UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
WASHINGTON, DC 20549 |
(State of Incorporation) | (I.R.S. Employer Identification Number) | ||||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
☒ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ | Smaller reporting company | |
Emerging growth company |
Page | ||
Item 1. Financial Statements | ||
Index to unaudited consolidated financial statements filed as part of this report: | ||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Net revenues | $ | $ | $ | $ | |||||||||||
Operating costs and expenses and other operating income: | |||||||||||||||
Cost of services | |||||||||||||||
Selling, general and administrative | |||||||||||||||
Amortization of intangible assets | |||||||||||||||
Other operating income, net | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Total operating costs and expenses, net | |||||||||||||||
Operating income | |||||||||||||||
Other income (expense): | |||||||||||||||
Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Other income, net | |||||||||||||||
Total non-operating expenses, net | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Income from continuing operations before income taxes and equity in earnings of equity method investees | |||||||||||||||
Income tax expense | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Equity in earnings of equity method investees, net of taxes | |||||||||||||||
Income from continuing operations | |||||||||||||||
Income from discontinued operations, net of taxes | |||||||||||||||
Net income | |||||||||||||||
Less: Net income attributable to noncontrolling interests | |||||||||||||||
Net income attributable to Quest Diagnostics | $ | $ | $ | $ | |||||||||||
Amounts attributable to Quest Diagnostics’ common stockholders: | |||||||||||||||
Income from continuing operations | $ | $ | $ | $ | |||||||||||
Income from discontinued operations, net of taxes | |||||||||||||||
Net income | $ | $ | $ | $ | |||||||||||
Earnings per share attributable to Quest Diagnostics’ common stockholders - basic: | |||||||||||||||
Income from continuing operations | $ | $ | $ | $ | |||||||||||
Income from discontinued operations | |||||||||||||||
Net income | $ | $ | $ | $ | |||||||||||
Earnings per share attributable to Quest Diagnostics’ common stockholders - diluted: | |||||||||||||||
Income from continuing operations | $ | $ | $ | $ | |||||||||||
Income from discontinued operations | |||||||||||||||
Net income | $ | $ | $ | $ | |||||||||||
Weighted average common shares outstanding: | |||||||||||||||
Basic | |||||||||||||||
Diluted |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Net income | $ | $ | $ | $ | |||||||||||
Other comprehensive income (loss): | |||||||||||||||
Currency translation | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Net change on available-for-sale debt securities, net of taxes | |||||||||||||||
Net deferred gain on cash flow hedges, net of taxes | |||||||||||||||
Other comprehensive income (loss) | ( | ) | ( | ) | |||||||||||
Comprehensive income | |||||||||||||||
Less: Comprehensive income attributable to noncontrolling interests | |||||||||||||||
Comprehensive income attributable to Quest Diagnostics | $ | $ | $ | $ |
September 30, 2019 | December 31, 2018 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | $ | |||||
Accounts receivable, net of allowance for doubtful accounts of $15 as of both September 30, 2019 and December 31, 2018 | |||||||
Inventories | |||||||
Prepaid expenses and other current assets | |||||||
Total current assets | |||||||
Property, plant and equipment, net | |||||||
Operating lease right-of-use assets | |||||||
Goodwill | |||||||
Intangible assets, net | |||||||
Investment in equity method investees | |||||||
Other assets | |||||||
Total assets | $ | $ | |||||
Liabilities and Stockholders’ Equity | |||||||
Current liabilities: | |||||||
Accounts payable and accrued expenses | $ | $ | |||||
Current portion of long-term debt | |||||||
Current portion of long-term operating lease liabilities | |||||||
Total current liabilities | |||||||
Long-term debt | |||||||
Long-term operating lease liabilities | |||||||
Other liabilities | |||||||
Commitments and contingencies | |||||||
Redeemable noncontrolling interest | |||||||
Stockholders’ equity: | |||||||
Quest Diagnostics stockholders’ equity: | |||||||
Common stock, par value $0.01 per share; 600 shares authorized as of both September 30, 2019 and December 31, 2018; 217 shares issued as of both September 30, 2019 and December 31, 2018 | |||||||
Additional paid-in capital | |||||||
Retained earnings | |||||||
Accumulated other comprehensive loss | ( | ) | ( | ) | |||
Treasury stock, at cost; 82 shares as of both September 30, 2019 and December 31, 2018 | ( | ) | ( | ) | |||
Total Quest Diagnostics stockholders’ equity | |||||||
Noncontrolling interests | |||||||
Total stockholders’ equity | |||||||
Total liabilities and stockholders’ equity | $ | $ |
Nine Months Ended September 30, | |||||||
2019 | 2018 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | $ | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | |||||||
Provision for doubtful accounts | |||||||
Deferred income tax provision | |||||||
Stock-based compensation expense | |||||||
Other, net | ( | ) | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | ( | ) | ( | ) | |||
Accounts payable and accrued expenses | |||||||
Income taxes payable | ( | ) | |||||
Other assets and liabilities, net | |||||||
Net cash provided by operating activities | |||||||
Cash flows from investing activities: | |||||||
Business acquisitions, net of cash acquired | ( | ) | ( | ) | |||
Capital expenditures | ( | ) | ( | ) | |||
Increase in investments and other assets | ( | ) | ( | ) | |||
Net cash used in investing activities | ( | ) | ( | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from borrowings | |||||||
Repayments of debt | ( | ) | ( | ) | |||
Purchases of treasury stock | ( | ) | ( | ) | |||
Exercise of stock options | |||||||
Employee payroll tax withholdings on stock issued under stock-based compensation plans | ( | ) | ( | ) | |||
Dividends paid | ( | ) | ( | ) | |||
Distributions to noncontrolling interest partners | ( | ) | ( | ) | |||
Contributions from noncontrolling interest partners | |||||||
Other financing activities, net | |||||||
Net cash used in financing activities | ( | ) | ( | ) | |||
Net change in cash and cash equivalents and restricted cash | |||||||
Cash and cash equivalents and restricted cash, beginning of period | |||||||
Cash and cash equivalents and restricted cash, end of period | $ | $ | |||||
Cash and cash equivalents | $ | $ | |||||
Restricted cash | |||||||
Cash and cash equivalents and restricted cash, end of period | $ | $ |
For the Three Months Ended September 30, 2019 | Quest Diagnostics Stockholders’ Equity | |||||||||||||||||||||||||||||||||
Shares of Common Stock Outstanding | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Compre- hensive Loss | Treasury Stock, at Cost | Non- controlling Interests | Total Stock- holders’ Equity | Redeemable Non-controlling Interest | ||||||||||||||||||||||||||
Balance, June 30, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||
Net income | ||||||||||||||||||||||||||||||||||
Other comprehensive income, net of taxes | ||||||||||||||||||||||||||||||||||
Dividends declared | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
Distributions to noncontrolling interest partners | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Issuance of common stock under benefit plans | ||||||||||||||||||||||||||||||||||
Stock-based compensation expense | ||||||||||||||||||||||||||||||||||
Exercise of stock options | ||||||||||||||||||||||||||||||||||
Purchases of treasury stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Balance, September 30, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ |
For the Nine Months Ended September 30, 2019 | Quest Diagnostics Stockholders’ Equity | |||||||||||||||||||||||||||||||||
Shares of Common Stock Outstanding | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Compre- hensive Loss | Treasury Stock, at Cost | Non- controlling Interests | Total Stock- holders’ Equity | Redeemable Non-controlling Interest | ||||||||||||||||||||||||||
Balance, December 31, 2018 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||
Net income | ||||||||||||||||||||||||||||||||||
Other comprehensive income, net of taxes | ||||||||||||||||||||||||||||||||||
Dividends declared | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
Distributions to noncontrolling interest partners | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Issuance of common stock under benefit plans | ||||||||||||||||||||||||||||||||||
Stock-based compensation expense | ||||||||||||||||||||||||||||||||||
Exercise of stock options | ||||||||||||||||||||||||||||||||||
Shares to cover employee payroll tax withholdings on stock issued under stock-based compensation plans | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
Purchases of treasury stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Balance, September 30, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ |
For the Three Months Ended September 30, 2018 | Quest Diagnostics Stockholders’ Equity | |||||||||||||||||||||||||||||||||
Shares of Common Stock Outstanding | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Compre- hensive Loss | Treasury Stock, at Cost | Non- controlling Interests | Total Stock- holders’ Equity | Redeemable Non-controlling Interest | ||||||||||||||||||||||||||
Balance, June 30, 2018 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||
Net income | ||||||||||||||||||||||||||||||||||
Other comprehensive loss, net of taxes | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
Dividends declared | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
Distributions to noncontrolling interest partners | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Issuance of common stock under benefit plans | ||||||||||||||||||||||||||||||||||
Stock-based compensation expense | ||||||||||||||||||||||||||||||||||
Exercise of stock options | ||||||||||||||||||||||||||||||||||
Purchases of treasury stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Contributions from noncontrolling interest partners | ||||||||||||||||||||||||||||||||||
Balance, September 30, 2018 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ |
For the Nine Months Ended September 30, 2018 | Quest Diagnostics Stockholders’ Equity | |||||||||||||||||||||||||||||||||
Shares of Common Stock Outstanding | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Compre- hensive Loss | Treasury Stock, at Cost | Non- controlling Interests | Total Stock- holders’ Equity | Redeemable Non-controlling Interest | ||||||||||||||||||||||||||
Balance, December 31, 2017 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||
Net income | ||||||||||||||||||||||||||||||||||
Other comprehensive loss, net of taxes | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
Dividends declared | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
Distributions to noncontrolling interest partners | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Issuance of common stock under benefit plans | ||||||||||||||||||||||||||||||||||
Stock-based compensation expense | ||||||||||||||||||||||||||||||||||
Exercise of stock options | ||||||||||||||||||||||||||||||||||
Shares to cover employee payroll tax withholdings on stock issued under stock-based compensation plans | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
Purchases of treasury stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
Contributions from noncontrolling interest partners | ||||||||||||||||||||||||||||||||||
Reclassification of stranded tax effects resulting from enactment of the Tax Cut and Jobs Act | ( | ) | ||||||||||||||||||||||||||||||||
Balance, September 30, 2018 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Amounts attributable to Quest Diagnostics’ common stockholders: | |||||||||||||||
Income from continuing operations | $ | $ | $ | $ | |||||||||||
Income from discontinued operations, net of taxes | |||||||||||||||
Net income attributable to Quest Diagnostics’ common stockholders | $ | $ | $ | $ | |||||||||||
Income from continuing operations | $ | $ | $ | $ | |||||||||||
Less: Earnings allocated to participating securities | |||||||||||||||
Earnings available to Quest Diagnostics’ common stockholders – basic and diluted | $ | $ | $ | $ | |||||||||||
Weighted average common shares outstanding – basic | |||||||||||||||
Effect of dilutive securities: | |||||||||||||||
Stock options and performance share units | |||||||||||||||
Weighted average common shares outstanding – diluted | |||||||||||||||
Earnings per share attributable to Quest Diagnostics’ common stockholders - basic: | |||||||||||||||
Income from continuing operations | $ | $ | $ | $ | |||||||||||
Income from discontinued operations | |||||||||||||||
Net income | $ | $ | $ | $ | |||||||||||
Earnings per share attributable to Quest Diagnostics’ common stockholders – diluted: | |||||||||||||||
Income from continuing operations | $ | $ | $ | $ | |||||||||||
Income from discontinued operations | |||||||||||||||
Net income | $ | $ | $ | $ |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||
Stock options |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Employee separation costs | $ | $ | $ | ( | ) | $ | |||||||||
Facility-related costs | |||||||||||||||
Total restructuring charges | $ | $ | $ | ( | ) | $ |
Basis of Fair Value Measurements | |||||||||||||||
Quoted Prices in Active Markets for Identical Assets / Liabilities | Significant Other Observable Inputs | Significant Unobservable Inputs | |||||||||||||
September 30, 2019 | Total | Level 1 | Level 2 | Level 3 | |||||||||||
Assets: | |||||||||||||||
Trading securities | $ | $ | $ | $ | |||||||||||
Cash surrender value of life insurance policies | |||||||||||||||
Available-for-sale debt securities | |||||||||||||||
Forward-starting interest rate swaps | — | ||||||||||||||
Total | $ | $ | $ | $ | |||||||||||
Liabilities: | |||||||||||||||
Deferred compensation liabilities | $ | $ | $ | $ | |||||||||||
Fixed-to-variable interest rate swaps | |||||||||||||||
Contingent consideration | |||||||||||||||
Total | $ | $ | $ | $ | |||||||||||
Redeemable noncontrolling interest | $ | $ | $ | — | $ |
Basis of Fair Value Measurements | |||||||||||||||
December 31, 2018 | Total | Level 1 | Level 2 | Level 3 | |||||||||||
Assets: | |||||||||||||||
Trading securities | $ | $ | $ | $ | |||||||||||
Cash surrender value of life insurance policies | |||||||||||||||
Total | $ | $ | $ | $ | |||||||||||
Liabilities: | |||||||||||||||
Deferred compensation liabilities | $ | $ | $ | $ | |||||||||||
Fixed-to-variable interest rate swaps | |||||||||||||||
Contingent consideration | |||||||||||||||
Total | $ | $ | $ | $ | |||||||||||
Redeemable noncontrolling interest | $ | $ | $ | — | $ |
Business Acquisition | Fair Value of Contingent Consideration | Benchmark | Comparable Company Revenue Volatility | Discount rate | Maximum Contingent Consideration Payment | |||||||||
Certain assets of the clinical and anatomic pathology laboratory business of Shiel Holdings, LLC in December 2017 | $ | Volume | $ | |||||||||||
ReproSource, Inc. in September 2018 | $ | Revenue | $ | |||||||||||
Certain assets of the clinical laboratory services business of Boyce & Bynum in February 2019 | $ | Volume | $ |
Contingent Consideration | |||
Balance, December 31, 2018 | $ | ||
Purchases, additions and issuances | |||
Settlements | ( | ) | |
Total gains/losses included in earnings - realized/unrealized | ( | ) | |
Balance, September 30, 2019 | $ |
September 30, 2019 | December 31, 2018 | ||||||
Balance, beginning of period | $ | $ | |||||
Goodwill acquired during the period | |||||||
Adjustments to goodwill | |||||||
Balance, end of period | $ | $ |
Weighted Average Amortization Period (in years) | September 30, 2019 | December 31, 2018 | |||||||||||||||||||||||
Cost | Accumulated Amortization | Net | Cost | Accumulated Amortization | Net | ||||||||||||||||||||
Amortizing intangible assets: | |||||||||||||||||||||||||
Customer-related | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||
Non-compete agreements | ( | ) | ( | ) | |||||||||||||||||||||
Technology | ( | ) | ( | ) | |||||||||||||||||||||
Other | ( | ) | ( | ) | |||||||||||||||||||||
Total | ( | ) | ( | ) | |||||||||||||||||||||
Intangible assets not subject to amortization: | |||||||||||||||||||||||||
Trade names | — | — | |||||||||||||||||||||||
Other | — | — | |||||||||||||||||||||||
Total intangible assets | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ |
Year Ending December 31, | |||
Remainder of 2019 | $ | ||
2020 | |||
2021 | |||
2022 | |||
2023 | |||
2024 | |||
Thereafter | |||
Total | $ |
September 30, 2019 | December 31, 2018 | ||||||
Secured Receivables Credit Facility (3.39% at December 31, 2018) | $ | $ | |||||
2.70% Senior Notes due April 2019 | |||||||
4.75% Senior Notes due January 2020 | |||||||
2.50% Senior Notes due March 2020 | |||||||
4.70% Senior Notes due April 2021 | |||||||
4.25% Senior Notes due April 2024 | |||||||
3.50% Senior Notes due March 2025 | |||||||
3.45% Senior Notes due June 2026 | |||||||
4.20% Senior Notes due June 2029 | |||||||
6.95% Senior Notes due July 2037 | |||||||
5.75% Senior Notes due January 2040 | |||||||
4.70% Senior Notes due March 2045 | |||||||
Other | |||||||
Debt issuance costs | ( | ) | ( | ) | |||
Total long-term debt | |||||||
Less: Current portion of long-term debt | |||||||
Total long-term debt, net of current portion | $ | $ |
Year Ending December 31, | |||
Remainder of 2019 | $ | ||
2020 | |||
2021 | |||
2022 | |||
2023 | |||
Thereafter | |||
Total maturities of long-term debt | |||
Unamortized discount | ( | ) | |
Debt issuance costs | ( | ) | |
Fair value basis adjustments attributable to hedged debt | |||
Total long-term debt | |||
Current portion of long-term debt | |||
Total long-term debt, net of current portion | $ |
Leases | Balance Sheet Classification | September 30, 2019 | ||||
Assets | ||||||
Operating | Operating lease right-of-use assets | $ | ||||
Finance | Property, plant and equipment, net (a) | |||||
Total lease assets | $ | |||||
Liabilities | ||||||
Current: | ||||||
Operating | Current portion of long-term operating lease liabilities | $ | ||||
Finance | Current portion of long-term debt | |||||
Non-current: | ||||||
Operating | Long-term operating lease liabilities | |||||
Finance | Long-term debt | |||||
Total lease liabilities | $ |
Lease cost | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | ||||||
Operating lease cost (a) | $ | $ | ||||||
Finance lease cost: | ||||||||
Amortization of leased assets | ||||||||
Interest on lease liabilities | ||||||||
Net lease cost | $ | $ |
Maturity of lease liabilities | Operating leases | Finance leases | Total | |||||||||
Remainder of 2019 | $ | $ | $ | |||||||||
2020 | ||||||||||||
2021 | ||||||||||||
2022 | ||||||||||||
2023 | ||||||||||||
Thereafter | ||||||||||||
Total lease payments | ||||||||||||
Less: Interest (a) | ||||||||||||
Present value of lease liabilities | $ | $ | $ |
Year Ending December 31, | |||
2019 | $ | ||
2020 | |||
2021 | |||
2022 | |||
2023 | |||
Thereafter | |||
Minimum lease payments | $ |
Lease term and discount rate | ||
Weighted-average remaining lease term (years): | ||
Operating leases | ||
Finance leases | ||
Weighted-average discount rate: | ||
Operating leases | % | |
Finance leases | % |
Notional Amount | ||||||||
Debt Instrument | September 30, 2019 | December 31, 2018 | ||||||
4.25% Senior Notes due April 2024 | $ | $ | ||||||
3.50% Senior Notes due March 2025 | ||||||||
3.45% Senior Notes due June 2026 | ||||||||
$ | $ |
Carrying Amount of Hedged Long-Term Debt | Hedge Accounting Basis Adjustment (a) | Carrying Amount of Hedged Long-Term Debt | Hedge Accounting Basis Adjustment (a) | ||||||||||||||
Balance Sheet Classification | September 30, 2019 | September 30, 2019 | December 31, 2018 | December 31, 2018 | |||||||||||||
Long-term debt | $ | $ | $ | $ | ( | ) |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||||
Other income, net | Other income, net | Other income, net | Other income, net | ||||||||||||||
Total for line item in which the effects of fair value hedges are recorded | $ | $ | $ | $ | |||||||||||||
Gain (loss) on fair value hedging relationships: | |||||||||||||||||
Hedged items (Long-term debt) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||
Derivatives designated as hedging instruments | $ | $ | ( | ) | $ | $ | ( | ) |
September 30, 2019 | December 31, 2018 | |||||||||||
Derivatives Designated as Hedging Instruments | Balance Sheet Classification | Fair Value | Balance Sheet Classification | Fair Value | ||||||||
Forward-starting interest rate swaps | Prepaid expenses and other current assets | $ | Prepaid expenses and other current assets | $ | ||||||||
Fixed-to-variable interest rate swaps | Other liabilities | $ | Other liabilities | $ |
• | Foreign currency translation adjustments; |
• | Net deferred gain on cash flow hedges, which represents 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 Note 10); and |
• | Net change on available-for-sale debt securities, which represents unrealized holding gains, net of taxes on available-for-sale debt securities. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Depreciation expense | $ | $ | $ | $ | |||||||||||
Amortization expense | |||||||||||||||
Depreciation and amortization expense | $ | $ | $ | $ | |||||||||||
Interest expense | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Interest income | |||||||||||||||
Interest expense, net | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Interest paid | $ | $ | $ | $ | |||||||||||
Income taxes paid | $ | $ | $ | $ | |||||||||||
Accounts payable associated with capital expenditures | $ | $ | $ | $ | |||||||||||
Dividends payable | $ | $ | $ | $ | |||||||||||
Businesses acquired: | |||||||||||||||
Fair value of assets acquired | $ | $ | $ | $ | |||||||||||
Fair value of liabilities assumed | |||||||||||||||
Fair value of net assets acquired | |||||||||||||||
Merger consideration paid (payable), net | ( | ) | ( | ) | ( | ) | |||||||||
Cash paid for business acquisitions | |||||||||||||||
Less: Cash acquired | |||||||||||||||
Business acquisitions, net of cash acquired | $ | $ | $ | $ |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Leases: | |||||||||||||||
Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||||||
Operating cash flows from operating leases | $ | $ | |||||||||||||
Operating cash flows from finance leases | $ | $ | |||||||||||||
Financing cash flows from finance leases | $ | $ | |||||||||||||
Leased assets obtained in exchange for new operating lease liabilities | $ | $ | |||||||||||||
Leased assets obtained in exchange for new finance lease liabilities (a) | $ | $ | $ | $ |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Net revenues: | |||||||||||||||
DIS business | $ | $ | $ | $ | |||||||||||
All other operating segments | |||||||||||||||
Total net revenues | $ | $ | $ | $ | |||||||||||
Operating earnings (loss): | |||||||||||||||
DIS business | $ | $ | $ | $ | |||||||||||
All other operating segments | |||||||||||||||
General corporate activities | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Total operating income | |||||||||||||||
Non-operating expenses, net | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Income from continuing operations before income taxes and equity in earnings of equity method investees | |||||||||||||||
Income tax expense | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Equity in earnings of equity method investees, net of taxes | |||||||||||||||
Income from continuing operations | |||||||||||||||
Income from discontinued operations, net of taxes | |||||||||||||||
Net income | |||||||||||||||
Less: Net income attributable to noncontrolling interests | |||||||||||||||
Net income attributable to Quest Diagnostics | $ | $ | $ | $ |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
Healthcare insurers: | ||||||||||||
Fee-for-service | % | % | % | % | ||||||||
Capitated | ||||||||||||
Total healthcare insurers | ||||||||||||
Government payers | ||||||||||||
Client payers | ||||||||||||
Patients | ||||||||||||
Total DIS | ||||||||||||
DS | ||||||||||||
Net revenues | % | % | % | % |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
• | Our total net revenues of $1.96 billion were up 3.5% from the prior year period. |
• | In DIS: |
◦ | Revenues of $1.88 billion increased by 3.7% compared to the prior year period, driven by organic volume growth (growth excluding the impact of acquisitions) and the impact of recent acquisitions, partially offset by a decline in revenue per requisition. |
◦ | Volume, measured by the number of requisitions, increased by 5.1% compared to the prior year period, with organic growth and acquisitions contributing approximately 3.7% and 1.4%, respectively. |
◦ | Revenue per requisition decreased by 1.2% compared to the prior year period. |
• | DS revenues of $79 million decreased by 0.5% compared to the prior year period. |
• | Income from continuing operations attributable to Quest Diagnostics' stockholders was $215 million, or $1.56 per diluted share, in 2019, compared to $213 million, or $1.53 per diluted share, in the prior year period. |
• | For the nine months ended September 30, 2019, net cash provided by operating activities was $895 million in 2019, compared to $905 million in the prior year period. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
2019 | 2018 | $ Change | % Change | 2019 | 2018 | $ Change | % Change | ||||||||||||||||||||||
(dollars in millions, except per share amounts) | |||||||||||||||||||||||||||||
Net revenues: | |||||||||||||||||||||||||||||
DIS business | $ | 1,877 | $ | 1,810 | $ | 67 | 3.7 | % | $ | 5,561 | $ | 5,448 | $ | 113 | 2.1 | % | |||||||||||||
DS businesses | 79 | 79 | — | (0.5 | ) | 239 | 244 | (5 | ) | (2.2 | ) | ||||||||||||||||||
Total net revenues | $ | 1,956 | $ | 1,889 | $ | 67 | 3.5 | % | $ | 5,800 | $ | 5,692 | $ | 108 | 1.9 | % | |||||||||||||
Operating costs and expenses and other operating income: | |||||||||||||||||||||||||||||
Cost of services | $ | 1,264 | $ | 1,222 | $ | 42 | 3.5 | % | $ | 3,773 | $ | 3,691 | $ | 82 | 2.2 | % | |||||||||||||
Selling, general and administrative | 362 | 354 | 8 | 1.9 | 1,108 | 1,068 | 40 | 3.7 | |||||||||||||||||||||
Amortization of intangible assets | 23 | 22 | 1 | 5.8 | 72 | 66 | 6 | 9.8 | |||||||||||||||||||||
Other operating income, net | (6 | ) | (13 | ) | 7 | NM | (21 | ) | (14 | ) | (7 | ) | NM | ||||||||||||||||
Total operating costs and expenses, net | $ | 1,643 | $ | 1,585 | $ | 58 | 3.6 | % | $ | 4,932 | $ | 4,811 | $ | 121 | 2.5 | % | |||||||||||||
Operating income | $ | 313 | $ | 304 | $ | 9 | 2.9 | % | $ | 868 | $ | 881 | $ | (13 | ) | (1.5 | )% | ||||||||||||
Other income (expense): | |||||||||||||||||||||||||||||
Interest expense, net | $ | (44 | ) | $ | (41 | ) | $ | (3 | ) | 3.7 | % | $ | (133 | ) | $ | (124 | ) | $ | (9 | ) | 6.5 | % | |||||||
Other income, net | 1 | 3 | (2 | ) | NM | 13 | 2 | 11 | NM | ||||||||||||||||||||
Total non-operating expenses, net | $ | (43 | ) | $ | (38 | ) | $ | (5 | ) | 8.9 | % | $ | (120 | ) | $ | (122 | ) | $ | 2 | (2.5 | )% | ||||||||
Income tax expense | $ | (62 | ) | $ | (48 | ) | $ | (14 | ) | 29.2 | % | $ | (175 | ) | $ | (142 | ) | $ | (33 | ) | 22.8 | % | |||||||
Effective income tax rate | 22.9 | % | 18.1 | % | 23.4 | % | 18.8 | % | |||||||||||||||||||||
Equity in earnings of equity method investees, net of taxes | $ | 18 | $ | 9 | $ | 9 | 89.9 | % | $ | 48 | $ | 32 | $ | 16 | 47.3 | % | |||||||||||||
Amounts attributable to Quest Diagnostics’ common stockholders: | |||||||||||||||||||||||||||||
Income from continuing operations | $ | 215 | $ | 213 | $ | 2 | 0.8 | % | $ | 585 | $ | 609 | $ | (24 | ) | (3.9 | )% | ||||||||||||
Income from discontinued operations, net of taxes | $ | — | $ | — | $ | — | NM | $ | 20 | $ | — | $ | 20 | NM | |||||||||||||||
Diluted earnings per common share from continuing operations attributable to Quest Diagnostics' common stockholders | $ | 1.56 | $ | 1.53 | $ | 0.03 | 2.8 | % | $ | 4.27 | $ | 4.37 | $ | (0.10 | ) | (2.0 | )% | ||||||||||||
NM - Not Meaningful |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||
Net revenues: | |||||||||||
DIS business | 96.0 | % | 95.8 | % | 95.9 | % | 95.7 | % | |||
DS businesses | 4.0 | 4.2 | 4.1 | 4.3 | |||||||
Total net revenues | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||
Operating costs and expenses and other operating income: | |||||||||||
Cost of services | 64.6 | % | 64.6 | % | 65.1 | % | 64.8 | % | |||
Selling, general and administrative | 18.5 | 18.8 | 19.1 | 18.8 | |||||||
Amortization of intangible assets | 1.2 | 1.2 | 1.2 | 1.2 | |||||||
Other operating income, net | (0.3 | ) | (0.7 | ) | (0.4 | ) | (0.3 | ) | |||
Total operating costs and expenses, net | 84.0 | % | 83.9 | % | 85.0 | % | 84.5 | % | |||
Operating income | 16.0 | % | 16.1 | % | 15.0 | % | 15.5 | % |
• | 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) or $0.14 per diluted share; |
• | pre-tax charges of $16 million ($7 million in cost of services and $9 million in selling, general and administrative expenses), or $0.09 per diluted share, primarily associated with systems conversions and integration incurred in connection with further restructuring and integrating our business; |
• | a net pre-tax gain of $3 million (a $7 million gain in other operating income, net offset by a $4 million charge in selling, general and administrative expenses), or $0.01 per diluted share, primarily due to a gain associated with the decrease in the fair value of the contingent consideration accrual associated with a previous acquisition partially offset by costs incurred related to the AMCA Data Security Incident, and |
• | excess tax benefits associated with stock-based compensation arrangements of $3 million, or $0.02 per diluted share, recorded in income tax expense. |
• | pre-tax amortization expense of $84 million ($72 million in amortization of intangible assets and $12 million in equity in earnings of equity method investees, net of taxes) or $0.46 per diluted share; |
• | pre-tax charges of $64 million ($29 million in cost of services and $35 million in selling, general and administrative expenses), or $0.35 per diluted share, primarily associated with systems conversions and integration incurred in connection with further restructuring and integrating our business; |
• | a net pre-tax gain of $17 million (a $22 million gain in other operating income, net offset by a $5 million charge in selling, general and administrative expenses), or $0.11 per diluted share, primarily due to a gain associated with an insurance claim for hurricane related losses and a 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 and costs incurred related to the AMCA Data Security Incident, and |
• | excess tax benefits associated with stock-based compensation arrangements of $11 million, or $0.08 per diluted share, recorded in income tax expense. |
• | pre-tax amortization expense of $27 million ($22 million in amortization of intangible assets and $5 million in equity in earnings of equity method investees, net of taxes), or $0.13 per diluted share; |
• | pre-tax charges of $19 million ($10 million in cost of services and $9 million in selling, general and administrative expenses), or $0.10 per diluted share, primarily associated with workforce reductions, systems conversions and integration incurred in connection with further restructuring and integrating our business; |
• | net pre-tax benefit of $12 million (a $13 million gain in other operating income, net partially offset by a $1 million charge in cost of services), or $0.06 per diluted share, primarily attributable to a gain associated with the decrease in the fair value of the contingent consideration accrual associated with a previous acquisition partially offset by non-cash asset impairment charges; and |
• | excess tax benefits associated with stock-based compensation arrangements of $4 million, or $0.02 per diluted share, recorded in income tax expense. |
• | pre-tax amortization expense of $79 million ($66 million in amortization of intangible assets and $13 million in equity in earnings of equity method investees, net of taxes), or $0.41 per diluted share; |
• | pre-tax charges of $75 million ($36 million in cost of services, $38 million in selling, general and administrative expenses, and $1 million in other operating income, net), or $0.40 per diluted share, primarily associated with workforce reductions, systems conversions and integration incurred in connection with further restructuring and integrating our business; |
• | excess tax benefits associated with stock-based compensation arrangements of $17 million, or $0.12 per diluted share, recorded in income tax expense; |
• | an income tax benefit of $15 million, or $0.10 per diluted share, 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 tax rate in effect during 2017; and |
• | net pre-tax gain of $2 million (a $14 million gain in other operating income, net partially offset by a $12 million charge in cost of services), or $0.01 per diluted share, primarily attributable to a gain associated with the decrease in the fair value of the contingent consideration accrual associated with a previous acquisition and an insurance claim for hurricane related losses partially offset by costs incurred related to certain legal matters and non-cash asset impairment charges. |
• | Organic growth and acquisitions contributed approximately 1.7% and 2.0%, respectively, to DIS revenue growth. |
• | DIS volume increased by 5.1%, with organic growth and acquisitions contributing approximately 3.7% and 1.4%, respectively, to DIS volume growth. Organic volume growth benefited from expanded in-network access primarily as a result of becoming a participating provider to UnitedHealthcare and Horizon Blue Cross Blue Shield of New Jersey. In addition, there was one more business day compared to the prior year period, which was partially offset by the impact of weather. We estimate that the net impact of these two items favorably affected the year-over-year comparison by approximately 1%. |
• | Revenue per requisition decreased by 1.2% compared to the prior year period primarily due to reimbursement pressure, including unit price reductions associated with the Protecting Access to Medicare Act ("PAMA") and all other sources, of approximately 2.5%; partially offset by favorable mix, driven in part by acquisitions. |
• | Organic growth and acquisitions contributed approximately 0.2% and 1.9%, respectively, to DIS revenue growth. |
• | DIS volume increased by 4.3%, with organic growth and acquisitions contributing approximately 3.0% and 1.3%, respectively, to DIS volume growth. Organic volume growth benefited from expanded in-network access primarily as a result of becoming a participating provider to UnitedHealthcare and Horizon Blue Cross Blue Shield of New Jersey. |
• | Revenue per requisition decreased by 2.1% compared to the prior year period primarily due to reimbursement pressure, including unit price reductions associated with PAMA and all other sources, of approximately 2.4% and an increase in denials; partially offset by favorable mix, driven in part by acquisitions. |
• | a $13 million income tax benefit recognized in the prior year period due to the release of tax reserves associated with the expiration of the statute of limitations for certain income tax returns; partially offset by |
• | a $6 million income tax benefit recognized during the three months ended September 30, 2019 due to the release of a valuation allowance associated with net operating loss carryforwards. |
• | a $15 million income tax benefit recognized in the prior year period 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 tax rate in effect during 2017; |
• | a $13 million income tax benefit recognized in the prior year period due to the release of tax reserves associated with the expiration of the statute of limitations for certain income tax returns; |
• | a decrease in excess tax benefits associated with stock-based compensation arrangements; partially offset by |
• | a $10 million income tax benefit recognized during the nine months ended September 30, 2019 due to the release of valuation allowances associated with net operating loss carryforwards. |
Nine Months Ended September 30, | Change | ||||||||||
2019 | 2018 | ||||||||||
(dollars in millions) | |||||||||||
Net cash provided by operating activities | $ | 895 | $ | 905 | $ | (10 | ) | ||||
Net cash used in investing activities | (311 | ) | (455 | ) | 144 | ||||||
Net cash used in financing activities | (285 | ) | (324 | ) | 39 | ||||||
Net change in cash and cash equivalents and restricted cash | $ | 299 | $ | 126 | $ | 173 |
• | a $78 million increase in income tax payments; |
• | a $35 million increase in interest payments due to timing; and |
• | lower operating income in 2019 compared to 2018; partially offset by |
• | timing of movements in our working capital accounts; |
• | lower performance-based compensation payments in 2019 compared to 2018; and |
• | a $28 million refund from the taxing authorities associated with the favorable resolution of certain tax contingencies related to a discontinued operation. |
• | a $163 million decrease in net cash paid for business acquisitions; partially offset by |
• | a $23 million increase in investments and other assets. |
• | $36 million of net borrowings (proceeds from borrowing less repayments of debt) in 2019 compared to $35 million of net debt repayments in 2018; partially offset by: |
• | a $17 million increase in dividends paid. |
Payments due by period | ||||||||||||||||||||
Contractual Obligations | Total | Remainder of 2019 | 1-3 years | 4-5 years | After 5 years | |||||||||||||||
(dollars in millions) | ||||||||||||||||||||
Outstanding debt | $ | 3,976 | $ | — | $ | 1,350 | $ | — | $ | 2,626 | ||||||||||
Finance lease obligations | 34 | 1 | 6 | 4 | 23 | |||||||||||||||
Interest payments on outstanding debt | 1,532 | 42 | 306 | 250 | 934 | |||||||||||||||
Operating leases | 755 | 55 | 337 | 203 | 160 | |||||||||||||||
Purchase obligations | 1,705 | 88 | 600 | 471 | 546 | |||||||||||||||
Merger consideration obligations | 7 | 7 | — | — | — | |||||||||||||||
Total contractual obligations | $ | 8,009 | $ | 193 | $ | 2,599 | $ | 928 | $ | 4,289 |
ISSUER PURCHASES OF EQUITY SECURITIES | ||||||||||||||
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) | ||||||||||
July 1, 2019 – July 31, 2019 | ||||||||||||||
Share Repurchase Program (A) | 85,454 | $ | 102.39 | 85,454 | $ | 483,379 | ||||||||
Employee Transactions (B) | — | $ | — | N/A | N/A | |||||||||
August 1, 2019 – August 31, 2019 | ||||||||||||||
Share Repurchase Program (A) | 388,450 | $ | 100.96 | 388,450 | $ | 444,160 | ||||||||
Employee Transactions (B) | 785 | $ | 100.99 | N/A | N/A | |||||||||
September 1, 2019 – September 30, 2019 | ||||||||||||||
Share Repurchase Program (A) | 19,919 | $ | 101.91 | 19,919 | $ | 442,130 | ||||||||
Employee Transactions (B) | 73 | $ | 102.45 | N/A | N/A | |||||||||
Total | ||||||||||||||
Share Repurchase Program (A) | 493,823 | $ | 101.25 | 493,823 | $ | 442,130 | ||||||||
Employee Transactions (B) | 858 | $ | 101.11 | N/A | N/A |
(A) | Since the share repurchase program’s inception in May 2003, our Board of Directors has authorized $8 billion of share repurchases of our common stock through September 30, 2019. The share repurchase authorization has no set expiration or termination date. |
(B) | Includes: (1) shares delivered or attested to in satisfaction of the exercise price and/or tax withholding obligations by holders of stock options (granted under the Company’s Amended and Restated Employee Long-Term Incentive Plan) who exercised options; and (2) shares withheld (under the terms of grants under the Amended and Restated Employee Long-Term Incentive Plan) to offset tax withholding obligations that occur upon the delivery of outstanding common shares underlying restricted stock units and performance share units. |
Item 6. | Exhibits |
31.1 | |
31.2 | |
32.1 | |
32.2 | |
101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH | Inline XBRL Taxonomy Extension Schema Document - dgx-20190930.xsd |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document - dgx-20190930_cal.xml |
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104 | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
By | /s/ Stephen H. Rusckowski |
Stephen H. Rusckowski | |
Chairman, Chief Executive Officer | |
and President | |
By | /s/ Mark J. Guinan |
Mark J. Guinan | |
Executive Vice President and | |
Chief Financial Officer |
1. | I have reviewed this quarterly report on Form 10-Q of Quest Diagnostics Incorporated; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
By | /s/ Stephen H. Rusckowski |
Stephen H. Rusckowski | |
Chairman, Chief Executive Officer and | |
President |
1. | I have reviewed this quarterly report on Form 10-Q of Quest Diagnostics Incorporated; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
By | /s/ Mark J. Guinan |
Mark J. Guinan | |
Executive Vice President and | |
Chief Financial Officer |
Dated: | October 23, 2019 | /s/ Stephen H. Rusckowski | ||
Stephen H. Rusckowski | ||||
Chairman, Chief Executive Officer and | ||||
President |
Dated: | October 23, 2019 | /s/ Mark J. Guinan | ||
Mark J. Guinan | ||||
Executive Vice President and | ||||
Chief Financial Officer |
LEASES LEASES (Liabilities) (Details) - USD ($) $ in Millions |
Sep. 30, 2019 |
Jan. 01, 2019 |
Dec. 31, 2018 |
---|---|---|---|
Leases [Abstract] | |||
Operating lease assets | $ 508 | $ 500 | $ 0 |
Finance lease assets | 37 | ||
Total lease assets | 545 | ||
Current operating lease liabilities | 147 | 0 | |
Current finance lease liabilities | 3 | ||
Noncurrent operating lease liabilities | 405 | $ 0 | |
Noncurrent finance lease liabilities | 31 | ||
Total lease liabilities | 586 | ||
Amortization of leased assets | $ 23 |
LEASES (Term and Rate) (Details) |
Sep. 30, 2019 |
---|---|
Leases [Abstract] | |
Weighted-average remaining lease term, Operating leases | 5 years |
Weighted-average remaining lease term,Finance leases | 12 years |
Weighted-average discount rate, Operating leases | 3.30% |
Weighted-average discount rate, Finance leases | 8.70% |
STOCKHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTEREST |
9 Months Ended | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2019 | |||||||||||||
Stockholders' Equity Attributable to Parent [Abstract] | |||||||||||||
STOCKHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTEREST | STOCKHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTEREST Stockholders' Equity Changes in Accumulated Other Comprehensive Income (Loss) by Component Comprehensive income (loss) includes:
For the three and nine months ended September 30, 2019 and 2018, the tax effects related to the deferred gains/losses on cash flow hedges and net change on available-for-sale debt securities were not material. Foreign currency translation adjustments related to indefinite investments in non-U.S. subsidiaries are not adjusted for income taxes. Dividend Program During each of the first three quarters of 2019, the Company's Board of Directors declared a quarterly cash dividend of $0.53 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. Share Repurchase Program As of September 30, 2019, $442 million remained available under the Company’s share repurchase authorizations. The share repurchase authorization has no set expiration or termination date. Share Repurchases For the nine months ended September 30, 2019, the Company repurchased 1.6 million shares of its common stock for $150 million. For the nine months ended September 30, 2018, the Company repurchased 1.4 million shares of its common stock for $150 million. Shares Reissued from Treasury Stock For the nine months ended September 30, 2019 and 2018, the Company reissued 1.8 million shares and 1.7 million shares, respectively, from treasury stock for shares issued under the Employee Stock Purchase Plan and stock option plans. For details regarding the Company's stock ownership and compensation plans, see Note 17 to the consolidated financial statements in the Company's 2018 Annual Report on Form 10-K. Redeemable Noncontrolling Interest In connection with the sale of an 18.9% noncontrolling interest in a subsidiary to 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. The subsidiary performs diagnostic information services in a defined territory within the state of Massachusetts. Since the redemption of the noncontrolling interest is outside of the Company's control, it has been presented outside of stockholders' equity at the greater of its carrying amount or its fair value. The Company records changes in the fair value of the noncontrolling interest immediately as they occur. As of September 30, 2019, the redeemable noncontrolling interest was presented at its fair value. For further information regarding the fair value of the redeemable noncontrolling interest, see Note 6.
|
EARNINGS PER SHARE |
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Earnings Per Share, Basic and Diluted [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EARNINGS (LOSS) PER SHARE | EARNINGS PER SHARE The computation of basic and diluted earnings per common share was as follows:
The following securities were not included in the calculation of diluted earnings per share due to their antidilutive effect:
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GOODWILL AND INTANGIBLE ASSETS |
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Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GOODWILL AND INTANGIBLE ASSETS | GOODWILL AND INTANGIBLE ASSETS The changes in goodwill for the nine months ended September 30, 2019 and for the year ended December 31, 2018 were as follows:
Principally all of the Company’s goodwill as of September 30, 2019 and December 31, 2018 was associated with its DIS business. For the nine months ended September 30, 2019, goodwill acquired during the period was primarily associated with the acquisition of certain assets of the clinical laboratory services business of Boyce & Bynum (see Note 5). For the year ended December 31, 2018, goodwill acquired was principally associated with the acquisitions of Oxford, Mobile Medical Examination Services, LLC., ReproSource, Inc. and the outreach laboratory service business of Cape Cod Healthcare, Inc. For the nine months ended September 30, 2019, adjustments to goodwill primarily related to finalization of the purchase price allocation for Oxford (see Note 5). For details regarding the Company's 2018 acquisitions, see Note 6 to the consolidated financial statements in the Company's 2018 Annual Report on Form 10-K. Intangible assets at September 30, 2019 and December 31, 2018 consisted of the following:
The estimated amortization expense related to amortizable intangible assets for each of the five succeeding fiscal years and thereafter as of September 30, 2019 is as follows:
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) $ in Millions |
Sep. 30, 2019 |
Jan. 01, 2019 |
Dec. 31, 2018 |
---|---|---|---|
Accounting Policies [Abstract] | |||
Operating lease, right-of-use asset | $ 508 | $ 500 | $ 0 |
Present value of lease liabilities | $ 552 | 550 | |
Deferred rent | $ 50 |
FINANCIAL INSTRUMENTS (Tables) |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Derivative Instruments | A summary of the notional amounts of these interest rate swaps as of September 30, 2019 and December 31, 2018 was as follows:
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Schedule of Debt Instrument Fair Value Basis Adjustment Attributable to Hedged Debt | As of September 30, 2019 and December 31, 2018, the following amounts were recorded on the consolidated balance sheet related to cumulative basis adjustments for fair value hedges included in the carrying amount of long-term debt:
(a) The balance includes $28 million and $40 million of remaining unamortized hedging adjustment on a discontinued relationship as of September 30, 2019 and December 31, 2018, respectively. |
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Schedule of Fair Value Hedge Accounting on the Statement of Operations | The following table presents the effect of fair value hedge accounting on the statement of operations for the three and nine months ended September 30, 2019 and 2018:
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Schedule of Derivative Instruments at Fair Value | A summary of the fair values of derivative instruments in the consolidated balance sheets was as follows:
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RELATED PARTIES |
9 Months Ended |
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Sep. 30, 2019 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | RELATED PARTIES The Company's equity method investees primarily consist of its clinical trials central laboratory services joint venture and its diagnostic information services joint ventures, which are accounted for under the equity method of accounting. During the three months ended September 30, 2019 and 2018, the Company recognized net revenues of $8 million and $9 million, respectively, associated with diagnostic information services provided to its equity method investees. During the nine months ended September 30, 2019 and 2018, the Company recognized net revenues of $26 million and $27 million, respectively, associated with such services. As of both September 30, 2019 and December 31, 2018, there was $3 million of accounts receivable from equity method investees related to such services. During the three and nine months ended September 30, 2019, the Company recognized net revenues of $1 million and $6 million, respectively, associated with diagnostic information services provided to a noncontrolling interest partner in a joint venture. As of September 30, 2019, there was $2 million of accounts receivable from the noncontrolling interest partner related to such services. During both the three months ended September 30, 2019 and 2018, the Company recognized income of $4 million associated with the performance of certain corporate services, including transition services, for its equity method investees, classified within selling, general and administrative expenses. During both the nine months ended September 30, 2019 and 2018, the Company recognized income of $12 million associated with the performance of such services classified within selling, general and administrative expenses. As of September 30, 2019 and December 31, 2018, there was $1 million and $3 million, respectively, of other receivables from equity method investees included in prepaid expenses and other current assets related to these service agreements and other transition related items. In addition, accounts payable and accrued expenses as of both September 30, 2019 and December 31, 2018 included $1 million due to equity method investees. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
9 Months Ended |
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Sep. 30, 2019 | |
Accounting Policies [Abstract] | |
Basis of Presentation | The interim unaudited consolidated financial statements reflect all adjustments which in the opinion of management are necessary for a fair statement of results of operations, comprehensive income, financial condition, cash flows and stockholders' equity for the periods presented. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year. These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s 2018 Annual Report on Form 10-K. The year-end balance sheet data was derived from the audited consolidated financial statements as of December 31, 2018, but does not include all the disclosures required by accounting principles generally accepted in the United States (“GAAP”).
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Use Of Estimates | The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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Earnings Per Share | The Company's unvested restricted stock units that contain non-forfeitable rights to dividends are participating securities and, therefore, are included in the earnings allocation in computing earnings per share using the two-class method. Basic earnings per common share is calculated by dividing net income, adjusted for earnings allocated to participating securities, by the weighted average number of common shares outstanding. Diluted earnings per common share is calculated by dividing net income, 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 and its Amended and Restated Non-Employee Director Long-Term Incentive Plan. 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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New Accounting Pronouncements | Adoption of New Accounting Standards On January 1, 2019, the Company adopted a new accounting standard issued by the Financial Accounting Standards Board ("FASB") on accounting for leases using the modified retrospective method. This new accounting standard requires a lessee to recognize an asset and liability for most leases on its balance sheet. 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. Accounting for the Company's finance leases remains 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 9. On January 1, 2019, the Company adopted a new accounting standard issued by the FASB that includes the overnight index swap rate based on the Secured Overnight Financing Rate as an additional benchmark interest rate for hedge accounting purposes. Adoption of this new accounting standard applies prospectively to new or redesignated hedges entered into after the adoption date and, therefore, did not have an impact on the Company's existing interest rate swap agreements. New Accounting Standards To Be Adopted In August 2018, the FASB issued an Accounting Standard Update (“ASU”) that 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. This ASU is effective for the Company in the first quarter of 2020 with early adoption permitted and can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently assessing the impact of the adoption of this ASU on the Company’s results of operations, financial position and cash flows. |
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. This strategy includes the use of interest rate swap agreements, forward-starting interest rate swap agreements, treasury lock agreements and foreign currency forward contracts to manage its exposure to movements in interest and currency rates. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. These policies prohibit holding or issuing derivative financial instruments for speculative purposes. The Company does not enter into derivative financial instruments that contain credit-risk-related contingent features or requirements to post collateral. Interest Rate Risk The Company is exposed to interest rate risk on its cash and cash equivalents and its debt obligations. Interest income earned on cash and cash equivalents may fluctuate as interest rates change; 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 primary objective is to achieve the lowest overall cost of funding while managing the variability in cash outflows within an acceptable range. In order to achieve this objective, the Company has entered into interest rate swaps. Interest rate swaps involve the periodic exchange of payments without the exchange of underlying principal or notional amounts. Net settlements between the counterparties are recognized as an adjustment to interest expense, net.
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TAXES ON INCOME (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
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Income Tax Disclosure [Abstract] | ||||
Effective income tax rate | 22.90% | 18.10% | 23.40% | 18.80% |
Income tax benefit due to the release of a valuation allowance associated with net operating loss carryforwards | $ 6 | $ 10 | ||
Release of tax reserves associated with expiration of statute of limitation | $ 13 | $ 13 | ||
Share-based compensation, excess tax benefit, amount | $ 3 | $ 4 | $ 11 | 17 |
Income tax benefit associated with changes in tax return accounting method | $ 15 |
FINANCIAL INSTRUMENTS (Income Statement) (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
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Derivative [Line Items] | ||||
Other income, net | $ 1 | $ 3 | $ 13 | $ 2 |
Other Nonoperating Income (Expense) | ||||
Derivative [Line Items] | ||||
Hedged items (Long-term debt) | (20) | 10 | (76) | 42 |
Other Nonoperating Income (Expense) | Fair Value Hedging | ||||
Derivative [Line Items] | ||||
Derivatives designated as hedging instruments | $ 20 | $ (10) | $ 76 | $ (42) |
DESCRIPTION OF BUSINESS |
9 Months Ended |
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Sep. 30, 2019 | |
Description of Business (Abstract) | |
DESCRIPTION OF BUSINESS | DESCRIPTION OF BUSINESS Background |
COMMITMENTS AND CONTINGENCIES (Details) |
4 Months Ended | |
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Sep. 30, 2019
USD ($)
claim
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Dec. 31, 2018
USD ($)
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Debt Instrument [Line Items] | ||
Litigation reserves | $ 1,000,000 | $ 1,000,000 |
Self-insurance reserves | 132,000,000 | $ 125,000,000 |
Secured Receivables Credit Facility | ||
Debt Instrument [Line Items] | ||
Letters of credit outstanding, amount | $ 71,000,000 | |
AMAC Data Security Incident | ||
Loss Contingencies [Line Items] | ||
Class action lawsuits | claim | 39 | |
Letter of Credit | Revolving Credit Facility | ||
Debt Instrument [Line Items] | ||
Credit facility capacity | $ 150,000,000 | |
Letter of Credit | Secured Receivables Credit Facility | ||
Debt Instrument [Line Items] | ||
Credit facility capacity | $ 100,000,000 |
REVENUE RECOGNITION |
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Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
REVENUE RECOGNITION | REVENUE RECOGITION DIS Net revenues in the Company’s DIS business accounted for over 95% of the Company’s total net revenues for the three and nine months ended September 30, 2019 and 2018 and are primarily comprised of a high volume of relatively low-dollar transactions. The DIS business, which provides clinical testing services and other services, satisfies its performance obligations and recognizes revenues upon completion of the testing process, when results are reported, or when services have been rendered. The Company estimates the amount of consideration it expects to be entitled to receive from customer groups, by applying the portfolio approach, in exchange for providing services. These estimates include the impact of contractual allowances, including payer denials and price concessions. The portfolios determined using the portfolio approach consist of the following groups of customers: healthcare insurers, government payers, client payers and patients. DS The Company’s DS businesses primarily satisfy their performance obligations and recognize revenues when delivery has occurred or services have been rendered. The approximate percentage of net revenue by type of customer was as follows:
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EARNINGS PER SHARE (Tables) |
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Earnings Per Share, Basic and Diluted [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Earnings Per Share, Basic and Diluted | The computation of basic and diluted earnings per common share was as follows:
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Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share | The following securities were not included in the calculation of diluted earnings per share due to their antidilutive effect:
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GOODWILL AND INTANGIBLE ASSETS (Goodwill) (Details) - USD ($) $ in Millions |
9 Months Ended | 12 Months Ended |
---|---|---|
Sep. 30, 2019 |
Dec. 31, 2018 |
|
Goodwill [Roll Forward] | ||
Goodwill, Balance at beginning of period | $ 6,563 | $ 6,335 |
Goodwill acquired during the period | 42 | 228 |
Adjustments to goodwill | 12 | 0 |
Goodwill, Balance at end of period | $ 6,617 | $ 6,563 |
FINANCIAL INSTRUMENTS (Summary of Fair Value of Derivatives) (Details) - Derivatives Designated as Hedging Instruments - USD ($) $ in Millions |
Sep. 30, 2019 |
Dec. 31, 2018 |
---|---|---|
Forward starting interest rate swaps | Prepaid expenses and other current assets | ||
Derivative [Line Items] | ||
Derivative Asset | $ 2 | $ 0 |
Fixed-to-variable interest rate swaps | Other liabilities | ||
Derivative [Line Items] | ||
Derivative Liabilities | $ 17 | $ 93 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
9 Months Ended |
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Sep. 30, 2019 | |
Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The interim unaudited consolidated financial statements reflect all adjustments which in the opinion of management are necessary for a fair statement of results of operations, comprehensive income, financial condition, cash flows and stockholders' equity for the periods presented. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year. These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s 2018 Annual Report on Form 10-K. The year-end balance sheet data was derived from the audited consolidated financial statements as of December 31, 2018, but does not include all the disclosures required by accounting principles generally accepted in the United States (“GAAP”). The accounting policies of the Company are the same as those set forth in Note 2 to the consolidated financial statements contained in the Company’s 2018 Annual Report on Form 10-K except for the impact of the adoption of new accounting standards discussed under New Accounting Pronouncements. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Earnings Per Share The Company's unvested restricted stock units that contain non-forfeitable rights to dividends are participating securities and, therefore, are included in the earnings allocation in computing earnings per share using the two-class method. Basic earnings per common share is calculated by dividing net income, adjusted for earnings allocated to participating securities, by the weighted average number of common shares outstanding. Diluted earnings per common share is calculated by dividing net income, 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 and its Amended and Restated Non-Employee Director Long-Term Incentive Plan. 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. New Accounting Pronouncements Adoption of New Accounting Standards On January 1, 2019, the Company adopted a new accounting standard issued by the Financial Accounting Standards Board ("FASB") on accounting for leases using the modified retrospective method. This new accounting standard requires a lessee to recognize an asset and liability for most leases on its balance sheet. 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. Accounting for the Company's finance leases remains 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 9. On January 1, 2019, the Company adopted a new accounting standard issued by the FASB that includes the overnight index swap rate based on the Secured Overnight Financing Rate as an additional benchmark interest rate for hedge accounting purposes. Adoption of this new accounting standard applies prospectively to new or redesignated hedges entered into after the adoption date and, therefore, did not have an impact on the Company's existing interest rate swap agreements. New Accounting Standards To Be Adopted In August 2018, the FASB issued an Accounting Standard Update (“ASU”) that 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. This ASU is effective for the Company in the first quarter of 2020 with early adoption permitted and can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently assessing the impact of the adoption of this ASU on the Company’s results of operations, financial position and cash flows. |
DISCONTINUED OPERATIONS (Details) - NID [Member] $ in Millions |
9 Months Ended |
---|---|
Sep. 30, 2019
USD ($)
| |
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |
Gain on settling uncertain tax benefits | $ 20 |
Refund from taxing authorities related to settlement of the uncertain tax benefits | $ 28 |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) shares in Millions, $ in Millions |
Sep. 30, 2019 |
Dec. 31, 2018 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Allowance for doubtful accounts | $ 15 | $ 15 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized (in shares) | 600 | 600 |
Common stock, shares issued (in shares) | 217 | 217 |
Treasury stock (in shares) | 82 | 82 |
LEASES (Costs) (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended |
---|---|---|
Sep. 30, 2019 |
Sep. 30, 2019 |
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Leases [Abstract] | ||
Operating lease cost | $ 75 | $ 221 |
Finance lease cost: | ||
Amortization of leased assets | 1 | 5 |
Interest on lease liabilities | 0 | 2 |
Net lease cost | 76 | 228 |
Short-term leases and variable lease costs | $ 32 | $ 90 |
FINANCIAL INSTRUMENTS (Narrative) (Details) - USD ($) $ in Millions |
1 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|
Mar. 31, 2019 |
Sep. 30, 2020 |
Sep. 30, 2019 |
Feb. 28, 2019 |
Dec. 31, 2018 |
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Derivative [Line Items] | |||||
Accumulated other comprehensive loss | $ (55) | $ (59) | |||
Cash Flow Hedging | |||||
Derivative [Line Items] | |||||
Accumulated other comprehensive loss | (7) | $ (9) | |||
Cash Flow Hedging | Scenario, Forecast | |||||
Derivative [Line Items] | |||||
Net amount of deferred gains and losses on cash flow hedges that is expected to be reclassified within the next 12 months | $ 1 | ||||
Cash Flow Hedging | Treasury Lock | |||||
Derivative [Line Items] | |||||
Notional amount | $ 250 | ||||
Gain (loss) on derivatives | $ (1) | ||||
Cash Flow Hedging | Forward-starting Interest Rate Swap Agreements | |||||
Derivative [Line Items] | |||||
Notional amount | $ 125 | ||||
Fair Value Hedging | One-Month LIBOR | Minimum | |||||
Derivative [Line Items] | |||||
Floating rate | 2.20% | ||||
Fair Value Hedging | One-Month LIBOR | Maximum | |||||
Derivative [Line Items] | |||||
Floating rate | 3.00% |
RESTRUCTURING ACTIVITIES |
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Restructuring and Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
RESTRUCTURING ACTIVITIES | RESTRUCTURING ACTIVITIES 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 billing excellence. In addition to these programs, the Company identified key themes to change how it operates including reducing denials and patient 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 three and nine months ended September 30, 2019 and 2018:
The restructuring activity recorded in the nine months ended September 30, 2019 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 release recorded in the nine months ended September 30, 2019, $(1) million and $(2) million were recorded in cost of services and selling, general and administrative expenses, respectively. The restructuring charges incurred for the three and nine months ended September 30, 2018 were primarily associated with various workforce reduction initiatives as the Company continued to simplify and restructure its organization. Of the total restructuring charges incurred during the three months ended September 30, 2018, $2 million was recorded in each of cost of services and selling, general and administrative expenses. Of the total restructuring charges incurred during the nine months ended September 30, 2018, $9 million and $14 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 restructuring liability as of September 30, 2019 and December 31, 2018, which is included in accounts payable and accrued expenses, was $11 million and $38 million, respectively.
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DEBT |
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Debt Instruments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DEBT | DEBT Long-term debt (including finance lease obligations) as of September 30, 2019 and December 31, 2018 consisted of the following:
2019 Senior Notes Offering In March 2019, the Company completed a senior unsecured notes offering (the “2019 Senior Notes”), consisting of $500 million aggregate principal amount of 4.20% senior notes due June 2029, which were issued at an original issue discount of $1 million. The 2019 Senior Notes are unsecured obligations of the Company that rank equally with the Company's other senior unsecured obligations. The 2019 Senior Notes do not have a sinking fund requirement. The Company incurred $5 million of debt issuance costs associated with the 2019 Senior Notes, which is included as a reduction to the carrying amount of long-term debt and is being amortized over the term of the related debt. The net proceeds from the 2019 Senior Notes were used to repay in full the outstanding indebtedness under the Company's Senior Notes due April 1, 2019, to repay outstanding indebtedness under the secured receivables credit facility and for general corporate purposes. Secured Receivables Credit Facility During the nine months ended September 30, 2019, there were $985 million in cumulative borrowings under the secured receivables credit facility primarily associated with working capital requirements as well as the funding of the Company's 2019 business acquisition. During the nine months ended September 30, 2019, there were $1,145 million in repayments under the secured receivables credit facility. Maturities of Long-Term Debt As of September 30, 2019, long-term debt matures as follows:
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SUPPLEMENTAL CASH FLOW & OTHER DATA |
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Supplemental Cash Flow Elements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUPPLEMENTAL CASH FLOW & OTHER DATA | SUPPLEMENTAL CASH FLOW AND OTHER DATA Supplemental cash flow and other data for the three and nine months ended September 30, 2019 and 2018 was as follows:
(a) For the three and nine months ended September 30, 2018, leased assets obtained in exchange for new finance lease liabilities reflects information prior to the adoption of the new accounting standard related to accounting for leases. See Note 2 for further details on the adoption of the new accounting standard.
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REVENUE RECOGNITION (Tables) |
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Disaggregation of Revenue | The approximate percentage of net revenue by type of customer was as follows:
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LEASES (Tables) |
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Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Lease By Asset Type | Certain of the Company's lease agreements include rental payments adjusted periodically for inflation or a market rate which are included in the lease liabilities.
(a) Finance lease assets were recorded net of accumulated amortization of $23 million as of September 30, 2019. |
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Lease, Cost | Components of lease cost for the three and nine months ended September 30, 2019 were as follows:
(a) Includes short-term leases and variable lease costs (primarily maintenance fees and utilities related to real estate leases and certain equipment-related and vehicle-related costs) of $32 million and $90 million for the three and nine months ended September 30, 2019, respectively. Rental expense for real estate, laboratory equipment and vehicles under operating leases amounted to $55 million and $167 million for the three and nine months ended September 30, 2018, respectively. |
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Operating Lease, Liability, Maturity | The maturity of the Company's lease liabilities as of September 30, 2019 is as follows:
(a) Primarily calculated using the Company's incremental borrowing rate.
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Finance Lease, Liability, Maturity | The maturity of the Company's lease liabilities as of September 30, 2019 is as follows:
(a) Primarily calculated using the Company's incremental borrowing rate.
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Schedule of Future Minimum Rental Payments for Operating Leases | Minimum rental commitments under noncancelable operating leases, primarily real estate, in effect as of December 31, 2018 are as follows:
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Schedule of Lease Term and Discount Rate | Lease term and discount rate as of September 30, 2019 were as follows:
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FAIR VALUE MEASUREMENTS (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value, Measurement Inputs | The following table provides a summary of the recognized assets and liabilities that are measured at fair value on a recurring basis:
In connection with previous business acquisitions, the Company has contingent consideration obligations that are to be paid based on the achievement of certain testing volume or revenue benchmarks. These 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. A summary of the significant inputs is as follows:
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Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation | The following table provides a reconciliation of the beginning and ending balances of liabilities using significant unobservable inputs (Level 3):
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BUSINESS SEGMENT INFORMATION |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BUSINESS SEGMENT INFORMATION | BUSINESS SEGMENT INFORMATION The Company's DIS business is the only reportable segment based on the manner in which the Chief Executive Officer, who is the Company's chief operating decision maker ("CODM"), assesses performance and allocates resources across the organization. The DIS business provides diagnostic information services to a broad range of customers, including patients, clinicians, hospitals, IDNs, health plans, employers and ACOs. The Company is the world's leading provider of diagnostic information services, which includes providing information and insights based on the industry-leading menu of routine, non-routine and advanced clinical testing and anatomic pathology testing, and other diagnostic information services. The DIS business accounted for greater than 95% of net revenues in 2019 and 2018. All other operating segments include the Company's DS businesses, which consist of its risk assessment services and healthcare information technology businesses. The Company's DS businesses are the leading provider of risk assessment services for the life insurance industry and offer healthcare organizations and clinicians robust information technology solutions. As of September 30, 2019, substantially all of the Company’s services were provided within the United States, and substantially all of the Company’s assets were located within the United States. The following table is a summary of segment information for the three and nine months ended September 30, 2019 and 2018. Segment asset information is not presented since it is not used by the CODM at the operating segment level. Operating earnings (loss) of each segment represents net revenues less directly identifiable expenses to arrive at operating income (loss) for the segment. General corporate activities included in the table below are comprised of general management and administrative corporate expenses, amortization and impairment of intangible assets and other operating income and expenses, net of certain general corporate activity costs that are allocated to the DIS and DS businesses. The accounting policies of the segments are the same as those of the Company as set forth in Note 2 to the consolidated financial statements contained in the Company’s 2018 Annual Report on Form 10-K and Note 2 to the interim unaudited consolidated financial statements.
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DISCONTINUED OPERATIONS |
9 Months Ended |
---|---|
Sep. 30, 2019 | |
Discontinued Operations and Disposal Groups [Abstract] | |
DISCONTINUED OPERATIONS | DISCONTINUED OPERATIONS During the third quarter of 2006, the Company completed the wind down of Nichols Institute Diagnostics ("NID"), a test kit manufacturing subsidiary, which was reported as a discontinued operation for the nine months ended September 30, 2019 and 2018. Discontinued operations, net of taxes, for the nine months ended September 30, 2019 includes discrete tax benefits of $20 million associated with the favorable resolution of certain tax contingencies related to NID. In addition, net cash provided by operating activities in the consolidated statement of cash flows for the nine months ended September 30, 2019 included a $28 million refund from the taxing authorities related to discontinued operations. |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
|
Statement of Comprehensive Income [Abstract] | ||||
Net income | $ 226 | $ 227 | $ 641 | $ 649 |
Other comprehensive income (loss): | ||||
Currency translation | (6) | (2) | (6) | (10) |
Net change on available-for-sale debt securities, net of taxes | 8 | 0 | 8 | 0 |
Net deferred gain on cash flow hedges, net of taxes | 1 | 1 | 2 | 2 |
Other comprehensive income (loss) | 3 | (1) | 4 | (8) |
Comprehensive income | 229 | 226 | 645 | 641 |
Less: Comprehensive income attributable to noncontrolling interests | 11 | 14 | 36 | 40 |
Comprehensive income attributable to Quest Diagnostics | $ 218 | $ 212 | $ 609 | $ 601 |
FAIR VALUE MEASUREMENTS (Reconciliation of Beginning and Ending Balances of Assets and Liabilities Unobservable Inputs) (Details) - Significant Unobservable Inputs, Level 3 - Contingent Consideration $ in Millions |
9 Months Ended |
---|---|
Sep. 30, 2019
USD ($)
| |
Fair Value, Net Derivative Asset (Liability) Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |
Balance, December 31, 2018 | $ 14 |
Purchases, additions and issuances | 6 |
Settlements | (1) |
Total gains/losses included in earnings - realized/unrealized | 12 |
Balance, September 30, 2019 | $ 7 |
RESTRUCTURING ACTIVITIES (Narrative) (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
Dec. 31, 2018 |
|
Restructuring Cost and Reserve [Line Items] | |||||
Total restructuring charges | $ 0 | $ 4 | $ (3) | $ 23 | |
Accounts Payable and Accrued Liabilities | |||||
Restructuring Cost and Reserve [Line Items] | |||||
Restructuring reserve | $ 11 | 11 | $ 38 | ||
Cost of services | |||||
Restructuring Cost and Reserve [Line Items] | |||||
Total restructuring charges | 2 | (1) | 9 | ||
Selling, general and administrative | |||||
Restructuring Cost and Reserve [Line Items] | |||||
Total restructuring charges | $ 2 | $ (2) | $ 14 |
FINANCIAL INSTRUMENTS (Balance Sheets) (Details) - Long-term Debt - Fair Value Hedging - USD ($) $ in Millions |
Sep. 30, 2019 |
Dec. 31, 2018 |
---|---|---|
Derivative [Line Items] | ||
Carrying Amount of Hedged Long-Term Debt | $ 1,198 | $ 1,125 |
Fair value basis adjustments attributable to hedged debt | 11 | (53) |
Hedging adjustment on a discontinued relationship | $ 28 | $ 40 |
LEASES (Narrative) (Details) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | |
---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
|
Leases [Abstract] | |||
Operating leases, rent expense | $ 55 | $ 167 | |
Minimum | |||
Lessee, Lease, Description [Line Items] | |||
Remaining lease term | 1 year | ||
Maximum | |||
Lessee, Lease, Description [Line Items] | |||
Remaining lease term | 15 years | ||
Renewal term | 15 years |
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