), we granted UMass the right to require us to purchase all of its interest in the subsidiary at fair value commencing July 1, 2020.

As of December 31, 2020, the fair value of the redeemable noncontrolling interest on the audited consolidated balance sheet was $82 million, which was excluded from the table above.

Since the redemption of the noncontrolling interest is outside of our control, we cannot make a reasonably reliable estimate of the timing of the future payment, if any, of the redeemable noncontrolling interest.

For further details regarding the redeemable noncontrolling interest, see Note 16 to the audited consolidated financial statements.

A description of the terms of our indebtedness and related debt service requirements is contained in Note 13 to the audited consolidated financial statements.

A discussion of our lease obligations is contained in Note 14 to the audited consolidated financial statements.

A discussion of our noncancellable commitments to purchase products or services is contained in Note 18 to the audited consolidated financial statements.

Equity Method Investees

Our equity method investees primarily consist of our clinical trials central laboratory services joint venture, our diagnostic information services joint venture, and an investment in a fund that purchases strategic holdings in private companies in the healthcare industry.

Our equity method investees primarily consist of our diagnostic information services joint venture and investments in funds that purchase strategic holdings in private companies in the healthcare industry.

Such investees are accounted for under the equity method of accounting.

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Our proportionate share of income before income taxes associated with our equity method investees is less than 5% of our consolidated income from continuing operations before income taxes and equity in earnings of equity method investees.

We partially guarantee a lease obligation of one of our equity method investees;

payment under such guarantee is not likely at this time and we have no other material unconditional obligations or guarantees to, or in support of, our equity method investees and their operations.

In conjunction with the preparation of our audited consolidated financial statements for the year ended December 31, 2020, we considered whether the carrying values of our equity method investments were impaired and concluded that no such impairment existed.

However, should the impact of the COVID-19 pandemic be worse than currently expected, it is possible that we could incur impairment charges in the future.

For further details regarding related party transactions with our equity method investees, see Note 20 to the audited consolidated financial statements.

We have no material unconditional obligations or guarantees to, or in support of, our equity method investees and their operations.

In conjunction with the preparation of our audited consolidated financial statements for the year ended December 31, 2021, we considered whether the carrying values of our equity method investments were impaired and during the year ended December 31, 2021 we recorded an $8 million impairment charge for one of the investments.

Requirements and Capital Resources

We estimate that we will invest approximately $350 million to $400 million during 2021 for capital expenditures, to support and grow our existing operations, principally related to investments in information technology;

laboratory equipment and facilities, including COVID testing equipment and completion of our new multi-year laboratory construction in New Jersey;

We estimate that we will invest approximately $400 million during 2022 for capital expenditures, to support and grow our existing operations, principally related to investments in information technology;

laboratory equipment and facilities, including laboratory automations and footprint optimizations;

and investments in our advanced diagnostics and consumer growth strategies.

Together with the Quest Diagnostics Foundation, we launched a multi-year initiative to reduce health disparities in underserved communities, including those impacted by the COVID-19 pandemic.

As part of this initiative, we plan to offer testing services and fund a range of initiatives estimated to total more than $100 million aimed at improving access to testing and awareness of the value of diagnostic insights in managing overall health, a significant portion of which will occur in 2021.

As of December 31, 2020, $1.3 billion of borrowing capacity was available under our existing credit facilities consisting of $530 million available under our secured receivables credit facility and $750 million available under our senior unsecured revolving credit facility.

There were no borrowings under these credit facilities as of December 31, 2020.

In support of our risk management program, to ensure our performance or payment to third parties, $70 million in letters of credit under the secured receivables credit facility were outstanding as of December 31, 2020.

The secured receivables credit facility includes a $250 million loan commitment which matures October 2021, and a $250 million loan commitment and a $100 million letter of credit facility which mature October 2022.

The senior unsecured revolving credit facility matures in March 2023.

For further details regarding the credit facilities, see Note 13 to the audited consolidated financial statements.

As of December 31, 2021, we had $1.3 billion of borrowing capacity available under our existing credit facilities, including $530 million available under our secured receivables credit facility and $750 million available under our senior unsecured revolving credit facility.

There were no outstanding borrowings under these credit facilities as of December 31, 2021.

In support of our risk management program, $70 million in letters of credit under the secured receivables credit facility were outstanding as of December 31, 2021.

During the fourth quarter of 2021, we amended both our $600 million secured receivables credit facility and our $750 million senior unsecured revolving credit facility to extend the maturity dates for each underlying commitment, while maintaining the borrowing capacity.

The secured receivables credit facility includes a $250 million loan commitment which matures in October 2022, and a $250 million loan commitment and a $100 million letter of credit facility which mature in October 2023.

The senior unsecured revolving credit facility matures in November 2026.

For further details regarding our credit facilities, see Note 13 to the audited consolidated financial statements.

Our secured receivables credit facility is subject to customary affirmative and negative covenants, and certain financial covenants with respect to the receivables that comprise the borrowing base and secure the borrowings under the facility.

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As of December 31, 2021, we were in compliance with all such applicable financial covenants.

In 2020, due to the impact of the COVID-19 pandemic, we took certain actions to preserve liquidity including temporarily suspending share repurchases under our existing share repurchase authorization (which suspension was lifted in November 2020) and implementing a series of temporary actions to manage our workforce costs.

In addition, we took certain steps to ensure adequate access to liquidity.

In April 2020, we entered into an amendment to our senior unsecured revolving credit facility in order to provide for increased flexibility.

Pursuant to the amendment, the leverage ratio covenant was increased as follows:

Applicable Covenant:

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

Thereafter, the leverage ratio covenant reverts to no more than 3.5 times EBITDA.

During the period that the increased covenant applies, which period may be terminated early by us provided that we are in compliance with the historical 3.5 times EBITDA leverage ratio, the amended credit agreement contains certain additional limitations and restrictions including, but not limited to, repurchases of our common stock, the amount of funds that can be used on business acquisitions, the incurrence of secured indebtedness and the payment of dividends.

In addition, in May 2020, we completed the issuance of the 2031 Senior Notes.

In November 2020, we redeemed in full the outstanding indebtedness under our senior notes due April 2021 using the net proceeds from the issuance of the 2031 Senior Notes, along with cash on hand.

We have assessed the impact of the cessation of LIBOR and have identified and evaluated financial instruments and other contracts that refer to LIBOR.

Our underlying exposure to LIBOR includes our existing credit facilities (see discussion above) under which we had no outstanding borrowings as of December 31, 2021.

We expect to be able to transition all LIBOR-based instruments and contracts to an alternative reference rate on or before the cessation of LIBOR and we do not believe that the cessation of LIBOR, or its replacement with an alternative reference rate or rates, will have a material impact on us.

We believe that our cash and cash equivalents and cash from operations, together with our borrowing capacity under our credit facilities, will provide sufficient financial flexibility to fund seasonal and other working capital requirements, capital expenditures, debt service requirements and other obligations, cash dividends on common shares, share repurchases and additional growth opportunities for the foreseeable future.

However, should it become necessary, we believe that our credit

profile should provide us with access to additional financing in order to fund normal business operations, make interest payments, fund growth opportunities and satisfy upcoming debt maturities.

We believe that inflation generally does not have a material adverse effect on our results of operations or financial condition.

However, should it become necessary, we believe that our credit profile should provide us with access to additional financing in order to fund normal business operations, make interest payments, fund growth opportunities and satisfy upcoming debt maturities.

Impact of New Accounting Standards

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Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions

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A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit

preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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600 shares authorized as of both December 31, 2021 and 2020;

217 shares issued as of both December 31, 2020 and 2019

162 and 217 shares issued as of December 31, 2021 and 2020, respectively

Additional paid-in capital 2,260 2,841

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Treasury stock, at cost;

84 shares as of both December 31, 2020 and 2019

43 and 84 shares as of December 31, 2021 and 2020, respectively

( 3,453 ) ( 5,366 )

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Amortization of intangible assets 103 103 96

Other operating expense (income), net 9 ( 95 ) ( 10 )

Other operating (income) expense, net ( 2 ) 9 ( 95 )

Total operating costs and expenses, net 8,407 7,466 6,495

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Interest expense, net ( 151 ) ( 163 ) ( 175 )

Other income (expense), net 76 20 ( 8 )

Total non-operating expense, net ( 87 ) ( 155 ) ( 175 )

Other income, net 369 76 20

Total non-operating income (expense), net 218 ( 87 ) ( 155 )

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

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Net deferred gain on cash flow hedges, net of taxes 1 3 5

Other comprehensive income (loss) 18 20 ( 9 )

Other comprehensive income 7 18 20

Comprehensive income 2,087 1,517 926

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Provision for credit losses 4 19 11

Deferred income tax provision 85 15 73

Deferred income tax (benefit) provision ( 57 ) 85 15

Stock-based compensation expense 79 97 56

Gain on disposition of joint venture ( 314 ) — —

Losses (gains) on sale of property, plant and equipment 9 3 ( 70 )

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Business acquisitions, net of cash acquired ( 331 ) ( 330 ) ( 58 )

Proceeds from disposition of joint venture 755 — —

Proceeds from disposition of property, plant, and equipment 3 3 91

Capital expenditures ( 403 ) ( 418 ) ( 400 )

(Increase) decrease in investments and other assets ( 27 ) ( 44 ) 1

Net cash used in investing activities ( 772 ) ( 411 ) ( 801 )

Increase in investments and other assets, net ( 3 ) ( 27 ) ( 44 )

Net cash provided by (used in) investing activities 21 ( 772 ) ( 411 )

Cash flows from financing activities:

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Distributions to noncontrolling interest partners ( 99 ) ( 58 ) ( 54 )

Contributions from noncontrolling interest partners — — 16

Other financing activities, net ( 38 ) 44 ( 17 )

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Net income 858 42 900 6

Other comprehensive loss, net of tax ( 9 ) ( 9 )

Other comprehensive income, net of tax 20 20

Dividends declared ( 286 ) ( 286 )

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Purchases of treasury stock ( 4 ) ( 350 ) ( 350 )

Contributions from noncontrolling interest partners 16 16

Reclassification of stranded tax effects resulting from enactment of the Tax Cuts and Jobs Act 2 ( 2 ) —

Balance, December 31, 2019 133 $ 2 $ 2,722 $ 8,174 $ ( 39 ) $ ( 5,218 ) $ 46 $ 5,687 $ 76

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( 16 ) ( 2,222 ) ( 2,222 )

Retirement of treasury stock ( 649 ) ( 3,342 ) 3,991 —

Balance, December 31, 2021 119 $ 2 $ 2,260 $ 7,649 $ ( 14 ) $ ( 3,453 ) $ 39 $ 6,483 $ 79

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See Note 20 for a further discussion of discontinued operations.

Reclassifications

Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements.

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

Equity Method Investments

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The Company reviews its investments in equity method investees for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

Use of Estimates

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Diluted earnings per common share is calculated by dividing net income attributable to Quest Diagnostics, adjusted for earnings allocated to participating securities, by the weighted average number of common shares outstanding after giving effect to all potentially dilutive common shares outstanding during the period.

Potentially dilutive common shares include the dilutive effect of outstanding stock options and performance share units granted under the Company's Amended and Restated Employee Long-Term Incentive Plan (“ELTIP”) and its Amended and Restated Non-Employee Director Long-Term Incentive Plan (“DLTIP”).

Earnings allocable to participating securities include the portion of dividends declared as well as the portion of undistributed earnings during the period allocable to participating securities.

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Resulting translation adjustments are recorded as a component of accumulated other comprehensive loss within stockholders' equity.

Gains and losses from foreign currency transactions, which are denominated in a currency other than the functional currency, are included within other operating expense (income), net in the consolidated statements of operations.

Gains and losses from foreign currency transactions, which are denominated in a currency other than the functional currency, are included within other operating (income) expense, net in the consolidated statements of operations.

Foreign currency transaction gains and losses have historically not been material.

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The Company's policy is to place its cash, cash equivalents and short-term investments in highly-rated financial instruments and institutions.

Concentration of credit risk with respect to accounts receivable is mitigated by the diversity of the Company's payers and their dispersion across many different geographic regions, and is limited to certain payers who are large buyers of the Company's services.

Concentration of credit risk with respect to accounts receivable is mitigated by the diversity of the Company's payers and their dispersion across many different geographic regions, and credit risk is concentrated among certain payers who are large buyers of the Company's services.

To reduce risk, the Company routinely assesses the financial strength of these payers and, consequently, believes that its accounts receivable credit risk exposure, with respect to these payers, is limited.

While the Company has receivables due from federal and state governmental agencies, the Company does not believe that such receivables represent a credit risk since the related healthcare programs are funded by federal and state governments, and payment is primarily dependent on submitting appropriate documentation timely.

As of December 31, 2020 and 2019, receivables due from government payers under the Medicare and Medicaid programs represented approximately 6 % and 11 %, respectively, of the Company's consolidated net accounts receivable.

As of both December 31, 2021 and 2020, receivables due from government payers under the Medicare and Medicaid programs represented approximately 6 % of the Company's consolidated net accounts receivable.

The portion of the Company's accounts receivable due from patients comprises the largest portion of credit risk.

As of December 31, 2021 and 2020, receivables due from patients represented approximately 21 % and 11 %, respectively, of the Company's consolidated net accounts receivable.

The Company applies assumptions and judgments including historical collection experience (including the period the receivables have been outstanding) for assessing collectability and determining net revenues and accounts receivable from patients.

The Company applies assumptions and judgments including historical collection experience (including the period of time that the receivables have been outstanding) for assessing collectability and determining net revenues and accounts receivable from patients.

Accounts Receivable and Allowance for Credit Losses

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healthcare insurers, government payers, client payers and patients, which are described in Note 3.

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.

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The Company performs its annual impairment test during the fourth quarter of the fiscal year.

For the year ended December 31, 2020, in accordance with its policy to perform the quantitative test on a periodic basis, the Company updated the fair value calculation of its reporting units, performed the quantitative impairment test and concluded that goodwill was not impaired.

For the year ended December 31, 2021, the Company performed a qualitative impairment test and, based on the totality of information available for the reporting units, the Company concluded that it was more-likely-than-not that the estimated fair values of the reporting units were greater than the carrying values of the reporting units and, as such, no further analysis was required.

Intangible Assets

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Intangible assets with indefinite useful lives, consisting principally of acquired tradenames, are not amortized, but instead are periodically reviewed for impairment.

The Company reviews indefinite-lived intangible assets periodically for impairment and an impairment charge is recorded in the periods in which the recorded carrying value of an indefinite-lived intangible asset is more than its estimated fair value.

The indefinite-lived intangible asset impairment test is performed at least annually, or more frequently in the case of other events that indicate a potential impairment.

Based upon the Company’s most recent annual impairment tests completed during the fourth quarters of the years ended December 31, 2021 and 2020, the Company concluded that indefinite-lived intangible assets were not impaired.

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

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(in millions unless otherwise indicated)

The indefinite-lived intangible asset impairment test is performed at least annually, or more frequently in the case of other events that indicate a potential impairment.

Based upon the Company’s most recent annual impairment tests completed during the fourth quarters of the years ended December 31, 2020 and 2019, the Company concluded that indefinite-lived intangible assets were not impaired.

The Company reviews the recoverability of its long-lived assets (including amortizable intangible assets), other than goodwill and indefinite-lived intangible assets, when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable.

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If these cash flows are less than the carrying amount of such asset, an impairment loss is recognized for the difference between the estimated fair value and carrying amount of the asset.

The Company's investments (except for those accounted for under the equity method of accounting), are included in other assets in the consolidated balance sheet and include:

• Equity investments with readily determinable fair values which are comprised of participant-directed investments of deferred employee compensation and related Company matching contributions held in trusts pursuant to the Company's supplemental deferred compensation plans (see Note 17).

These investments are measured at fair value with both realized and unrealized gains and losses recorded in current earnings within other income (expense), net in the consolidated statements of operations.

For the years ended December 31, 2020, 2019 and 2018, gains and (losses) from these equity securities totaled $ 8 million, $ 10 million, and $( 2 ) million, respectively.

The carrying value of these investments were $ 67 million and $ 59 million at December 31, 2020 and 2019, respectively.

The Company's investments (except for those accounted for under the equity method of accounting) include:

• Equity investments with readily determinable fair values, including investments comprised mostly of strategic holdings in companies concentrated in the life sciences and healthcare industries (such investments, which previously did not have readily determinable fair values, became publicly-traded during the year ended December 31, 2021);

as well as participant-directed investments of deferred employee compensation and related Company matching contributions held in trusts pursuant to the Company's supplemental deferred compensation plans (see Note 17).

These investments are measured at fair value with both realized and unrealized gains and losses recorded in current earnings within other income, net in the consolidated statements of operations.

For the years ended December 31, 2021, 2020 and 2019, gains from all equity investments with readily determinable fair values totaled $ 56 million, $ 8 million, and $ 10 million, respectively.

The carrying values of these investments was $ 121 million at December 31, 2021, of which $ 44 million was included in prepaid expenses and other current assets and $ 77 million was included in other assets in the consolidated balance sheet.

The carrying values of these investments was $ 67 million at December 31, 2020, which was included in other assets in the consolidated balance sheet.

• Equity investments that do not have readily determinable fair values, which consist of investments in preferred and common shares of privately held companies.

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no impairment charges were recognized related to these investments for the years ended December 31, 2021, 2020 and 2019.

The carrying value of these investments was $ 25 million at both December 31, 2020 and 2019.

The carrying value of these investments was $ 4 million and $ 25 million at December 31, 2021 and 2020, respectively.

Such amounts were included in other assets in the consolidated balance sheet.

• Available-for-sale debt securities of privately-held companies.

These investments are measured at fair value with unrealized gains and losses presented in other comprehensive income (loss).

The carrying amount of these investments was $ 12 million at both December 31, 2020 and 2019.

The carrying amount of these investments was $ 1 million and $ 12 million at December 31, 2021 and 2020, respectively.

Such amounts were included in other assets in the consolidated balance sheet.

Derivative Financial Instruments

The Company uses derivative financial instruments to manage its exposure to market risks for changes in interest rates and, from time to time, foreign currencies.

The Company uses derivative financial instruments, from time to time, to manage its exposure to market risks for changes in interest rates and foreign currencies.

This strategy includes the use of interest rate swap agreements, forward-starting interest rate swap agreements, interest rate lock agreements and foreign currency forward contracts to manage its exposure to movements in interest and currency rates.

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however, due to their relatively short maturities, the Company does not hedge these assets or their investment cash flows and the impact of interest rate risk is not material.

The Company's debt obligations consist of fixed-rate and variable-rate debt instruments.

The Company's debt obligations consist of fixed-rate debt instruments and, from time to time, variable-rate debt instruments.

The Company's primary objective is to achieve the lowest overall cost of funding while managing the variability in cash outflows within an acceptable range.

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The fair value is based upon model-derived valuations in which all significant inputs are observable in active markets including certain financial information and certain assumptions regarding past, present and future market conditions.

For a derivative instrument that has been formally designated as a fair value hedge, fair value gains or losses on the derivative instrument along with offsetting fair value gains or losses on the hedged item that are attributable to the risk being hedged are reported in other income (expense), net in the consolidated statements of operations.

For a derivative instrument that has been formally designated as a fair value hedge, fair value gains or losses on the derivative instrument along with offsetting fair value gains or losses on the hedged item that are attributable to the risk being hedged are reported in other income, net in the consolidated statements of operations.

For derivatives that have been formally designated as a cash flow hedge, the change in the fair value of the derivatives is recorded in accumulated other comprehensive loss.

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• Foreign currency translation adjustments;

• Net changes in available-for-sale debt securities, which represent unrealized holding gains (losses), net of tax, on available-for-sale debt securities;

• Net deferred gains (losses) on cash flow hedges, which represent deferred gains (losses), net of tax, on interest rate-related derivative financial instruments designated as cash flow hedges, net of amounts reclassified to interest expense (see Notes 15 and 16);

• Net changes in available-for-sale debt securities, which represent unrealized holding gains (losses), net of tax, on available-for-sale debt securities.

Advertising Costs

Advertising costs are expensed as incurred.

For the years ended December 31, 2021, 2020 and 2019, advertising costs were $ 78 million, $ 38 million and $ 18 million, respectively.

New Accounting Standards

Adoption of New Accounting Standards

On January 1, 2020, the Company adopted a new accounting standard issued by the Financial Accounting Standards Board ("FASB") which aligns the requirements for deferring implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

The adoption of this standard, which the Company elected to do on a prospective basis, did not have a material impact on the Company's consolidated results of operations, financial position or cash flows.

On January 1, 2020, the Company adopted a new accounting standard issued by the FASB that changes the impairment model for most financial instruments, including trade receivables, from an incurred loss method to a new forward

New Accounting Standards To Be Adopted

In March 2020, the Financial Accounting Standards Board issued a new accounting standard which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform due to the risk of cessation of

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

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(in millions unless otherwise indicated)

looking approach, based on expected losses.

The estimate of expected credit losses requires entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts.

The adoption of this new standard, which was done using a modified retrospective transition approach, did not have a material impact on the Company's consolidated results of operations, financial position or cash flows.

See "Accounts Receivable and Allowance for Credit Losses" in this footnote for further details on the Company's allowance for credit losses policy.

On January 1, 2019, the Company adopted a new accounting standard issued by the FASB on accounting for leases using the modified retrospective method.

This new accounting standard requires a lessee to recognize on its balance sheet an asset and liability for most leases.

The Company elected the optional transition method that allowed for a cumulative-effect adjustment to the opening balance of retained earnings recorded on January 1, 2019 and did not restate previously reported results in the comparative periods.

The Company also elected the package of practical expedients, which among other things, allowed it to carry forward its historical lease classification.

As a result of adoption of the new standard, the Company recorded operating lease assets and lease liabilities of approximately $ 500 million and $ 550 million, respectively as of January 1, 2019.

The operating lease liability was determined based on the present value of the remaining minimum rental payments and the operating lease asset was determined based on the value of the lease liability, adjusted for the deferred rent balances of approximately $ 50 million, which were previously included in accounts payable and accrued expenses as well as other liabilities in the consolidated balance sheet.

Accounting for the Company's finance leases remained substantially unchanged.

The adoption of the new standard did not materially impact the Company's consolidated results of operations or cash flows.

In addition, the adoption of this new accounting standard resulted in increased qualitative and quantitative disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases.

For further details, see Note 14.

New Accounting Standards To Be Adopted

In March 2020, the FASB issued a new accounting standard which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform due to the risk of cessation of the London Interbank Offered Rate ("LIBOR").

the London Interbank Offered Rate ("LIBOR").

The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

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REVENUE RECOGNITION

Net revenues in the Company’s DIS business accounted for greater than 95 % of the Company’s total net revenues for the years ended December 31, 2020, 2019 and 2018 and are primarily comprised of a high volume of relatively low-dollar transactions.

Net revenues in the Company’s DIS business accounted for greater than 95 % of the Company’s consolidated net revenues for the years ended December 31, 2021, 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 obligation and recognizes revenues primarily upon completion of the testing process (when results are reported) or when services have been rendered.

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The portfolios determined using the portfolio approach consist of the following groups of customers:

healthcare insurers, government payers, client payers and patients.

healthcare insurers, government payers (Medicare and Medicaid programs), client payers and patients.

Contracts with customers in the DIS business do not contain significant financing components based on the typical period of time between performance of services and collection of consideration.

The process for estimating revenues and the ultimate collection of accounts receivable involves significant judgment and estimation.

The Company follows a standard process, which considers historical denial and collection experience and other factors (including the period the receivables have been outstanding), to estimate contractual allowances and implicit price concessions, recording adjustments in the current period as changes in estimates.

The Company follows a standard process, which considers historical denial and collection experience and other factors (including the period of time that the receivables have been outstanding), to estimate contractual allowances and implicit price concessions, recording adjustments in the current period as changes in estimates.

Further adjustments to the allowances, based on actual receipts, may be recorded upon settlement.

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

The following are descriptions of the DIS business’ portfolios:

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Government Payers

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

Reimbursements from government payers are based on fee-for-service schedules set by governmental authorities, including traditional Medicare and Medicaid.

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Collection of consideration the Company expects to receive generally occurs within 60 to 90 days of billing.

The Company principally estimates the allowance for credit losses for client payers 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 client payers are identified that have deteriorated in credit quality, the Company establishes allowances based on the individual risk characteristics of such customers.

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

Uninsured patients are billed based on established patient fee schedules or fees negotiated with physicians on behalf of their patients.

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Net revenues consist of amounts billed net of discounts provided to uninsured patients in accordance with the Company’s policies and implicit price concessions.

Implicit price concessions represent differences between amounts billed and the estimated consideration the Company expects to receive from patients, which considers historical collection experience (including the period the receivables have been outstanding) and other factors including current market conditions.

Patient billings are generally fully reserved for when the related billing reaches 210 days outstanding.

Implicit price concessions represent differences between amounts billed and the estimated consideration the Company expects to receive from patients, which considers historical collection experience (including the period of time that the receivables have been outstanding) and other factors including current market conditions.

Patient billings are generally fully reserved for when the related service reaches 210 days outstanding.

Balances are automatically written off when they are sent to collection agencies.

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Collection of consideration the Company expects to receive generally occurs within 30 to 60 days of billing.

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

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

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Net accounts receivable 100 % 100 %

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

The following table summarizes the activity for the Company's allowance for credit losses during the year ended December 31, 2020, which principally relates to client payers:

The following table summarizes the activity for the Company's allowance for credit losses during the years ended December 31, 2021 and 2020, which principally relates to client payers:

Allowance for Credit Losses

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Balance, December 31, 2020 28

Provision for credit losses 4

Write-offs of accounts receivable, net of recoveries ( 1 )

Balance, December 31, 2021

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

EARNINGS PER SHARE

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Net income $ 15.55 $ 10.47 $ 6.28

In April 2021, the Company entered into ASRs with several financial institutions to repurchase $ 1.5 billion of the Company's common stock as part of the Company's share repurchase program.

See Note 16 for further details.

The following securities were not included in the calculation of diluted earnings per share due to their antidilutive effect:

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Stock options and performance share units — 1 3

RESTRUCTURING ACTIVITIES

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

Invigorate Program

The Company is committed to a program called Invigorate which is designed to reduce its cost structure and improve performance.

Invigorate consists 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;

service excellence;

lab excellence;

and revenue services excellence.

In addition to these programs, the Company identified key themes to change how it operates including reducing denials and patient price concessions;

further digitizing the business;

standardization and automation;

and optimization initiatives in the areas of lab network and patient service center network.

The Invigorate program is intended to partially offset reimbursement pressures and labor and benefit cost increases;

free up additional resources to invest in science, innovation and other growth initiatives;

and enable the Company to improve service quality and operating profitability.

Restructuring Charges

The following table provides a summary of the Company's pre-tax restructuring charges for the years ended December 31, 2020, 2019 and 2018:

2020 2019 2018

Employee separation costs $ 14 $ ( 3 ) $ 45

Facility-related costs — 1 4

Asset impairment charges — — 2

Total restructuring charges $ 14 $ ( 2 ) $ 51

The restructuring charges incurred for the year ended December 31, 2020 and 2018 were primarily associated with various workforce reduction initiatives as the Company continued to simplify and restructure its organization.

The restructuring activity incurred for the year ended December 31, 2019 primarily represents a release of the liability relating to restructuring charges recorded in prior periods, which were determined to no longer be required.

Of the total restructuring charges incurred during the year ended December 31, 2020, $ 9 million and $ 5 million were recorded in cost of services and selling, general and administrative expenses, respectively.

The $( 2 ) million of restructuring charges recognized during the year ended December 31, 2019 were recorded in selling, general and administrative expenses.

Of the total restructuring charges incurred during the year ended December 31, 2018, $ 22 million and $ 29 million were recorded in cost of services and selling, general and administrative expenses, respectively.

Charges for all periods presented were primarily recorded in the Company's DIS business.

The following table summarizes the activity of the restructuring liability during 2020 and 2019, which is included in accrued expenses in Note 12:

Employee Separation Costs Facility-Related Costs Total

Balance, December 31, 2018

$ 37 $ 1 $ 38

Income statement income ( 3 ) — ( 3 )

Cash payments ( 25 ) — ( 25 )

Other — ( 1 ) ( 1 )

Balance, December 31, 2019

Income statement expense 14 — 14

Cash payments ( 16 ) — ( 16 )

Balance, December 31, 2020

BUSINESS ACQUISITIONS

2021 Acquisitions

During 2021, the Company completed acquisitions for an aggregate purchase price of $ 336 million, net of cash acquired, including the acquisitions discussed below.

The 2021 acquisitions resulted in goodwill of $ 228 million, of which $ 223 million is deductible for tax purposes.

These acquisitions also resulted in $ 104 million of intangible assets, principally comprised of customer-related intangible assets.

Acquisition of the outreach laboratory services business of Mercy Health

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(in millions unless otherwise indicated)

On June 1, 2021, the Company completed the acquisition of the outreach laboratory services business of Mercy Health ("Mercy Health"), which serves providers and patients in Arkansas, Kansas, Missouri and Oklahoma, in an all-cash transaction for $ 225 million.

Based on the preliminary purchase price allocation, which may be revised as additional information becomes available during the measurement period, the assets acquired primarily consist of $ 54 million of customer-related intangible assets and $ 171 million of tax-deductible goodwill.

The intangible assets are being amortized over a useful life of 15 years.

Acquisition of assets of Labtech Diagnostics, LLC ("Labtech")

On December 13, 2021, the Company completed the acquisition of assets of Labtech, an independent clinical diagnostic laboratory provider serving physicians and patients primarily in South Carolina, North Carolina, Florida and Georgia, in an all cash transaction for $ 85 million, which consisted of cash consideration of $ 80 million and contingent consideration initially estimated at $ 5 million.

The contingent consideration arrangement is dependent upon the achievement of certain testing volume benchmarks.

Based on the preliminary purchase price allocation, which may be revised as additional information becomes available during the measurement period, the assets acquired and liabilities assumed consist of $ 41 million of intangible assets, $ 40 million of goodwill (of which $ 35 million is tax deductible), $ 11 million of property, plant and equipment, $ 9 million of finance lease liabilities, $ 6 million of operating lease right-of-use assets, $ 6 million of operating lease liabilities, and $ 2 million of inventories.

The intangible assets consist primarily of customer-related assets which are being amortized over a useful life of 15 years.

2020 Acquisitions

During 2020, the Company completed acquisitions for an aggregate purchase price of $ 330 million, net of cash acquired, including the acquisitions discussed below.

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Acquisition of Blueprint Genetics Oy

On January 21, 2020, the Company completed its acquisition of Blueprint Genetics Oy ("Blueprint Genetics"), in an all cash transaction for $ 108 million, net of $ 3 million cash acquired.

On January 21, 2020, the Company 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 expertise in gene variant interpretation based on next generation sequencing and proprietary bioinformatics.

Through the acquisition, the Company acquired all of Blueprint Genetics' operations.

In the fourth quarter of 2020, the Company made an election to treat the acquisition as a taxable business combination for income tax purposes, which resulted in an adjustment to the preliminary purchase price allocation to reverse the previously recorded $ 11 million deferred tax liability, with a corresponding decrease to goodwill.

Based on the final purchase price allocation, the assets acquired and liabilities assumed primarily consist of $ 66 million of tax-deductible goodwill, $ 43 million of intangible assets, and $ 2 million of property, plant and equipment and working capital.

Based on the purchase price allocation, the assets acquired and liabilities assumed primarily consist of $ 66 million of tax-deductible goodwill, $ 43 million of intangible assets, and $ 2 million of property, plant and equipment and working capital.

The intangible assets primarily consist of technology and customer-related assets which are being amortized over a useful life of 10 years and 15 years, respectively.

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

On April 6, 2020, the Company completed its 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.

On April 6, 2020, the Company 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.

Based on the preliminary purchase price allocation, which may be revised as additional information becomes available during the measurement period, the assets acquired primarily consist of $ 27 million of customer-related intangible assets and $ 93 million of tax-deductible goodwill.

Based on the purchase price allocation, the assets acquired primarily consist of $ 27 million of customer-related intangible assets and $ 93 million of tax-deductible goodwill.

The intangible assets are being amortized over a useful life of 15 years.

Acquisition of the Remaining 56 % Interest in Mid America Clinical Laboratories, LLC

On August 1, 2020, the Company completed its acquisition of the remaining 56 % interest in Mid America Clinical Laboratories, LLC ("MACL") from its joint venture partners in an all cash transaction for $ 93 million, net of $ 18 million cash acquired.

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On August 1, 2020, the Company completed the acquisition of the remaining 56 % interest in Mid America Clinical Laboratories, LLC ("MACL") from its 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, the Company accounted for its 44 % interest in MACL as an equity method investment, which was remeasured to its fair value of $ 87 million on the acquisition date, resulting in a gain of $ 70 million that was recognized in other income (expense), net in the consolidated statements of operations.

The fair value of the previously held equity interest was determined using a discounted cash flow analysis that takes into account, among other items, MACL's expected future cash flows, long-term growth rate ( 1.5 %), and a discount rate commensurate with economic risk ( 7.5 %).

Based on the preliminary purchase price allocation, which may be revised as additional information becomes available during the measurement period, the assets acquired and liabilities assumed consist of $ 84 million of goodwill (of which $ 47 million is tax-deductible), $ 74 million of intangible assets, $ 11 million of working capital and $ 11 million of property, plant and equipment.

Prior to the acquisition, the Company accounted for its 44 % interest in MACL as an equity method investment, which was remeasured to its fair value of $ 87 million on the acquisition date, resulting in a gain of $ 70 million that was recognized in other income, net in the consolidated statements of operations.

The fair value of the previously held equity interest was determined using a discounted cash flow analysis that took into account, among other items, MACL's expected future cash flows, long-term growth rate ( 1.5 %), and a discount rate commensurate with economic risk ( 7.5 %).

Based on the purchase price allocation, the assets acquired and liabilities assumed consist of $ 84 million of goodwill (of which $ 47 million is tax-deductible), $ 74 million of intangible assets, $ 11 million of working capital and $ 11 million of property, plant and equipment.

The intangible assets consist of customer-related assets which are being amortized over a useful life of 15 years.

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The 2019 acquisitions resulted in goodwill of $ 43 million, of which $ 36 million is deductible for tax purposes.

These acquisitions also resulted in $ 21 million of intangible assets, principally comprised of customer-related intangibles.

These acquisitions also resulted in $ 21 million of intangible assets, principally comprised of customer-related intangible assets.

Acquisition of the Clinical Laboratory Services Business of Boyce & Bynum Pathology Laboratories, P.C.

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(in millions unless otherwise indicated)

On February 11, 2019, the Company completed its acquisition of certain assets of the clinical laboratory services business of Boyce & Bynum Pathology Laboratories, P.C.

("Boyce & Bynum") in an all cash transaction for $ 61 million, which consisted of cash consideration of $ 55 million and contingent consideration initially estimated at $ 6 million.

On February 11, 2019, the Company completed the acquisition of certain assets of the clinical laboratory services business of Boyce & Bynum Pathology Laboratories, P.C.

in an all cash transaction for $ 61 million, which consisted of cash consideration of $ 55 million and contingent consideration initially estimated at $ 6 million.

The contingent consideration arrangement was dependent upon the achievement of certain testing volume benchmarks.

During 2019, the liability was reduced to $ 0 as a result of updated testing volume forecasts for the earn-out period compared to the testing volume target included in the contingent consideration arrangement, resulting in a $ 6 million gain recorded in other operating expense (income), net.

Based on the purchase price allocation, the assets acquired principally consist of $ 41 million of goodwill (of which $ 35 million is tax deductible) and $ 20 million of customer-related intangible assets.

The intangible assets are being amortized over a useful life of 15 years.

2018 Acquisitions

During 2018, the Company completed acquisitions for an aggregate purchase price of $ 440 million, net of cash acquired, including the acquisitions discussed below.

The 2018 acquisitions resulted in goodwill of $ 241 million, of which $ 205 million is deductible for tax purposes.

These acquisitions also resulted in $ 167 million of intangible assets, principally comprised of customer-related intangibles.

Net revenues attributable to the 2018 acquisitions were $ 84 million for the year ended December 31, 2018.

Acquisition of Mobile Medical Examination Services, LLC.

On February 1, 2018, the Company completed its acquisition of Mobile Medical Examination Services, LLC.

("MedXM"), a leading national provider of home-based health risk assessments and related services, in an all cash transaction for $ 142 million, net of $ 5 million cash acquired, which consisted of cash consideration of $ 130 million and contingent consideration initially estimated at $ 12 million.

The contingent consideration arrangement was dependent upon the achievement of certain revenue targets.

Subsequent to the acquisition, the estimated fair value of the contingent consideration was reduced to $ 0 as a result of updated revenue forecasts for 2018 compared to the earn-out revenue target included in the contingent consideration arrangement, resulting in a $ 12 million net gain recorded in other operating expense (income), net.

Through the acquisition, the Company acquired all of MedXM's operations.

The assets acquired and liabilities assumed consist of $ 77 million of intangible assets, $ 57 million of goodwill (of which $ 45 million is tax deductible), $ 7 million of working capital and $ 1 million of property, plant and equipment.

The intangible assets consist primarily of customer-related assets which are being amortized over a useful life of 15 years.

Acquisition of the Outreach Laboratory Services Business of Cape Cod Healthcare, Inc.

On June 18, 2018, the Company completed the acquisition of the outreach laboratory services business of Cape Cod Healthcare, Inc., in an all cash transaction for $ 35 million.

The assets acquired principally consist of tax deductible goodwill and customer-related intangible assets.

Acquisition of ReproSource, Inc.

On September 19, 2018, the Company completed the acquisition of ReproSource, Inc.

("ReproSource"), in an all cash transaction for $ 35 million, which consisted of cash consideration of $ 30 million and contingent consideration initially estimated at $ 5 million.

The contingent consideration arrangement was dependent upon the achievement of certain revenue targets.

During 2019, the liability was reduced to $ 0 as a result of updated revenue forecasts for 2019 compared to the earn-out revenue target included in the contingent consideration arrangement, resulting in a net gain recorded in other operating expense (income), net.

ReproSource is a national leader in specialty fertility diagnostic services.

Through the acquisition, the Company acquired all of ReproSource's operations.

The assets acquired principally consist of goodwill, technology-related intangible assets and customer-related intangible assets.

Acquisition of the U.S.

Laboratory Services Business of Oxford Immunotec, Inc.

On November 6, 2018, the Company completed the acquisition of all of the operations of the U.S.

laboratory services business of Oxford Immunotec, Inc.

("Oxford"), in an all cash transaction for $ 170 million, net of $ 1 million cash acquired.

The acquisition included laboratories in Tennessee and Massachusetts that provide tuberculosis and tick-borne disease testing services.

As part of the transaction, Oxford will sell test kits and related accessories to the Company under a long-term supply agreement.

In September 2019, the Company finalized its purchase price allocation and recorded a $ 13 million increase to

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goodwill, an $ 11 million decrease to intangible assets and a $ 2 million adjustment to other assets and liabilities.

These adjustments did not have a material impact on the Company's consolidated results of operations.

Based on the final purchase price allocation, the assets acquired and liabilities assumed primarily consist of $ 43 million of intangible assets, $ 112 million of tax deductible goodwill, $ 13 million of working capital and $ 6 million of property, plant and equipment.

The intangible assets consist primarily of customer-related and contract-related assets which are being amortized over a useful life of 15 years and 5 years, respectively.

General Information

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For further details regarding business segment information, see Note 19.

On April 1, 2021, the Company sold its 40 % ownership interest in Q2 Solutions® ("Q2 Solutions"), its clinical trials central laboratory services joint venture, to IQVIA Holdings, Inc.

("IQVIA"), its joint venture partner, for $ 760 million in an all-cash transaction.

The sales price is subject to customary post-closing adjustments.

Prior to the transaction, the Company accounted for its minority interest as an equity method investment.

As a result of the transaction, during the year ended December 31, 2021, the Company recorded a $ 314 million pre-tax gain in other income, net in the consolidated statement of operations based on the difference between the net sales proceeds and the carrying value of the investment, including $ 20 million of cumulative translation losses which were previously recorded in accumulated other comprehensive loss.

During the year ended December 31, 2021, the Company also recorded $ 55 million of income tax expense related to the gain, consisting of $ 127 million of current income tax expense, partially offset by $ 72 million of deferred income tax benefit.

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Under a multi-year agreement, the Company will remain the strategic preferred laboratory provider for Q 2 Solutions' clients, providing a range of lab testing capabilities to augment Q 2 Solutions' core offerings and extend its industry leading suite of services.

FAIR VALUE MEASUREMENTS

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December 31, 2021

Trading securities $ 67 $ 67 $ — $ —

Deferred compensation trading securities $ 77 $ 77 $ — $ —

Cash surrender value of life insurance policies 57 — 57 —

Equity investments 44 44 — —

Available-for-sale debt securities 1 — — 1

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Deferred compensation liabilities $ 143 $ — $ 143 $ —

Contingent consideration 5 — — 5

Total $ 148 $ — $ 143 $ 5

Redeemable noncontrolling interest $ 79 $ — $ — $ 79

December 31, 2020

Trading securities $ 59 $ 59 $ — $ —

Deferred compensation trading securities $ 67 $ 67 $ — $ —

Cash surrender value of life insurance policies 50 — 50 —

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Deferred compensation liabilities $ 126 $ — $ 126 $ —

Fixed-to-variable interest rate swaps 28 — 28 —

Contingent consideration 7 — — 7

Total $ 145 $ — $ 138 $ 7

Redeemable noncontrolling interest $ 82 $ — $ — $ 82

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The Company offers certain employees the opportunity to participate in a non-qualified deferred compensation program.

A participant's deferrals, together with Company matching credits, are “invested” at the direction of the employee in a hypothetical portfolio of investments which are tracked by an administrator.

The Company purchases life insurance policies, with the Company named as beneficiary of the policies, for the purpose of funding the program's liability.

Changes in the cash surrender value of the life insurance policies are based upon earnings and changes in the value of the underlying investments.

Changes in the fair value of the deferred compensation obligation are derived using quoted prices in active markets based on the

A participant's deferrals, together with Company matching credits, are “invested” at the direction of the employee in

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market price per unit multiplied by the number of units.

a hypothetical portfolio of investments which are tracked by an administrator.

The Company purchases life insurance policies, with the Company named as beneficiary of the policies, for the purpose of funding the program's liability.

Changes in the cash surrender value of the life insurance policies are based upon earnings and changes in the value of the underlying investments.

Changes in the fair value of the deferred compensation obligation are derived using quoted prices in active markets based on the market price per unit multiplied by the number of units.

The cash surrender value and the deferred compensation obligation are classified within Level 2 of the fair value hierarchy because their inputs are derived principally from observable market data by correlation to the hypothetical investments.

Deferrals under the plan currently may only be made by participants who made deferrals under the plan in 2017.

The Company's investment portfolio primarily includes equity investments comprised mostly of strategic holdings in companies concentrated in the life sciences and healthcare industries.

During the year ended December 31, 2021, certain of the Company's equity investments became publicly traded.

Such equity investments are now classified within Level 1 of the fair value hierarchy because the changes in the fair values of the securities are measured using quoted prices in active markets based on the market price per share multiplied by the number of shares held, exclusive of any transaction costs.

The Company's available-for-sale debt securities are measured at fair value using discounted cash flows.

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Significant inputs include cash flows projections and a discount rate.

The fair value measurements of the Company's fixed-to-variable interest rate swaps, which were terminated during April 2020 (see Note 15), were classified within Level 2 of the fair value hierarchy, and were model-derived valuations as of a given date in which all significant inputs were observable in active markets including certain financial information and certain assumptions regarding past, present and future market conditions.

In connection with previous business acquisitions, the Company had contingent consideration obligations that were to be paid based on the achievement of certain testing volume or revenue benchmarks.

As of December 31, 2020, no contingent consideration obligations were outstanding.

Contingent consideration liabilities are measured at fair value using an option-pricing method and are classified within Level 3 of the fair value hierarchy as the fair value is determined based on significant inputs that are not observable.

Significant inputs include management’s estimate of volume or revenue and other market inputs including comparable company revenue volatility and a discount rate.

In connection with the acquisition of Labtech (see Note 5), the Company has a contingent consideration obligation of up to $ 20 million that is to be paid based on the achievement of certain testing volume benchmarks.

As of December 31, 2021, the fair value of the contingent consideration liability totaled $ 5 million, which was measured at fair value using an option-pricing method and classified within Level 3 of the fair value hierarchy as the fair value was determined based on significant inputs that are not observable.

Significant inputs include management’s estimate of volume and other market inputs, including comparable company revenue volatility ( 7.5 %) and a discount rate ( 2.5 %).

The following table provides a reconciliation of the beginning and ending balances of liabilities using significant unobservable inputs (Level 3):

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Balance, December 31, 2019 $ 7

Purchases, additions and issuances 6

Settlements ( 6 )

Total (gains)/losses included in earnings - realized/unrealized ( 12 )

Total fair value adjustments included in earnings - realized/unrealized ( 1 )

Balance, December 31, 2020 —

Settlements ( 6 )

Total (gains)/losses included in earnings - realized/unrealized ( 1 )

Purchases, additions and issuances 5

Balance, December 31, 2021 $ 5

The $ 1 million and $ 12 million net gains included in earnings associated with the changes in the fair value of contingent consideration for the years ended December 31, 2020 and 2019, respectively, are reported in other operating expense (income), net.

The $ 1 million net gain included in earnings associated with the changes in the fair value of contingent consideration for the year ended December 31, 2020 is reported in other operating (income) expense, net.

In connection with the sale of an 18.9 % noncontrolling interest in a subsidiary to UMass Memorial Medical Center ("UMass") on July 1, 2015, the Company granted UMass the right to require the Company to purchase all of its interest in the subsidiary at fair value commencing July 1, 2020.

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The fair value measurement of the redeemable noncontrolling interest is classified within Level 3 of the fair value hierarchy because the fair value is based on a discounted cash flow analysis that takes into account, among other items, the joint venture's expected future cash flows, long-term growth rates, and a discount rate commensurate with economic risk.

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable and accrued expenses approximate fair value based on the short maturities of these instruments.

As of December 31, 2020 and 2019, the fair value of the Company’s debt was estimated at $ 4.6 billion and $ 5.1 billion, respectively.

Principally all of the Company's debt is classified within Level 1 of the fair value hierarchy because the fair value of the debt is estimated based on rates currently offered to the Company with identical terms and maturities, using quoted active market prices and yields, taking into account the underlying terms of the debt instruments.

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During the year ended December 31, 2021, the Company recorded an $ 8 million impairment charge, which is included in equity in earnings of equity method investees, net of taxes, in order to adjust to fair value an investment that is accounted for under the equity method of accounting.

Following the impairment charge, the carrying value of the investment is not material.

The fair value measurement was classified within Level 3 of the fair value hierarchy as it was based on significant inputs that are not observable, including cash flow projections.

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable and accrued expenses approximate fair value based on the short maturities of these instruments.

As of December 31, 2021 and 2020, the fair value of the Company’s debt was estimated at $ 4.4 billion and $ 4.6 billion, respectively.

TAXES ON INCOME

The Company's pre-tax income from continuing operations before equity in earnings of equity method investees consisted of approximately 2.5 billion, $ 1.9 billion and $ 1.1 billion from U.S.

operations and pre-tax (loss) income of $( 7 ) million, $ 15 million and $( 1 ) million from foreign operations for the years ended December 31, 2020, 2019 and 2018, respectively.

As a result of the Tax Cuts and Jobs Act, the Company changed its assertion that it intends to indefinitely reinvest undistributed earnings from certain non-U.S.

subsidiaries outside the U.S.

The Company is indefinitely reinvested in the remaining basis difference and it is not practicable to determine the associated amount of unrecognized deferred tax liability.

operations and pre-tax income (loss) of $ 148 million, $( 7 ) million and $ 15 million from foreign operations for the years ended December 31, 2021, 2020 and 2019, respectively.

Pre-tax income from continuing operations before equity in earnings of equity method investees for U.S.

and foreign operations include pre-tax gains of $ 171 million and $ 143 million, respectively, from the sale of the Company's 40 % ownership interest in Q2 Solutions.

The components of income tax expense (benefit) for 2021, 2020 and 2019 were as follows:

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Return to provision true-ups ( 0.8 ) ( 0.7 ) ( 1.4 )

Change in accounting method — — ( 1.6 )

Impact of equity earnings 0.6 0.8 1.1

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Effective tax rate 23.0 % 24.5 % 23.0 %

For the year ended December 31, 2019, the Company recognized a $ 12 million net income tax benefit due to the release of valuation allowances associated with certain net operating loss carryforwards.

In 2018, the Company filed for a tax return accounting method change, effective for the tax year ending December 31, 2017, to accelerate the deduction of certain expenses on its 2017 tax return at the higher 2017 federal corporate statutory income tax rate, resulting in a $ 15 million income tax benefit.

The net income tax benefit associated with changes in reserves for uncertain tax positions in 2018 was primarily related to the expiration of the statute of limitations for certain income tax returns.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) as of December 31, 2020 and 2019 were as follows:

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For the year ended December 31, 2019, the Company recognized a $ 12 million net income tax benefit due to the release of valuation allowances associated with certain net operating loss carryforwards.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) as of December 31, 2021 and 2020 were as follows:

Non-current deferred tax assets (liabilities):

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Total non-current deferred tax liabilities, net $ ( 290 ) $ ( 350 )

The non-current deferred tax assets (liabilities) disclosure at December 31, 2019 has been adjusted to separately state the gross deferred tax right-of-use asset and related gross deferred tax lease liability recognized in accordance with the new accounting standard for leases adopted on January 1, 2019.

As of December 31, 2021 and 2020, non-current deferred tax liabilities of $ 290 million and $ 350 million, respectively, are included in other liabilities in the consolidated balance sheet.

As of December 31, 2020, the Company had estimated net operating loss carryforwards for federal and state income tax purposes of $ 60 million and $ 1.0 billion, respectively, which expire at various dates through 2040.

As of December 31, 2021, the Company had estimated net operating loss carryforwards for federal and state income tax purposes of $ 31 million and $ 676 million, respectively, which expire at various dates through 2041.

Estimated net operating loss carryforwards for foreign income tax purposes are $ 70 million as of December 31, 2021, some of which can be carried forward indefinitely while others expire at various dates through 2041.

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The contingent liabilities for tax positions primarily relate to uncertainties associated with the realization of tax benefits derived from the allocation of income and expense among state jurisdictions, the characterization and timing of certain tax deductions associated with business combinations, certain tax credits and the deductibility of certain expenses and settlement payments.

The total amount of unrecognized tax benefits as of December 31, 2020, that, if recognized, would affect the effective income tax rate is $ 75 million.

Based upon the expiration of statutes of limitations, settlements and/or the conclusion of tax examinations, the Company believes it is reasonably possible that the total amount of unrecognized tax benefits may decrease by up to $ 15 million within the next twelve months.

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The total amount of unrecognized tax benefits as of December 31, 2021, that, if recognized, would affect the effective income tax rate is $ 90 million.

Accruals for interest expense on contingent tax liabilities are classified in income tax expense in the consolidated statements of operations.

Accruals for penalties have historically been immaterial.

Interest expense included in income tax expense in each of the years ended December 31, 2020, 2019 and 2018 was approximately $ 6 million, $ 5 million and $ 1 million, respectively.

Interest (income) expense included in income tax expense in each of the years ended December 31, 2021, 2020 and 2019 was approximately $( 2 ) million, $ 6 million and $ 5 million, respectively.

As of December 31, 2021 and 2020, the Company had approximately $ 20 million and $ 21 million, respectively, accrued, net of the benefit of a federal and state deduction, for the payment of interest on uncertain tax positions.

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Dividend payable $ 74 $ 76 $ 71

Dividends received from equity method investees $ 60 $ 54 $ 48

Businesses acquired:

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Leased assets obtained in exchange for new operating lease liabilities $ 150 $ 219 $ 164

Leased assets obtained in exchange for new finance lease liabilities (a) $ — $ 1 $ 1

(a) For the year ended December 31, 2018, leased assets obtained in exchange for new finance lease liabilities reflects information prior to the adoption of the new accounting standard for leases on January 1, 2019.

See Note 14 for further discussion of the Company's accounting for leases.

Leased assets obtained in exchange for new finance lease liabilities $ — $ — $ 1

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Total $ 1,707 $ 1,627

For the year ended December 31, 2019, the Company recognized a $ 73 million gain in other operating expense (income), net on the sale and leaseback of a property.

For the year ended December 31, 2019, the Company recognized a $ 73 million gain in other operating (income) expense, net on the sale and leaseback of a property.

GOODWILL AND INTANGIBLE ASSETS

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Principally all of the Company’s goodwill as of December 31, 2021 and 2020 was associated with its DIS business.

For the year ended December 31, 2020, goodwill acquired during the period was principally associated with the acquisitions of Blueprint Genetics, Memorial Hermann and MACL (see Note 6).

For the year ended December 31, 2021, goodwill acquired during the period was principally associated with the acquisitions of the assets of Mercy Health and assets of Labtech (see Note 5).

For the year ended December 31, 2021, adjustments to goodwill related to foreign currency translation.

For the year ended December 31, 2019, goodwill acquired during the period was principally associated with the acquisition of certain assets of the clinical laboratory services business of Boyce & Bynum and adjustments to goodwill primarily related to the finalization of the purchase price allocation for Oxford (see Note 6).

For the year ended December 31, 2020, goodwill acquired during the period was principally associated with the acquisitions of Blueprint Genetics, assets of Memorial Hermann and MACL (see Note 5).

For the year ended December 31, 2020, adjustments to goodwill related to foreign currency translation.

Intangible assets as of December 31, 2021 and 2020 consisted of the following:

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Customer-related 17 $ 1,581 $ ( 726 ) $ 855 $ 1,479 $ ( 638 ) $ 841

17 $ 1,479 $ ( 638 ) $ 841 $ 1,367 $ ( 556 ) $ 811

Non-compete agreements 9 3 ( 2 ) 1 3 ( 2 ) 1

9 3 ( 2 ) 1 3 ( 2 ) 1

Technology 14 141 ( 74 ) 67 141 ( 65 ) 76

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Accrued wages and benefits (including incentive compensation) $ 518 $ 502

Trade accounts payable 446 263

Accrued expenses 460 356

Trade accounts payable 357 446

Overdrafts 116 153

Dividend payable 74 76

Income taxes payable 43 27

Accrued insurance 34 31

Accrued interest 26 26

Income taxes payable 10 43

Merger consideration payable 5 —

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Long-term debt (including finance lease obligations) as of December 31, 2021 and 2020 consisted of the following:

4.75 % Senior Notes due January 2020

2.50 % Senior Notes due March 2020

4.25 % Senior Notes due April 2024

3.50 % Senior Notes due March 2025

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Secured Receivables Credit Facility

On October 22, 2020, the Company amended the agreement for its $ 600 million secured receivables credit facility (the “Secured Receivables Credit Facility”), previously amended in October 2019, to extend the maturity dates for each underlying commitment by one year , while maintaining the borrowing capacity under the facility at $ 600 million.

During October 2021, the Company amended its $ 600 million secured receivables credit facility (the “Secured Receivables Credit Facility”), previously amended in October 2020, 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 2022 and a $ 250 million loan commitment maturing October 2023, and can issue up to $ 100 million of letters of credit (see Note 18) through October 2023.

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As of both December 31, 2021 and 2020, there were no outstanding borrowings under the Secured Receivables Credit Facility.

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(in millions unless otherwise indicated)

Senior Unsecured Revolving Credit Facility

The Company is party to a $ 750 million senior unsecured revolving credit facility (the “Credit Facility” or "Senior Unsecured Revolving Credit Facility") which matures in March 2023.

During November 2021, the Company amended and restated the agreement for its $ 750 million senior unsecured revolving credit facility (the “Credit Facility” or "Senior Unsecured Revolving Credit Facility") to extend the maturity date to November 2026 while maintaining the borrowing capacity under the facility at $ 750 million.

Under the Credit Facility, the Company can issue letters of credit totaling $ 150 million (see Note 18).

Issued letters of credit reduce the available borrowing capacity under the Credit Facility.

Interest on the Credit Facility is based on certain published rates plus an applicable margin based on changes in the Company's public debt ratings and its leverage ratio.

Interest on the Credit Facility is based on certain published rates plus an applicable margin based on changes in the Company's public debt ratings.

At the option of the Company, it may elect to lock into LIBOR-based interest rates for periods up to six months.

Interest on any outstanding amounts not covered under LIBOR-based interest rate contracts is based on an alternate base rate, which is calculated by reference to the prime rate, the federal funds rate or an adjusted LIBOR rate.

As of both December 31, 2020 and 2019, the Company's borrowing rate for LIBOR-based loans under the Credit Facility was LIBOR plus 1.125 %.

As of December 31, 2021, the Company's borrowing rate for LIBOR-based loans under the Credit Facility was LIBOR plus 1.00 %.

The Credit Facility contains various covenants, including the maintenance of a financial leverage ratio, which could impact the Company's ability to, among other things, incur additional indebtedness.

In April 2020, the Company amended the Credit Facility to provide increased covenant flexibility.

As amended, the leverage ratio covenant (as defined in the Credit Facility) was increased as follows:

Applicable Covenant:

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

Thereafter, the leverage ratio covenant reverts to no more than 3.5 times EBITDA.

During the period that the increased covenant applies, which period may be terminated early by the Company provided that the Company is in compliance with the historical 3.5 times EBITDA leverage ratio, the amended Credit Facility contains certain additional limitations and restrictions including, but not limited to, repurchases of the Company's common stock, the amount of funds that can be used on business acquisitions, the incurrence of secured indebtedness and the payment of dividends.

As of both December 31, 2021 and 2020, there were no outstanding borrowings under the Senior Unsecured Revolving Credit Facility.

As of December 31, 2020, the Company was in compliance with all covenants for its credit facilities.

As of December 31, 2020, the Company had $ 1.3 billion of borrowing capacity available under the facilities, including $ 530 million available under the Secured Receivables Credit Facility and $ 750 million available under the Senior Unsecured Revolving Credit Facility.

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

5 unchanged sentences

During November 2020, the net proceeds from the 2031 Senior Notes, along with cash on hand, were used to redeem in full the outstanding indebtedness under the Company's senior notes due April 2021.

In December 2019, the Company completed a senior notes offering, consisting of $ 800 million aggregate principal amount of 2.95 % senior notes due June 2030 (the "2030 Senior Notes"), which were issued at an original issue discount of $ 2 million.

The Company incurred $ 7 million of debt issuance costs associated with the 2030 Senior Notes, which are included as a reduction to the carrying amount of long-term debt and which are being amortized over the term of the related debt.

During January 2020, the net proceeds from the 2030 Senior Notes, along with cash on hand, were used to redeem in full the outstanding indebtedness under the Company's senior notes due January 2020 and senior notes due March 2020.

In March 2019, the Company completed a senior notes offering, consisting of $ 500 million aggregate principal amount of 4.20 % senior notes due June 2029 (the "2029 Senior Notes"), which were issued at an original issue discount of $ 1 million.

The Company incurred $ 5 million of debt issuance costs associated with the 2029 Senior Notes, which are included as a reduction to the carrying amount of long-term debt and which are being amortized over the term of the related debt.

The net proceeds from the 2029 Senior Notes were used to repay in full the outstanding indebtedness under the Company's senior notes due April 2019, to repay outstanding indebtedness under the Secured Receivables Credit Facility and for general corporate purposes.

For the year ended December 31, 2020, the Company recorded a loss on retirement of debt, principally comprised of premiums paid, of $ 9 million in other income (expense), net.

During January 2020, the Company redeemed in full the outstanding indebtedness under the Company's senior notes due January 2020 and senior notes due March 2020, using the net proceeds from the issuance, in December 2019, of the senior notes due June 2030.

For the year ended December 31, 2020, the Company recorded a loss on retirement of debt, principally comprised of premiums paid, of $ 9 million in other income, net.

All of the senior notes are unsecured obligations of the Company and rank equally with the Company's other senior unsecured obligations.

2 unchanged sentences

For notes with the par value redemption option, if such notes are redeemed prior to the specified dates, the redemption price calculations exclude any interest that would have been due after such dates.

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

Maturities of Long-Term Debt

19 unchanged sentences

the Company recognizes lease expense for these leases on a straight-line basis over the lease term.

For the year ended December 31, 2020 and 2019, lease expense associated with short-term leases was not material.

For the years ended December 31, 2021, 2020, and 2019, lease expense associated with short-term leases was not material.

The Company primarily uses its collateralized incremental borrowing rate in determining the present value of lease payments as the Company's leases generally do not provide an implicit rate.

26 unchanged sentences

Net lease cost $ 325 $ 309 $ 304

(a) Includes short-term leases and variable lease costs (primarily usage-based maintenance fees and utilities related to real estate leases and certain equipment-related and vehicle-related costs) of $ 120 million for each of the years ended December 31, 2020 and 2019.

Rental expense for real estate, laboratory equipment and vehicles under operating leases amounted to $ 220 million for the year ended December 31, 2018.

(a) Includes short-term leases and variable lease costs (primarily usage-based maintenance fees and utilities related to real estate leases and certain equipment-related and vehicle-related costs) of $ 140 million, $ 120 million and $ 120 million for the years ended December 31, 2021, 2020 and 2019, respectively.

The maturity of the Company's lease liabilities as of December 31, 2021 is as follows:

18 unchanged sentences

See Note 9 for cash flow information on cash paid for amounts included in the measurement of lease liabilities, leased assets obtained in exchange for new operating lease liabilities, and leased assets obtained in exchange for new finance lease liabilities for the years ended December 31, 2021, 2020 and 2019.

FINANCIAL INSTRUMENTS

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

1 unchanged sentence

(in millions unless otherwise indicated)

FINANCIAL INSTRUMENTS

Interest Rate Derivatives – Cash Flow Hedges

From time to time, the Company has entered into various interest rate lock agreements and forward-starting interest rate swap agreements to hedge part of the Company's interest rate exposure associated with the variability in future cash flows attributable to changes in interest rates.

During March 2020, the Company entered into a forward-starting interest rate swap agreement with a financial institution for a total notional amount of $ 25 million.

Additionally, during May 2020, the Company entered into interest rate lock agreements with several financial institutions for a total notional amount of $ 275 million.

The forward-starting interest rate swap agreement and the interest rate lock agreements were entered into in order to hedge a portion of the Company's interest rate exposure associated with variability in future cash flows attributable to changes in interest rates over a ten -year period related to an anticipated issuance of debt and were accounted for as cash flow hedges.

In connection with the issuance of the 2031 Senior Notes (see Note 13), these agreements were settled and the Company received net proceeds of $ 1 million.

The total net loss, net of taxes, recognized in accumulated other comprehensive loss, related to the Company's cash flow hedges was $ 1 million and $ 4 million as of December 31, 2020 and 2019, respectively.

The net amount of deferred losses on cash flow hedges that is expected to be reclassified from accumulated other comprehensive loss into interest expense, net within the next twelve months is $ 1 million.

Interest Rate Derivatives – Fair Value Hedges

As of December 31, 2019, the Company had various fixed-to-variable interest rate swap agreements outstanding with an aggregate notional amount of $ 1.2 billion, which were entered into in order to convert a portion of the Company's long-term debt into variable interest rate debt.

In April 2020, the Company terminated these existing fixed-to-variable interest rate swap agreements and received proceeds of $ 40 million.

Such amount was reflected as a basis adjustment to the hedged debt instruments and is being amortized as a reduction of interest expense, net over their remaining terms.

Historically, the Company has entered into various fixed-to-variable interest rate swap agreements in order to convert a portion of the Company's long-term debt into variable interest rate debt.

All such fixed-to-variable interest rate swap agreements have been terminated and proceeds from the terminations have been reflected as basis adjustments to the hedged debt instruments and are being amortized as a reduction of interest expense, net over the remaining terms of such debt instruments.

As of December 31, 2021 and 2020, the following amounts were recorded on the consolidated balance sheets related to cumulative basis adjustments for fair value hedges included in the carrying amount of long-term debt:

2 unchanged sentences

Long-term debt $ — $ 38 $ — $ 51

(a) As of December 31, 2020, the entire balance is associated with remaining unamortized hedging adjustments on discounted relationships.

As of December 31, 2019, the balance includes $ 25 million of remaining unamortized hedging adjustments on discontinued relationships.

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

(a) As of both December 31, 2021 and 2020, the entire balance is associated with remaining unamortized hedging adjustments on discounted relationships.

The following table presents the effect of fair value hedge accounting on the consolidated statements of operations for the years ended December 31, 2021, 2020 and 2019, respectively:

2021 2020 2019

Other income (expense), net Other income (expense), net Other income (expense), net

Other income, net Other income, net Other income, net

Total for line item in which the effects of fair value hedges are recorded $ 369 $ 76 $ 20

2 unchanged sentences

Derivatives designated as hedging instruments $ — $ 68 $ 65

A summary of the fair values of derivative instruments in the consolidated balance sheet was as follows:

December 31, 2019

Balance Sheet

Classification Fair Value

Derivatives Designated as Hedging Instruments

Fixed-to-variable interest rate swap agreements Other liabilities $ 28

STOCKHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTEREST

5 unchanged sentences

Under the Company's Restated Certificate of Incorporation the number of authorized shares of common stock, par value $ 0.01 per share, is 600 million shares.

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

Changes in Accumulated Other Comprehensive Loss by Component

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• Foreign currency translation adjustments;

• Net changes in available-for-sale debt securities, which represent unrealized holding gains (losses), net of tax, on available-for-sale debt securities;

• Net changes in available-for-sale debt securities, which represent unrealized holding gains (losses), net of tax, on available-for-sale debt securities.

For the years ended December 31, 2021, 2020, and 2019, the tax effects related to the deferred gains (losses) on cash flow hedges and net changes in available-for-sale debt securities were not material.

1 unchanged sentence

subsidiaries are not adjusted for income taxes.

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

The changes in accumulated other comprehensive loss by component for 2021, 2020 and 2019 were as follows:

1 unchanged sentence

Balance, December 31, 2018 $ ( 49 ) $ — $ ( 9 ) $ ( 1 ) $ ( 59 )

Other comprehensive loss before reclassifications ( 15 ) — — — ( 15 )

Amounts reclassified from accumulated other comprehensive loss

Net current period other comprehensive (loss) income ( 11 ) — 2 — ( 9 )

Reclassification of stranded tax effects resulting from enactment of the Tax Cuts and Jobs Act — — ( 2 ) — ( 2 )

Balance, December 31, 2018 ( 49 ) — ( 9 ) ( 1 ) ( 59 )

Other comprehensive income before reclassifications 7 8 3 — 18

6 unchanged sentences

Balance, December 31, 2020 ( 27 ) 8 ( 1 ) ( 1 ) ( 21 )

Other comprehensive loss before reclassifications ( 7 ) ( 7 ) — — ( 14 )

Amounts reclassified from accumulated other comprehensive loss 20 — 1 — 21

Net current period other comprehensive income (loss) 13 ( 7 ) 1 — 7

Balance, December 31, 2021 $ ( 14 ) $ 1 $ — $ ( 1 ) $ ( 14 )

On April 1, 2021, the Company sold its 40 % ownership interest in Q 2 Solutions, its clinical trials central laboratory services joint venture, to IQVIA, its joint venture partner.

As a result of the transaction, during the year ended December 31, 2021, $ 20 million of cumulative translation losses were reclassified from accumulated other comprehensive loss to other income, net.

See Note 6 for further details.

Additionally, for the year ended December 31, 2020, $ 3 million of cumulative translation losses were reclassified from accumulated other comprehensive loss to other operating (income) expense, net as a result of the sale of foreign subsidiaries.

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

For the years ended December 31, 2021, 2020 and 2019, the gross deferred losses on cash flow hedges were reclassified from accumulated other comprehensive loss to interest expense, net.

For the years ended December 31, 2020 and 2018, foreign currency translation adjustment amounts were reclassified from accumulated other comprehensive loss to other operating expense (income), net as a result of the sale of foreign subsidiaries.

Dividend Program

1 unchanged sentence

During each of the four quarters of 2020, the Company's Board of Directors declared a quarterly cash dividend of $ 0.56 per common share.

During each of the first three quarters of 2018, the Company's Board of Directors declared a quarterly cash dividend of $ 0.50 per common share.

During the fourth quarter of 2018, the Company's Board of Directors declared a quarterly cash dividend of $ 0.53 per common share.

During each of the four quarters of 2019, the Company's Board of Directors declared a quarterly cash dividend of $ 0.53 per common share.

On February 3, 2022, the Company announced that its Board of Directors authorized a 6.5 % increase in its quarterly cash dividend from $ 0.62 to $ 0.66 per share, or $ 2.64 per share annually, commencing with the dividend payable in April 2022.

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

Share Repurchase Program

In each of February 2021 and March 2021, the Company's Board of Directors increased the size of its share repurchase program by $ 1 billion.

As of December 31, 2021, $ 0.7 billion remained available under the Company’s share repurchase authorization.

2 unchanged sentences

Share Repurchases

For the year ended December 31, 2021, the Company repurchased 16.0 million shares of its common stock for $ 2.2 billion, including shares repurchased under ASRs.

The repurchases during the year included an accrual of $ 23 million recorded in accounts payable and accrued expenses in the consolidated balance sheet for share repurchases not settled until after December 31, 2021.

In April 2021, the Company entered into ASRs with several financial institutions to repurchase its common stock as part of a share repurchase program.

Each of the ASRs was structured to permit the Company to purchase shares immediately with the final purchase price of those shares determined by the volume-weighted average price of the Company's common stock during the repurchase period, less a fixed discount, and was accounted for as two transactions:

(1) a treasury stock repurchase and (2) a forward contract.

During the year ended December 31, 2021, the Company paid $ 1.5 billion to the financial institutions and received 10.7 million shares of its common stock under the ASRs.

For the year ended December 31, 2020, the Company repurchased 2.7 million shares of its common stock for $ 325 million.

For the year ended December 31, 2019, the Company repurchased 3.5 million shares of its common stock for $ 350 million.

For the year ended December 31, 2018, the Company repurchased 3.4 million shares of its common stock for $ 325 million, which included an accrual of $ 3 million recorded in accounts payable and accrued expenses in the consolidated balance sheet for share repurchases not settled until after December 31, 2018.

Shares Reissued from Treasury Stock

For the years ended December 31, 2020, 2019 and 2018 the Company reissued 3 million shares, 2 million shares and 3 million shares, respectively, from treasury stock for shares issued under the Employee Stock Purchase Plan ("ESPP") and stock option plans.

For the years ended December 31, 2021, 2020 and 2019, the Company reissued 2 million shares, 3 million shares and 2 million shares, respectively, from treasury stock for shares issued under the Employee Stock Purchase Plan ("ESPP") and stock-based compensation program.

Treasury Stock Retirement

During the year ended December 31, 2021, the Company retired 55 million shares of treasury stock.

In accordance with the Company's policy, the amount paid to repurchase the shares in excess of par value was allocated between retained earnings and additional paid-in capital based on a pro-rata allocation of additional paid-in capital at the time of the share retirement.

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

Redeemable Noncontrolling Interest

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For performance share units, the actual amount of shares earned is based on the achievement of the performance goals specified in the awards.

The performance goals for awards granted for 2018 and 2019 were based on the financial performance of the Company.

The performance goals for awards granted in 2020 were based on the financial performance of the Company as well as relative TSR.

The performance goals for awards granted for 2019 were based on the financial performance of the Company.

The performance goals for awards granted in 2020 and 2021 were based on the financial performance of the Company, as well as relative TSR.

The maximum number of shares of Company common stock in respect of which awards may be granted under the ELTIP is approximately 79 million shares.

1 unchanged sentence

The DLTIP also permits awards of restricted stock and restricted stock units to non-employee directors.

Stock options

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

granted under the DLTIP expire on the date designated by the Board of Directors but in no event more than ten years from date of grant.

Stock options granted under the DLTIP expire on the date designated by the Board of Directors but in no event more than ten years from date of grant.

For all award types, the vesting period is generally over three years from the date of grant, regardless of whether the award recipient remains a director of the Company.

2 unchanged sentences

The Company's practice has been to issue shares related to its stock-based compensation program from shares of its common stock held in treasury or by issuing new shares of its common stock.

In January 2021, the Company began to issue shares related to its ESPP and stock-based compensation program solely from common stock held in treasury.

See Note 16 for further information regarding the Company's share repurchase program.

5 unchanged sentences

The expected holding period was estimated using the historical stock option exercise behavior of employees.

The Black-Scholes option-valuation model also incorporates the average market price of the Company's common stock at the date of grant.

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

The weighted average assumptions used in valuing stock options granted in the periods presented were:

12 unchanged sentences

Options exercised ( 1.5 ) 84.09

Options forfeited and canceled ( 0.2 ) 107.50

Options outstanding, end of year 5.7 $ 96.44 6.5 $ 433

5 unchanged sentences

As of December 31, 2021, there was $ 7 million of unrecognized stock-based compensation cost related to nonvested stock options which is expected to be recognized over a weighted average period of 1.6 years.

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

The fair value of restricted stock awards and restricted stock units is the average market price of the Company's common stock at the date of grant.

5 unchanged sentences

Treasury yield curve in effect at the time of grant for bonds with maturities consistent with the performance period of the related award.

The weighted average assumptions used in valuing performance share units in 2020 with a market-based relative TSR goal were:

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

The weighted average assumptions used in valuing performance share units with a market-based relative TSR goal in the periods presented were:

Fair value at grant date $ 150.15 $ 144.03

17 unchanged sentences

Income tax benefits recognized in the consolidated statements of operations related to stock-based compensation expense totaled $ 32 million, $ 39 million and $ 27 million for the years ended December 31, 2021, 2020 and 2019, respectively, which includes excess tax benefits associated with stock-based compensation arrangements of $ 19 million, $ 23 million and $ 13 million for the years ended December 31, 2021, 2020 and 2019, respectively.

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

Employee Stock Purchase Plan

3 unchanged sentences

Approximately 200 thousand shares, 225 thousand shares and 269 thousand shares of common stock were purchased by eligible employees in 2021, 2020 and 2019, respectively.

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

Defined Contribution Plans

27 unchanged sentences

The letters of credit primarily represent collateral for current and future automobile liability and workers’ compensation loss payments.

The Company has certain noncancelable commitments, primarily under take-or-pay arrangements, to purchase products or services from various suppliers, mainly for consulting and other service agreements, and standing orders to purchase reagents and other laboratory supplies.

As of December 31, 2021, the approximate total future purchase commitments are $ 252 million, of which $ 53 million are expected to be incurred in 2022, $ 87 million are expected to be incurred in 2023 through 2024 and the balance thereafter.

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

1 unchanged sentence

(in millions unless otherwise indicated)

As of December 31, 2020, the approximate total future purchase commitments are $ 334 million, of which $ 106 million are expected to be incurred in 2021, $ 103 million are expected to be incurred in 2022 through 2023 and the balance thereafter.

Billing and Collection Agreement

16 unchanged sentences

In 2020, two putative class action lawsuits were filed in the U.S.

District Court for the District of New Jersey against the Company and other defendants with respect to the Company’s 401(k) plan.

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.

1 unchanged sentence

Quest Diagnostics ERISA Litigation and plaintiffs filed a consolidated amended complaint.

The Company plans to vigorously defend this matter and has filed a motion to dismiss the complaint.

In May 2021, the court denied the Company's motion to dismiss the complaint.

AMCA Data Security Incident

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

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”).

8 unchanged sentences

The bankruptcy proceeding has been dismissed.

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

Numerous putative class action lawsuits were filed against the Company related to the AMCA Data Security Incident.

10 unchanged sentences

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 is aware of lawsuits, and from time to time has received subpoenas, related to billing or other practices based on the 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.

1 unchanged sentence

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.

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

These matters are in different stages.

2 unchanged sentences

As of December 31, 2021, the Company does not believe that material losses related to legal matters are probable.

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

Reserves for legal matters totaled $ 4 million and $ 1 million as of December 31, 2021 and December 31, 2020, respectively.

Reserves for General and Professional Liability Claims

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Management believes that established reserves and present insurance coverage are sufficient to cover currently estimated exposures.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

BUSINESS SEGMENT INFORMATION

6 unchanged sentences

As of December 31, 2021, 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.

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

The following table is a summary of segment information for the years ended December 31, 2021, 2020 and 2019.

13 unchanged sentences

Total operating income 2,381 1,971 1,231

Non-operating expenses, net ( 87 ) ( 155 ) ( 175 )

Non-operating income (expense), net 218 ( 87 ) ( 155 )

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

7 unchanged sentences

Net income attributable to Quest Diagnostics $ 1,995 $ 1,431 $ 858

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

Depreciation and amortization expense for the years ended December 31, 2021, 2020 and 2019 were as follows:

4 unchanged sentences

Total depreciation and amortization $ 408 $ 361 $ 329

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(in millions unless otherwise indicated)

Capital expenditures for the years ended December 31, 2021, 2020 and 2019 were as follows:

6 unchanged sentences

2021 2020 2019

Routine clinical testing services $ 3,836 $ 4,206 $ 4,217

Routine clinical testing and other services $ 4,293 $ 3,836 $ 4,206

COVID-19 testing services 2,770 2,723 —

3 unchanged sentences

Total net revenues $ 10,788 $ 9,437 $ 7,726

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 years ended December 31, 2020, 2019 and 2018, the Company recognized net revenues of $ 34 million, $ 35 million, and $ 36 million, respectively, associated with diagnostic information services provided to its equity method investees.

As of December 31, 2020 and 2019, there was $ 3 million and $ 4 million, respectively, of accounts receivable from equity method investees related to such services.

During the years ended December 31, 2020 and 2019, the Company recognized net revenues of $ 3 million and $ 8 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 in the consolidated balance sheet related to such services.

During the years ended December 31, 2020, 2019 and 2018, the Company recognized income of $ 16 million, $ 15 million and $ 15 million, respectively, 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 December 31, 2020 and 2019, there was $ 3 million and $ 1 million, respectively, of other receivables from equity method investees included in prepaid expenses and other current assets in the consolidated balance sheet related to these service agreements and other transition related items.

In addition, accounts payable and accrued expenses in the consolidated balance sheet as of December 31, 2020 and 2019 included $ 1 million and $ 2 million, respectively, due to equity method investees.

During the years ended December 31, 2020, 2019 and 2018, the Company received dividends from its equity method investees of $ 54 million, $ 48 million, and $ 74 million, respectively.

During the year ended December 31, 2018, the Company contributed $ 10 million to an equity method investee to fund its share of an acquisition made by the equity method investee.

DISCONTINUED OPERATIONS

1 unchanged sentence

In addition, net cash provided by operating activities in the consolidated statement of cash flows for the year ended December 31, 2019 included a $ 28 million refund from the taxing authorities related to discontinued operations.

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

Quarterly Operating Results (unaudited)

(in millions, except per share data)

2020 (a) First

(b) (c) (d) (e) (f)

Net revenues $ 1,822 $ 1,827 $ 2,786 $ 3,002 $ 9,437

Gross profit 552 606 1,206 1,269 3,633

Income from continuing operations

106 193 591 609 1,499

Income from discontinued operations, net of taxes

106 193 591 609 1,499

Net income attributable to noncontrolling interests

Net income attributable to Quest Diagnostics

$ 99 $ 185 $ 568 $ 579 $ 1,431

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

Income from continuing operations

$ 0.74 $ 1.38 $ 4.20 $ 4.28 $ 10.62

Income from discontinued operations

Net income $ 0.74 $ 1.38 $ 4.20 $ 4.28 $ 10.62

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

Income from continuing operations

$ 0.73 $ 1.36 $ 4.14 $ 4.21 $ 10.47

Income from discontinued operations — — — — —

Net income $ 0.73 $ 1.36 $ 4.14 $ 4.21 $ 10.47

2019 (a) First

(g) (h) (i) (j)

Net revenues $ 1,891 $ 1,953 $ 1,956 $ 1,926 $ 7,726

Gross profit 647 688 692 662 2,689

Income from continuing operations

176 219 226 265 886

Income from discontinued operations, net of taxes

Net income 176 239 226 265 906

Net income attributable to noncontrolling interests

12 13 11 12 48

Net income attributable to Quest Diagnostics

$ 164 $ 226 $ 215 $ 253 $ 858

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

Income from continuing operations

$ 1.22 $ 1.52 $ 1.59 $ 1.88 $ 6.21

Income from discontinued operations

— 0.15 — — 0.15

Net income $ 1.22 $ 1.67 $ 1.59 $ 1.88 $ 6.36

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

Income from continuing operations

$ 1.20 $ 1.51 $ 1.56 $ 1.86 $ 6.13

Income from discontinued operations — 0.15 — — 0.15

Net income $ 1.20 $ 1.66 $ 1.56 $ 1.86 $ 6.28

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

Quarterly Operating Results (unaudited)

(in millions, except per share data)

(a) During the third quarter of 2006, the Company completed the wind down of Nichols Institute Diagnostics ("NID"), a test kit manufacturing subsidiary.

As a result, NID was classified as discontinued operations through 2019, at which point certain income tax contingencies related to NID were resolved (see Note 21 to the audited consolidated financial statements).

(b) Included pre-tax amortization expense of $ 28 million ($ 25 million in amortization of intangible assets and $ 3 million in equity in earnings of equity method investees, net of taxes);

pre-tax charges of $ 16 million ($ 7 million in cost of services and $ 9 million in selling, general and administrative expenses), primarily associated with systems conversions and integration incurred in connection with further restructuring and integrating the Company;

and pre-tax charges of $ 9 million ($ 1 million in cost of services, $ 3 million in selling, general and administrative expenses and $ 5 million in other operating expense (income), net), associated with certain costs incurred as a result of the COVID-19 pandemic and resulting impact on the economy including incremental costs incurred primarily to protect the health and safety of the Company's employees and customers and to transition certain employees to a remote work environment, and certain asset impairment charges;

partially offset by excess tax benefits associated with stock-based compensation arrangements of $ 8 million recorded in income tax expense.

(c) Included pre-tax amortization expense of $ 28 million ($ 25 million in amortization of intangible assets and $ 3 million in equity in earnings of equity method investees, net of taxes);

and pre-tax charges of $ 9 million ($ 3 million in cost of services and $ 6 million in selling, general and administrative expenses), representing costs primarily associated with systems conversions and integration incurred in connection with further restructuring and integrating the Company;

partially offset by a pre-tax gain of $ 26 million (charges of $ 34 million in cost of services and $ 5 million in selling, general and administrative expenses, offset by a $ 62 million gain in other operating expense (income), net, and a $ 3 million gain in equity in earnings of equity method investees, net of taxes), representing certain items resulting from the COVID-19 pandemic, including expense associated with a payment to eligible employees to help offset expenses they incurred as a result of COVID-19, incremental costs incurred primarily to protect the health and safety of the Company's employees and customers, and certain impairment charges, which were more than offset by $ 65 million of income recognized attributable to the receipt of the initial tranche of funds from the government that were appropriated to healthcare providers under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act");

and excess tax benefits associated with stock-based compensation arrangements of $ 4 million recorded in income tax expense.

(d) Included net pre-tax charges of $ 69 million (charges of $ 3 million in cost of services, $ 65 million in other operating expense (income), net, and $ 1 million in equity in earnings of equity method investees, net of taxes), representing the impact of certain items resulting from the COVID-19 pandemic, including incremental costs incurred primarily to protect the health and safety of the Company's employees and customers and the reversal of $ 65 million of income previously recognized during the second quarter of 2020 attributable to the receipt of funds from the government that were appropriated to healthcare providers under the CARES Act;

pre-tax amortization expense of $ 30 million ($ 27 million in amortization of intangible assets and $ 3 million in equity in earnings of equity method investees, net of taxes);

and pre-tax charges of $ 18 million ($ 11 million in cost of services and $ 7 million in selling, general and administrative expenses), representing costs primarily associated with systems conversions and integration incurred in connection with further restructuring and integrating the Company;

partially offset by a pre-tax gain of $ 70 million recognized in other income (expense), net upon the acquisition of the remaining 56 % interest in Mid America Clinical Laboratories, LLC as a result of the remeasurement of the Company's previously held equity interest to fair value;

and excess tax benefits associated with stock-based compensation arrangements of $ 3 million recorded in income tax expense.

(e) Included pre-tax amortization expense of $ 28 million ($ 26 million in amortization of intangible assets and $ 2 million in equity in earnings of equity method investees, net of taxes);

pre-tax charges of $ 20 million (charges of $ 19 million in cost of services, $ 2 million in selling, general and administrative expenses and $ 1 million in other operating expense (income), net, partially offset by a $ 2 million gain in equity in earnings of equity method investees, net of taxes), representing the impact of certain items resulting from the COVID-19 pandemic, principally including expense associated with payments to eligible employees to help offset expenses they incurred as a result of COVID-19 and incremental costs incurred primarily to protect the health and safety of the Company's employees and customers;

and pre-tax charges of $ 15 million ($ 6 million in cost of services and $ 9 million in selling, general and administrative expenses), primarily associated with systems conversions and integration incurred in connection with further restructuring and integrating the Company;

partially offset by a pre-tax gain of $ 2 million ($ 2 million of charges in selling, general and administrative expenses and a $ 10 million loss in other income (expense), net, offset by a $ 14 million gain in equity in earnings of equity method investees, net of taxes) related to costs associated with Quest for Health Equity (the Company's recently announced initiative with the Quest

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

Quarterly Operating Results (unaudited)

(in millions, except per share data)

Diagnostics Foundation to reduce health disparities in underserved communities) and a loss on retirement of debt, which were more than offset by a gain recognized by an equity method investee to adjust certain of its investments to fair value;

and excess tax benefits associated with stock-based compensation arrangements of $ 8 million recorded in income tax expense.

In the fourth quarter of 2020, the Company returned the funds received from the government that were appropriated to healthcare providers under the CARES Act.

(f) The sum of basic and diluted earnings per share attributable to Quest Diagnostics' common stockholders for the four quarters of 2020 did not equal the totals for the year ended December 31, 2020 due to quarterly fluctuations in the Company's earnings and weighted average common shares outstanding throughout the period primarily due to the impact of the COVID-19 pandemic on the Company's results and the temporary suspension of repurchases under the Company's share repurchase program.

(g) Included pre-tax amortization expense of $ 29 million ($ 24 million in amortization of intangible assets and $ 5 million in equity in earnings of equity method investees, net of taxes);

pre-tax charges of $ 22 million ($ 11 million in cost of services and $ 11 million in selling, general and administrative expenses), primarily associated with system conversions and integration incurred in connection with further restructuring and integrating the Company;

a pre-tax gain of $ 8 million ($ 1 million charge in selling, general and administrative expenses offset by a $ 9 million gain in other operating expense (income), net), due to non-cash asset impairment charges, which were more than offset by a gain associated with proceeds from an insurance claim for hurricane related losses;

and excess tax benefits associated with stock-based compensation arrangements of $ 3 million recorded in income tax expense.

(h) Included pre-tax amortization expense of $ 30 million ($ 25 million in amortization of intangible assets and $ 5 million in equity in earnings of equity method investees, net of taxes);

pre-tax charges of $ 26 million ($ 11 million in cost of services and $ 15 million in selling, general and administrative expenses), primarily associated with system conversions and integration incurred in connection with further restructuring and integrating the Company;

a pre-tax gain of $ 6 million in other operating expense (income), net, primarily due to a gain associated with the decrease in the fair value of the contingent consideration accrual associated with a previous acquisition;

and excess tax benefits associated with stock-based compensation arrangements of $ 5 million recorded in income tax expense.

Income from discontinued operations, net of taxes includes discrete tax benefits of $ 20 million associated with the favorable resolution of certain tax contingencies related to NID.

(i) Included pre-tax amortization expense of $ 25 million ($ 23 million in amortization of intangible assets and $ 2 million in equity in earnings of equity method investees, net of taxes);

pre-tax charges of $ 16 million ($ 7 million in cost of services and $ 9 million in selling, general and administrative expenses), primarily associated with system conversions and integration incurred in connection with further restructuring and integrating the Company;

a pre-tax gain of $ 3 million ($ 4 million charge in selling, general and administrative expenses, offset by a $ 7 million gain in other operating expense (income), net), consisting of costs incurred related to the AMCA Data Security Incident, which were more than offset by a gain associated with the decrease in the fair value of the contingent consideration accrual associated with a previous acquisition;

and excess tax benefits associated with stock-based compensation arrangements of $ 3 million recorded in income tax expense.

(j) Includes a pre-tax gain of $ 72 million ($ 1 million charge in selling, general and administrative expenses, offset by a $ 73 million gain in other operating expense (income), net), primarily associated with the sale and leaseback of a property;

pre-tax amortization expense of $ 27 million ($ 24 million in amortization of intangible assets and $ 3 million in equity in earnings of equity method investees, net of taxes);

pre-tax charges of $ 14 million ($ 6 million in cost of services and $ 8 million in selling, general and administrative expenses), primarily associated with system conversions and integration incurred in connection with further restructuring and integrating the Company;

and excess tax benefits associated with stock-based compensation arrangements of $ 2 million recorded in income tax expense.

SUBSEQUENT EVENTS

Acquisition of Pack Health, LLC

On February 1, 2022, the Company acquired Pack Health, LLC ("Pack Health"), a patient engagement company that helps individuals adopt healthier behaviors to improve outcomes, in an all cash transaction for $ 105 million with up to $ 20 million of contingent consideration if certain revenue benchmarks are achieved.

The preliminary purchase price allocation for the acquisition, which will be accounted for as a business combination, is not provided as the appraisal necessary to assess the fair values of assets acquired and liabilities assumed is not yet complete, but a significant portion of the purchase price is expected to be allocated to intangible assets and goodwill.

QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES

4 unchanged sentences

Allowance for credit losses $ 28 $ 4 $ 1 (a) $ 31

Doubtful accounts and allowances $ 15 $ 11 $ 11 (a) $ 15

Allowance for credit losses $ 15 $ 19 $ 6 (a) $ 28

Doubtful accounts and allowances $ 15 $ 11 $ 11 (a) $ 15

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures