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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
Or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-12215
Quest Diagnostics Incorporated

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

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☒ | Accelerated filer | ☐
Non-accelerated filer | ☐ | Smaller reporting company | ☐
| Emerging growth company | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 14, 2023, there were outstanding 112,234,999 shares of the registrant’s common stock, $.01 par value.

Table of Contents
PART I - FINANCIAL INFORMATION

|  | Page
Item 1. Financial Statements (unaudited) |
| Index to unaudited consolidated financial statements filed as part of this report: |
| Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022 | 2
| Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2023 and 2022 | 3
| Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 | 4
| Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022 | 5
| Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022 | 6
| Notes to Consolidated Financial Statements (unaudited) | 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
| See Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” | 36
Item 4. Controls and Procedures |
| Controls and Procedures | 36

1

Table of Contents
QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022
(unaudited)
(in millions, except per share data)

| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Net revenues | $ | 2,338 |  |  | $ | 2,453 |  |  | $ | 4,669 |  |  | $ | 5,064 |
Operating costs and expenses and other operating income: |  |  |  |  |  |  |
Cost of services | 1,546 |  |  | 1,611 |  |  | 3,106 |  |  | 3,257 |
Selling, general and administrative | 416 |  |  | 422 |  |  | 855 |  |  | 847 |
Amortization of intangible assets | 28 |  |  | 27 |  |  | 54 |  |  | 54 |
Other operating expense, net | — |  |  | 5 |  |  | 1 |  |  | 5 |
Total operating costs and expenses, net | 1,990 |  |  | 2,065 |  |  | 4,016 |  |  | 4,163 |
Operating income | 348 |  |  | 388 |  |  | 653 |  |  | 901 |
Other income (expense): |  |  |  |  |  |  |
Interest expense, net | (37) |  |  | (36) |  |  | (72) |  |  | (73) |
Other income (expense), net | 6 |  |  | (29) |  |  | 13 |  |  | (53) |
Total non-operating expense, net | (31) |  |  | (65) |  |  | (59) |  |  | (126) |
Income before income taxes and equity in earnings of equity method investees | 317 |  |  | 323 |  |  | 594 |  |  | 775 |
Income tax expense | (75) |  |  | (77) |  |  | (140) |  |  | (187) |
Equity in earnings of equity method investees, net of taxes | 7 |  |  | 4 |  |  | 12 |  |  | 35 |
Net income | 249 |  |  | 250 |  |  | 466 |  |  | 623 |
Less: Net income attributable to noncontrolling interests | 14 |  |  | 16 |  |  | 29 |  |  | 34 |
Net income attributable to Quest Diagnostics | $ | 235 |  |  | $ | 234 |  |  | $ | 437 |  |  | $ | 589 |
Earnings per share attributable to Quest Diagnostics’ common stockholders: |  |  |  |  |  |  |
Basic | $ | 2.08 |  |  | $ | 2.00 |  |  | $ | 3.88 |  |  | $ | 4.97 |
Diluted | $ | 2.05 |  |  | $ | 1.96 |  |  | $ | 3.83 |  |  | $ | 4.88 |
Weighted average common shares outstanding: |  |  |  |  |  |  |
Basic | 112 |  |  | 117 |  |  | 112 |  |  | 118 |
Diluted | 114 |  |  | 119 |  |  | 114 |  |  | 120 |

The accompanying notes are an integral part of these statements.
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022
(unaudited)
(in millions)

| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Net income | $ | 249 |  |  | $ | 250 |  |  | $ | 466 |  |  | $ | 623 |
Other comprehensive income (loss): |  |  |  |  |  |  |
Foreign currency translation adjustment | 2 |  |  | (7) |  |  | 5 |  |  | (9) |
Other comprehensive income (loss) | 2 |  |  | (7) |  |  | 5 |  |  | (9) |
Comprehensive income | 251 |  |  | 243 |  |  | 471 |  |  | 614 |
Less: Comprehensive income attributable to noncontrolling interests | 14 |  |  | 16 |  |  | 29 |  |  | 34 |
Comprehensive income attributable to Quest Diagnostics | $ | 237 |  |  | $ | 227 |  |  | $ | 442 |  |  | $ | 580 |

The accompanying notes are an integral part of these statements.
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2023 AND DECEMBER 31, 2022
(unaudited)
(in millions, except per share data)

| June 30, 2023 |  | December 31, 2022
Assets |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 126 |  |  | $ | 315 |
Accounts receivable, net of allowance for credit losses of $28 and $30 as of June 30, 2023 and December 31, 2022, respectively | 1,235 |  |  | 1,195 |
Inventories | 184 |  |  | 192 |
Prepaid expenses and other current assets | 188 |  |  | 196 |
Total current assets | 1,733 |  |  | 1,898 |
Property, plant and equipment, net | 1,814 |  |  | 1,766 |
Operating lease right-of-use assets | 611 |  |  | 585 |
Goodwill | 7,733 |  |  | 7,220 |
Intangible assets, net | 1,247 |  |  | 1,092 |
Investments in equity method investees | 135 |  |  | 132 |
Other assets | 152 |  |  | 144 |
Total assets | $ | 13,425 |  |  | $ | 12,837 |
Liabilities and Stockholders’ Equity |  |  |
Current liabilities: |  |  |
Accounts payable and accrued expenses | $ | 1,201 |  |  | $ | 1,396 |
Current portion of long-term debt | 518 |  |  | 2 |
Current portion of long-term operating lease liabilities | 156 |  |  | 153 |
Total current liabilities | 1,875 |  |  | 1,551 |
Long-term debt | 3,777 |  |  | 3,978 |
Long-term operating lease liabilities | 508 |  |  | 489 |
Other liabilities | 901 |  |  | 812 |
Commitments and contingencies |  |  |
Redeemable noncontrolling interest | 77 |  |  | 77 |
Stockholders’ equity: |  |  |
Quest Diagnostics stockholders’ equity: |  |  |
Common stock, par value $0.01 per share; 600 shares authorized as of both June 30, 2023 and December 31, 2022; 162 shares issued as of both June 30, 2023 and December 31, 2022 | 2 |  |  | 2 |
Additional paid-in capital | 2,284 |  |  | 2,295 |
Retained earnings | 8,566 |  |  | 8,290 |
Accumulated other comprehensive loss | (16) |  |  | (21) |
Treasury stock, at cost; 50 and 51 shares as of June 30, 2023 and December 31, 2022, respectively | (4,587) |  |  | (4,673) |
Total Quest Diagnostics stockholders’ equity | 6,249 |  |  | 5,893 |
Noncontrolling interests | 38 |  |  | 37 |
Total stockholders’ equity | 6,287 |  |  | 5,930 |
Total liabilities and stockholders’ equity | $ | 13,425 |  |  | $ | 12,837 |

The accompanying notes are an integral part of these statements.
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022
(unaudited)
(in millions)

| Six Months Ended June 30,
| 2023 |  | 2022
Cash flows from operating activities: |  |  |
Net income | $ | 466 |  |  | $ | 623 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
Depreciation and amortization | 219 |  |  | 213 |
(Credit) provision for credit losses | (1) |  |  | 1 |
Deferred income tax benefit | (16) |  |  | (20) |
Stock-based compensation expense | 40 |  |  | 37 |
Other, net | 1 |  |  | 33 |
Changes in operating assets and liabilities: |  |  |
Accounts receivable | (38) |  |  | 150 |
Accounts payable and accrued expenses | (156) |  |  | (201) |
Income taxes payable | 5 |  |  | (4) |
Other assets and liabilities, net | 18 |  |  | 50 |
Net cash provided by operating activities | 538 |  |  | 882 |
Cash flows from investing activities: |  |  |
Business acquisitions, net of cash acquired | (609) |  |  | (106) |
Capital expenditures | (231) |  |  | (139) |
Increase in investments and other assets | — |  |  | (6) |
Net cash used in investing activities | (840) |  |  | (251) |
Cash flows from financing activities: |  |  |
Proceeds from borrowings | 1,147 |  |  | — |
Repayments of debt | (828) |  |  | (1) |
Purchases of treasury stock | — |  |  | (573) |
Exercise of stock options | 47 |  |  | 68 |
Employee payroll tax withholdings on stock issued under stock-based compensation plans | (28) |  |  | (27) |
Dividends paid | (154) |  |  | (152) |
Distributions to noncontrolling interest partners | (28) |  |  | (36) |
Other financing activities, net | (43) |  |  | 8 |
Net cash provided by (used in) financing activities | 113 |  |  | (713) |
Net change in cash and cash equivalents and restricted cash | (189) |  |  | (82) |
Cash and cash equivalents and restricted cash, beginning of period | 315 |  |  | 872 |
Cash and cash equivalents and restricted cash, end of period | $ | 126 |  |  | $ | 790 |

The accompanying notes are an integral part of these statements.
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022
(unaudited)
(in millions)

For the Three Months Ended June 30, 2023 |  |  | 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, March 31, 2023 | 112 |  |  | $ | 2 |  |  | $ | 2,266 |  |  | $ | 8,412 |  |  | $ | (18) |  |  | $ | (4,612) |  |  | $ | 38 |  |  | $ | 6,088 |  |  |  | $ | 77 |
Net income |  |  |  |  |  |  | 235 |  |  |  |  |  | 12 |  |  | 247 |  |  |  | 2 |
Other comprehensive income, net of taxes |  |  |  |  |  |  |  |  | 2 |  |  |  |  |  |  | 2 |  |  |  |
Dividends declared |  |  |  |  |  |  | (81) |  |  |  |  |  |  |  |  | (81) |  |  |  |
Distributions to noncontrolling interest partners |  |  |  |  |  |  |  |  |  |  |  |  | (12) |  |  | (12) |  |  |  | (2) |
Issuance of common stock under benefit plans |  |  |  |  | 1 |  |  |  |  |  |  | 8 |  |  |  |  | 9 |  |  |  |
Stock-based compensation expense |  |  |  |  | 16 |  |  |  |  |  |  |  |  |  |  | 16 |  |  |  |
Exercise of stock options |  |  |  |  | 1 |  |  |  |  |  |  | 17 |  |  |  |  | 18 |  |  |  |
Balance, June 30, 2023 | 112 |  |  | $ | 2 |  |  | $ | 2,284 |  |  | $ | 8,566 |  |  | $ | (16) |  |  | $ | (4,587) |  |  | $ | 38 |  |  | $ | 6,287 |  |  |  | $ | 77 |
For the Six Months Ended June 30, 2023 |  |  | 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, 2022 | 111 |  |  | $ | 2 |  |  | $ | 2,295 |  |  | $ | 8,290 |  |  | $ | (21) |  |  | $ | (4,673) |  |  | $ | 37 |  |  | $ | 5,930 |  |  |  | $ | 77 |
Net income |  |  |  |  |  |  | 437 |  |  |  |  |  |  | 26 |  |  | 463 |  |  |  | 3 |
Other comprehensive income, net of taxes |  |  |  |  |  |  |  |  | 5 |  |  |  |  |  |  | 5 |  |  |  |
Dividends declared |  |  |  |  |  |  | (161) |  |  |  |  |  |  |  |  | (161) |  |  |  |
Distributions to noncontrolling interest partners |  |  |  |  |  |  |  |  |  |  |  |  | (25) |  |  | (25) |  |  |  | (3) |
Issuance of common stock under benefit plans | 1 |  |  |  |  | (41) |  |  |  |  |  |  | 56 |  |  |  |  | 15 |  |  |  |
Stock-based compensation expense |  |  |  |  | 40 |  |  |  |  |  |  |  |  |  |  | 40 |  |  |  |
Exercise of stock options |  |  |  |  |  |  |  |  |  |  | 48 |  |  |  |  | 48 |  |  |  |
Shares to cover employee payroll tax withholdings on stock issued under stock-based compensation plans |  |  |  |  | (10) |  |  |  |  |  |  | (18) |  |  |  |  | (28) |  |  |  |
Balance, June 30, 2023 | 112 |  |  | $ | 2 |  |  | $ | 2,284 |  |  | $ | 8,566 |  |  | $ | (16) |  |  | $ | (4,587) |  |  | $ | 38 |  |  | $ | 6,287 |  |  |  | $ | 77 |

The accompanying notes are an integral part of these statements.
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022
(unaudited)
(in millions)

For the Three Months Ended June 30, 2022 |  |  | 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, March 31, 2022 | 117 |  |  | $ | 2 |  |  | $ | 2,226 |  |  | $ | 7,926 |  |  | $ | (16) |  |  | $ | (3,761) |  |  | $ | 38 |  |  | $ | 6,415 |  |  |  | $ | 78 |
Net income |  |  |  |  |  |  | 234 |  |  |  |  |  | 14 |  |  | 248 |  |  |  | 2 |
Other comprehensive loss, net of taxes |  |  |  |  |  |  |  |  | (7) |  |  |  |  |  |  | (7) |  |  |  |
Dividends declared |  |  |  |  |  |  | (77) |  |  |  |  |  |  |  |  | (77) |  |  |  |
Distributions to noncontrolling interest partners |  |  |  |  |  |  |  |  |  |  |  |  | (13) |  |  | (13) |  |  |  | (3) |
Issuance of common stock under benefit plans |  |  |  |  | 1 |  |  |  |  |  |  | 6 |  |  |  |  | 7 |  |  |  |
Stock-based compensation expense |  |  |  |  | 19 |  |  |  |  |  |  |  |  |  |  | 19 |  |  |  |
Exercise of stock options | 1 |  |  |  |  | 4 |  |  |  |  |  |  | 54 |  |  |  |  | 58 |  |  |  |
Purchases of treasury stock | (1) |  |  |  |  |  |  |  |  |  |  | (200) |  |  |  |  | (200) |  |  |  |
Balance, June 30, 2022 | 117 |  |  | $ | 2 |  |  | $ | 2,250 |  |  | $ | 8,083 |  |  | $ | (23) |  |  | $ | (3,901) |  |  | $ | 39 |  |  | $ | 6,450 |  |  |  | $ | 77 |
For the Six Months Ended June 30, 2022 |  |  | 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, 2021 | 119 |  |  | $ | 2 |  |  | $ | 2,260 |  |  | $ | 7,649 |  |  | $ | (14) |  |  | $ | (3,453) |  |  | $ | 39 |  |  | $ | 6,483 |  |  |  | $ | 79 |
Net income |  |  |  |  |  |  | 589 |  |  |  |  |  | 30 |  |  | 619 |  |  |  | 4 |
Other comprehensive loss, net of taxes |  |  |  |  |  |  |  |  | (9) |  |  |  |  |  |  | (9) |  |  |  |
Dividends declared |  |  |  |  |  |  | (155) |  |  |  |  |  |  |  |  | (155) |  |  |  |
Distributions to noncontrolling interest partners |  |  |  |  |  |  |  |  |  |  |  |  | (30) |  |  | (30) |  |  |  | (6) |
Issuance of common stock under benefit plans | 1 |  |  |  |  | (40) |  |  |  |  |  |  | 54 |  |  |  |  | 14 |  |  |  |
Stock-based compensation expense |  |  |  |  | 37 |  |  |  |  |  |  |  |  |  |  | 37 |  |  |  |
Exercise of stock options | 1 |  |  |  | 3 |  |  |  |  |  |  | 65 |  |  |  |  | 68 |  |  |  |
Shares to cover employee payroll tax withholdings on stock issued under stock-based compensation plans |  |  |  |  | (10) |  |  |  |  |  |  | (17) |  |  |  |  | (27) |  |  |  |
Purchases of treasury stock | (4) |  |  |  |  |  |  |  |  |  |  | (550) |  |  |  |  | (550) |  |  |  |
Balance, June 30, 2022 | 117 |  |  | $ | 2 |  |  | $ | 2,250 |  |  | $ | 8,083 |  |  | $ | (23) |  |  | $ | (3,901) |  |  | $ | 39 |  |  | $ | 6,450 |  |  |  | $ | 77 |

The accompanying notes are an integral part of these statements.
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in millions, unless otherwise indicated)
1. DESCRIPTION OF BUSINESS
Background
Quest Diagnostics Incorporated and its subsidiaries ("Quest Diagnostics" or the "Company") empower people to take action to improve health outcomes. The Company uses its extensive database of clinical lab results to derive diagnostic insights that reveal new avenues to identify and treat disease, inspire healthy behaviors and improve healthcare management. The Company's diagnostic information services business ("DIS") provides information and insights based on an industry-leading menu of routine, non-routine and advanced clinical testing and anatomic pathology testing, and other diagnostic information services. The Company provides services to a broad range of customers, including patients, clinicians, hospitals, independent delivery networks ("IDNs"), health plans, employers, consumers, and accountable care organizations ("ACOs"). The Company offers the broadest access in the United States to diagnostic information services through its nationwide network of laboratories, patient service centers and phlebotomists in physician offices and the Company's connectivity resources, including call centers and mobile paramedics, nurses and other health and wellness professionals. The Company is the world's leading provider of diagnostic information services. The Company provides interpretive consultation with one of the largest medical and scientific staffs in the industry. The Company's Diagnostic Solutions businesses ("DS") are the leading provider of risk assessment services for the life insurance industry and offer healthcare organizations and clinicians robust information technology solutions.
2. 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 2022 Annual Report on Form 10-K. The year-end balance sheet data was derived from the audited consolidated financial statements as of December 31, 2022 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 audited consolidated financial statements contained in the Company’s 2022 Annual Report on Form 10-K.
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 attributable to Quest Diagnostics, 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 attributable to Quest Diagnostics, adjusted for earnings allocated to participating securities, by the weighted average number of common shares outstanding after giving effect to all potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include the dilutive effect of outstanding stock options and performance share units granted under the Company's Amended and Restated Employee Long-Term Incentive Plan and outstanding stock options granted under its Amended and Restated Non-Employee Director Long-Term Incentive Plan, as well as the dilutive effect of accelerated share repurchase agreements, if applicable. Earnings allocable
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(unaudited)
(in millions, unless otherwise indicated)
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 Standards to be Adopted
In March 2020, the Financial Accounting Standards Board ("FASB") issued a new accounting standard which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform due to the cessation of the London Interbank Offered Rate ("LIBOR"). The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate which was discontinued because of reference rate reform. The pronouncement was effective immediately and, due to an accounting update which the FASB issued in December 2022, can be applied to contract modifications through December 31, 2024. The adoption of this standard did not have a material impact on the Company’s consolidated results of operations, financial position or cash flows.
3. EARNINGS PER SHARE
The computation of basic and diluted earnings per common share was as follows (in millions, except per share data):

| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Amounts attributable to Quest Diagnostics’ common stockholders: |  |  |  |  |  |  |
Net income attributable to Quest Diagnostics | $ | 235 |  |  | $ | 234 |  |  | $ | 437 |  |  | $ | 589 |
Less: Earnings allocated to participating securities | 1 |  |  | 1 |  |  | 2 |  |  | 2 |
Earnings available to Quest Diagnostics’ common stockholders – basic and diluted | $ | 234 |  |  | $ | 233 |  |  | $ | 435 |  |  | $ | 587 |
Weighted average common shares outstanding – basic | 112 |  |  | 117 |  |  | 112 |  |  | 118 |
Effect of dilutive securities: |  |  |  |  |  |  |
Stock options and performance share units | 2 |  |  | 2 |  |  | 2 |  |  | 2 |
Weighted average common shares outstanding – diluted | 114 |  |  | 119 |  |  | 114 |  |  | 120 |
Earnings per share attributable to Quest Diagnostics’ common stockholders: |  |  |  |  |  |  |
Basic | $ | 2.08 |  |  | $ | 2.00 |  |  | $ | 3.88 |  |  | $ | 4.97 |
Diluted | $ | 2.05 |  |  | $ | 1.96 |  |  | $ | 3.83 |  |  | $ | 4.88 |

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

| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Stock options and performance share units | — |  |  | 1 |  |  | — |  |  | — |

4. RESTRUCTURING ACTIVITIES AND IMPAIRMENT CHARGES
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; field and customer service excellence; lab excellence; and revenue services excellence. In addition to these programs, the Company identified key themes to change how it operates including reducing
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(unaudited)
(in millions, unless otherwise indicated)
denials and patient price concessions; further digitizing the business; standardization; automation and artificial intelligence; optimization and selecting and retaining talent. The Invigorate program is intended to offset reimbursement pressures and labor and benefit cost increases; free up additional resources to invest in innovation and other growth initiatives; and enable the Company to improve service quality and operating profitability.
Restructuring and Impairment Charges
The following table provides a summary of the Company's pre-tax restructuring and impairment charges for the three and six months ended June 30, 2023 and 2022:

| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Employee separation costs | $ | 1 |  |  | $ | 6 |  |  | $ | 16 |  |  | $ | 8 |
Asset impairment charges | 5 |  |  | — |  |  | 5 |  |  | — |
Total restructuring and impairment charges | $ | 6 |  |  | $ | 6 |  |  | $ | 21 |  |  | $ | 8 |

The restructuring and impairment charges incurred for the three and six months ended June 30, 2023 were partially associated with various workforce reduction initiatives as the Company continued to restructure its organization. Additionally, during the three months ended June 30, 2023, the Company recorded an impairment charge for a corporate facility that is currently held for sale. All of the restructuring and impairment charges incurred during the three months ended June 30, 2023 were recorded in selling, general and administrative expenses. Of the total restructuring and impairment charges incurred during the six months ended June 30, 2023, $9 million and $12 million were recorded in cost of services and selling, general and administrative expenses, respectively.
The restructuring and impairment charges incurred for the three and six months ended June 30, 2022 were entirely associated with various workforce reduction initiatives as the Company continued to restructure its organization. Of the total restructuring and impairment charges incurred during the three months ended June 30, 2022, $1 million, and $5 million were recorded in cost of services and selling, general and administrative expenses, respectively. Of the total restructuring and impairment charges incurred during the six months ended June 30, 2022, $2 million and $6 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 June 30, 2023 and December 31, 2022, which is included in accounts payable and accrued expenses, was $20 million and $44 million, respectively.
5. BUSINESS ACQUISITIONS
During the six months ended June 30, 2023, the Company completed acquisitions for an aggregate purchase price of $697 million, net of cash acquired, including the acquisitions discussed below. The acquisitions preliminarily resulted in goodwill of $511 million, of which $242 million is deductible for tax purposes. The acquisitions also preliminarily resulted in $145 million of technology-related intangible assets and $63 million of customer-related intangible assets.
Acquisition of select assets of the laboratory services business of New York-Presbyterian
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(unaudited)
(in millions, unless otherwise indicated)
On April 17, 2023, the Company completed the acquisition of select assets of the laboratory services business of New York-Presbyterian, which serves providers and patients in New York, as well as the Tri-State Area and beyond, in an all-cash transaction for $275 million. Based on the preliminary purchase price allocation, which may be revised as additional information becomes available during the measurement period, the assets acquired primarily consist of $222 million of tax-deductible goodwill and $53 million of customer-related intangible assets. The intangible assets are being amortized over a useful life of 15 years.
Acquisition of Haystack Oncology, Inc.
On June 20, 2023, the Company acquired Haystack Oncology, Inc. ("Haystack"), an early-stage oncology company focused on minimal residual disease testing to aid in the detection of residual or recurring cancer and better inform therapy decisions. The acquisition was an all-cash transaction for $392 million, net of $1 million of cash acquired, which consisted of cash consideration of $304 million and contingent consideration initially estimated at $88 million. Under the contingent consideration obligation, which is not expected to be paid in 2023, the seller can receive up to $100 million of additional consideration dependent upon the achievement of certain revenue benchmarks through 2028 and up to an additional $50 million of consideration dependent upon the Company receiving reimbursement coverage from the Centers for Medicare and Medicaid Services ("CMS"). Based on the preliminary purchase price allocation, which may be revised as additional information becomes available during the measurement period, the assets acquired and liabilities assumed consist of $269 million of goodwill (none of which is tax-deductible), $145 million of technology-related intangible assets, $25 million of deferred income tax liabilities, $8 million of operating lease right-of-use assets and related operating lease liabilities, and $3 million of property, plant and equipment. The intangible assets are being amortized over a useful life of 15 years. For further details regarding the fair value of the contingent consideration, see Note 6.
The acquisitions were accounted for under the acquisition method of accounting. As such, the assets acquired and liabilities assumed were recorded based on their estimated fair values as of the closing dates. Supplemental pro forma combined financial information has not been presented as the impact of the acquisitions is not material to the Company's consolidated financial statements. The goodwill recorded primarily includes the expected synergies resulting from combining the operations of the acquired entity with those of the Company and the value associated with an assembled workforce and other intangible assets that do not qualify for separate recognition. All of the goodwill acquired in connection with the acquisitions has been allocated to the Company's DIS business. For further details regarding business segment information, see Note 12.
For details regarding the Company's 2022 acquisitions, see Note 6 to the audited consolidated financial statements in the Company's 2022 Annual Report on Form 10-K.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(unaudited)
(in millions, unless otherwise indicated)
6. FAIR VALUE MEASUREMENTS
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table provides a summary of the recognized assets and liabilities that are measured at fair value on a recurring basis:

|  |  | Basis of Fair Value Measurements
|  |  | Quoted Prices in Active Markets for Identical Assets/Liabilities |  | Significant Other Observable Inputs |  | Significant Unobservable Inputs
June 30, 2023 | Total |  | Level 1 |  | Level 2 |  | Level 3
Assets: |  |  |  |  |  |  |
Deferred compensation trading securities | $ | 72 |  |  | $ | 72 |  |  | $ | — |  |  | $ | — |
Cash surrender value of life insurance policies | 52 |  |  | — |  |  | 52 |  |  | — |
Available-for-sale debt securities | 2 |  |  | — |  |  | — |  |  | 2 |
Total | $ | 126 |  |  | $ | 72 |  |  | $ | 52 |  |  | $ | 2 |
Liabilities: |  |  |  |  |  |  |
Deferred compensation liabilities | $ | 130 |  |  | $ | — |  |  | $ | 130 |  |  | $ | — |
Contingent consideration | 93 |  |  | — |  |  | — |  |  | 93 |
Total | $ | 223 |  |  | $ | — |  |  | $ | 130 |  |  | $ | 93 |
Redeemable noncontrolling interest | $ | 77 |  |  | $ | — |  |  | $ | — |  |  | $ | 77 |

|  |  | Basis of Fair Value Measurements
December 31, 2022 | Total |  | Level 1 |  | Level 2 |  | Level 3
Assets: |  |  |  |  |  |  |
Deferred compensation trading securities | $ | 68 |  |  | $ | 68 |  |  | $ | — |  |  | $ | — |
Cash surrender value of life insurance policies | 46 |  |  | — |  |  | 46 |  |  | — |
Available-for-sale debt securities | 2 |  |  | — |  |  | — |  |  | 2 |
Total | $ | 116 |  |  | $ | 68 |  |  | $ | 46 |  |  | $ | 2 |
Liabilities: |  |  |  |  |  |  |
Deferred compensation liabilities | $ | 120 |  |  | $ | — |  |  | $ | 120 |  |  | $ | — |
Contingent consideration | 23 |  |  | — |  |  | — |  |  | 23 |
Total | $ | 143 |  |  | $ | — |  |  | $ | 120 |  |  | $ | 23 |
Redeemable noncontrolling interest | $ | 77 |  |  | $ | — |  |  | $ | — |  |  | $ | 77 |

A detailed description regarding the Company's fair value measurements is contained in Note 8 to the audited consolidated financial statements in the Company's 2022 Annual Report on Form 10-K.
The Company offers certain employees the opportunity to participate in a non-qualified supplemental deferred compensation plan. A participant's deferrals, together with Company matching credits, are invested in a variety of participant-directed stock and bond mutual funds that are classified as trading securities. The trading securities are classified within Level 1 of the fair value hierarchy because the changes in the fair value of these securities are measured using quoted prices in active
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(unaudited)
(in millions, unless otherwise indicated)
markets based on the market price per unit multiplied by the number of units held, exclusive of any transaction costs. A corresponding adjustment for changes in fair value of the trading securities is also reflected in the changes in fair value of the deferred compensation obligation. The deferred compensation liabilities are classified within Level 2 of the fair value hierarchy because their inputs are derived principally from observable market data by correlation to the trading securities.
The Company offers certain employees the opportunity to participate in a non-qualified deferred compensation program. A participant's deferrals, together with Company matching credits, are “invested” at the direction of the employee in a hypothetical portfolio of investments which are tracked by an administrator. The Company purchases life insurance policies, with the Company named as beneficiary of the policies, for the purpose of funding the program's liability. Changes in the cash surrender value of the life insurance policies are based upon earnings and changes in the value of the underlying investments. Changes in the fair value of the deferred compensation obligation are derived using quoted prices in active markets based on the market price per unit multiplied by the number of units. The cash surrender value and the deferred compensation obligation are classified within Level 2 of the fair value hierarchy because their inputs are derived principally from observable market data by correlation to the hypothetical investments. Deferrals under the plan currently may only be made by participants who made deferrals under the plan in 2017.
The Company's available-for-sale debt securities are measured at fair value using discounted cash flows. These fair value measurements are classified within Level 3 of the fair value hierarchy as the fair value is based on significant inputs that are not observable. Significant inputs include cash flows projections and a discount rate.
In connection with the acquisition of Haystack during the three months ended June 30, 2023 (see Note 5 for further discussion), there is a contingent consideration obligation under which the seller can receive up to $100 million of additional consideration dependent upon the achievement of certain revenue benchmarks through 2028 and up to an additional $50 million of consideration dependent upon the Company receiving reimbursement coverage from the CMS. The portion of the contingent consideration obligation which is dependent upon the achievement of certain revenue benchmarks was measured at fair value using a Monte Carlo method and is 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 revenue and other market inputs, including comparable company revenue volatility (40%) and a discount rate (10.5%). The portion of the contingent consideration obligation which is dependent upon the Company receiving reimbursement coverage from the CMS is also classified within Level 3 of the fair value hierarchy as the fair value is principally determined based on management's estimate, which is a significant input that is not observable. Additionally, the fair value of the entire contingent consideration obligation was also impacted by a market discount rate (5%) which adjusted the estimated payments to present value. Such discount rate decreased the aggregate fair value of the contingent consideration obligation by $21 million to $88 million.
The fair value of the contingent consideration obligation is not overly sensitive to movements in the comparable company revenue volatility or the discount rate used for the portion of the obligation that is dependent upon the achievement of certain revenue benchmarks. For example, changing the comparable company revenue volatility from 40% to 30% impacts the fair value by $7 million (assuming no other inputs are modified) and changing the discount rate from 10.5% to 7.0% impacts the fair value by $5 million (assuming no other inputs are modified).
Additionally, in connection with previous acquisitions, the Company had contingent consideration obligations based on the achievement of certain testing volume and revenue benchmarks during 2022. See Note 8 to the audited consolidated financial statements in the Company's 2022 Annual Report on Form 10-K.
The following table provides a reconciliation of the beginning and ending balances of liabilities using significant unobservable inputs (Level 3):

| Contingent Consideration |  |  |  |
Balance, December 31, 2022 | $ | 23 |  |  |  |  |
Purchases, additions and issuances | 88 |  |  |  |  |
Settlements | (18) |  |  |  |  |
Balance, June 30, 2023 | $ | 93 |  |  |  |  |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(unaudited)
(in millions, unless otherwise indicated)
Of the aggregate $93 million contingent consideration obligation as of June 30, 2023, $88 million and $5 million were included in other liabilities and accounts payable and accrued expenses, respectively, in the Company's consolidated balance sheet.
In connection with the sale of an 18.9% noncontrolling interest in a subsidiary to UMass Memorial Medical Center ("UMass") on July 1, 2015, the Company granted UMass the right to require the Company to purchase all of its interest in the subsidiary at fair value commencing July 1, 2020. As of June 30, 2023, the redeemable noncontrolling interest was presented at its fair value. The fair value measurement of the redeemable noncontrolling interest is classified within Level 3 of the fair value hierarchy because the fair value is based on a discounted cash flow analysis that takes into account, among other items, the joint venture's expected future cash flows, long term growth rates, and a discount rate commensurate with economic risk.
The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable and accrued expenses approximate fair value based on the short maturities of these instruments. As of June 30, 2023 and December 31, 2022, the fair value of the Company’s debt was estimated at $4.0 billion and $3.7 billion, respectively. Principally all of the Company's debt is classified within Level 1 of the fair value hierarchy because the fair value of the debt is estimated based on rates currently offered to the Company with identical terms and maturities, using quoted active market prices and yields, taking into account the underlying terms of the debt instruments.
7. DEBT
The Company is party to a $750 million senior unsecured revolving credit facility (the “Credit Facility” or "Senior Unsecured Revolving Credit Facility") which matures in November 2026. Under the Credit Facility, the Company can issue letters of credit totaling $150 million (see Note 11). Issued letters of credit reduce the available borrowing capacity under the Credit Facility. Interest on the Credit Facility is based on certain published rates plus an applicable margin based on changes in the Company's public debt ratings. The Credit Facility was amended during March 2023. Subsequent to such amendment, at the option of the Company, it may elect to lock into Term Secured Overnight Financing Rate (“Term SOFR”)-based interest rate contracts for periods up to six months. For interest on any U.S. Dollar-denominated outstanding amounts not covered under Term SOFR-based interest rate contracts, the Company can opt for an alternate base rate, which is calculated by reference to the prime rate, the federal funds rate or an adjusted Term SOFR rate. The Company also has the option to borrow in other currencies. As of June 30, 2023, the Company's borrowing rate for Term SOFR-based loans under the Credit Facility was adjusted Term SOFR plus 1.00%. The Credit Facility contains various covenants, including the maintenance of a financial leverage ratio, which could impact the Company's ability to, among other things, incur additional indebtedness. As of both June 30, 2023 and December 31, 2022, there were no outstanding borrowings under the Senior Unsecured Revolving Credit Facility.
The Company also has a $525 million secured receivables credit facility (the “Secured Receivables Credit Facility”) under which the Company can borrow against a $425 million loan commitment, half of which matures in October 2023 and half of which matures in October 2024. Additionally, the Company can issue up to $100 million of letters of credit through October 2024. Interest on borrowings under the facility is based on either commercial paper rates for highly-rated issuers or Term SOFR, plus a spread of 0.725% to 0.80%. As of June 30, 2023, there were $320 million of outstanding borrowings under the Secured Receivables Credit Facility, of which $213 million and $107 million were included in current portion of long-term debt and long-term debt, respectively, in the Company's consolidated balance sheet. There were no outstanding borrowings under the facility as of December 31, 2022. For further details regarding the Secured Receivables Credit Facility, see Note 14 to the audited consolidated financial statements in the Company's 2022 Annual Report on Form 10-K.
The Company has $300 million of 4.25% senior notes due April 2024. The senior notes are included in current portion of long-term debt in the Company's June 30, 2023 consolidated balance sheet. Such notes were included in long-term debt in the Company's December 31, 2022 consolidated balance sheet.
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(unaudited)
(in millions, unless otherwise indicated)
8. FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments, from time to time, to manage its exposure to market risks for changes in interest rates and foreign currencies. This strategy includes the use of interest rate swap agreements, forward-starting interest rate swap agreements, interest rate lock agreements and foreign currency forward contracts to manage its exposure to movements in interest and currency rates. 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, from time to time, variable-rate debt instruments. The Company's primary objective is to achieve the lowest overall cost of funding while managing the variability in cash outflows within an acceptable range. In order to achieve this objective, the Company has historically entered into interest rate swap agreements.
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.
Interest Rate Derivatives – Cash Flow Hedges
From time to time, the Company has entered into various interest rate lock agreements and forward-starting interest rate swap agreements to hedge part of the Company's interest rate exposure associated with the variability in future cash flows attributable to changes in interest rates.
Interest Rate Derivatives – Fair Value Hedges
Historically, the Company has entered into various fixed-to-variable interest rate swap agreements in order to convert a portion of the Company's long-term debt into variable interest rate debt. All such fixed-to-variable interest rate swap agreements have been terminated and proceeds from the terminations have been reflected as basis adjustments to the hedged debt instruments and are being amortized as a reduction of interest expense, net over the remaining terms of such debt instruments.
As of June 30, 2023 and December 31, 2022, the following amounts were recorded on the consolidated balance sheets related to cumulative basis adjustments for fair value hedges included in the carrying amount of long-term debt:

|  |  |  |  | Hedge Accounting Basis Adjustment (a)
Balance Sheet Classification |  |  |  | June 30, 2023 |  |  |  | December 31, 2022
Long-term debt |  |  |  | $ | 20 |  |  |  |  | $ | 26 |

(a) As of both June 30, 2023 and December 31, 2022, the entire balance is associated with remaining unamortized hedging adjustments on discontinued relationships.
A detailed description regarding the Company's use of derivative financial instruments is contained in Note 16 to the audited consolidated financial statements in the Company's 2022 Annual Report on Form 10-K.
9. STOCKHOLDERS’ EQUITY AND REDEEMABLE NONCONTROLLING INTEREST
Stockholders' Equity
Changes in Accumulated Other Comprehensive Loss by Component
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(unaudited)
(in millions, unless otherwise indicated)
Comprehensive income (loss) includes:
•Foreign currency translation adjustments;
•Net deferred gains (losses) on cash flow hedges, which represent deferred gains (losses), net of tax, on interest rate-related derivative financial instruments designated as cash flow hedges, net of amounts reclassified to interest expense (see Note 8); and
•Net changes in available-for-sale debt securities, which represent unrealized holding gains (losses), net of tax, on available-for-sale debt securities.
For the three and six months ended June 30, 2023 and 2022, the tax effects related to the deferred gains (losses) on cash flow hedges and net changes in available-for-sale debt securities were not material. 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 and second quarters of 2023, the Company's Board of Directors declared a quarterly cash dividend of $0.71 per common share. During each of the four quarters of 2022, the Company's Board of Directors declared a quarterly cash dividend of $0.66 per common share.
Share Repurchase Program
In February 2023, the Company's Board of Directors increased the size of its share repurchase program by $1 billion. As of June 30, 2023, $1.3 billion remained available under the Company’s share repurchase authorization. The share repurchase authorization has no set expiration or termination date.
Share Repurchases
For the six months ended June 30, 2023, the Company repurchased no shares of its common stock.
For the six months ended June 30, 2022, the Company repurchased 4.0 million shares of its common stock for $550 million.
Shares Reissued from Treasury Stock
For the six months ended June 30, 2023 and 2022, the Company reissued 0.9 million shares and 1.2 million shares, respectively, from treasury stock under its Employee Stock Purchase Plan and its stock-based compensation program. For details regarding the Company's stock ownership and compensation plans, see Note 18 to the audited consolidated financial statements in the Company's 2022 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. As of June 30, 2023 and December 31, 2022, the redeemable noncontrolling interest was presented at its fair value. For further details regarding the fair value of the redeemable noncontrolling interest, see Note 6.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(unaudited)
(in millions, unless otherwise indicated)
10. SUPPLEMENTAL CASH FLOW AND OTHER DATA
Supplemental cash flow and other data for the three and six months ended June 30, 2023 and 2022 was as follows:

| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Depreciation expense | $ | 84 |  |  | $ | 80 |  |  | $ | 165 |  |  | $ | 159 |
Amortization expense | 28 |  |  | 27 |  |  | 54 |  |  | 54 |
Depreciation and amortization expense | $ | 112 |  |  | $ | 107 |  |  | $ | 219 |  |  | $ | 213 |
Interest expense | $ | (39) |  |  | $ | (38) |  |  | $ | (76) |  |  | $ | (75) |
Interest income | 2 |  |  | 2 |  |  | 4 |  |  | 2 |
Interest expense, net | $ | (37) |  |  | $ | (36) |  |  | $ | (72) |  |  | $ | (73) |
Interest paid | $ | 48 |  |  | $ | 46 |  |  | $ | 80 |  |  | $ | 78 |
Income taxes paid | $ | 101 |  |  | $ | 159 |  |  | $ | 134 |  |  | $ | 182 |
Accounts payable associated with capital expenditures | $ | 29 |  |  | $ | 23 |  |  | $ | 29 |  |  | $ | 23 |
Dividends payable | $ | 81 |  |  | $ | 77 |  |  | $ | 81 |  |  | $ | 77 |
Businesses acquired: |  |  |  |  |  |  |
Fair value of assets acquired | $ | 703 |  |  | $ | 1 |  |  | $ | 734 |  |  | $ | 143 |
Fair value of liabilities assumed | 36 |  |  | — |  |  | 36 |  |  | 15 |
Fair value of net assets acquired | 667 |  |  | 1 |  |  | 698 |  |  | 128 |
Merger consideration payable | (88) |  |  | — |  |  | (88) |  |  | (18) |
Cash paid for business acquisitions | 579 |  |  | 1 |  |  | 610 |  |  | 110 |
Less: Cash acquired | 1 |  |  | — |  |  | 1 |  |  | 4 |
Business acquisitions, net of cash acquired | $ | 578 |  |  | $ | 1 |  |  | $ | 609 |  |  | $ | 106 |
Leases: |  |  |  |  |  |  |
Leased assets obtained in exchange for new operating lease liabilities | $ | 57 |  |  | $ | 21 |  |  | $ | 101 |  |  | $ | 84 |

11. COMMITMENTS AND CONTINGENCIES
Letters of Credit
The Company can issue letters of credit totaling $100 million under its $525 million secured receivables credit facility and $150 million under its $750 million senior unsecured revolving credit facility. For further discussion regarding the Company's secured receivables credit facility and senior unsecured revolving credit facility, see Note 14 to the audited consolidated financial statements in the Company's 2022 Annual Report on Form 10-K and Note 7 above.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(unaudited)
(in millions, unless otherwise indicated)
In support of its risk management program, $70 million in letters of credit under the secured receivables credit facility were outstanding as of June 30, 2023, providing collateral for current and future automobile liability and workers’ compensation loss payments.
Contingent Lease Obligations
The Company remains subject to contingent obligations under certain real estate leases for which no liability has been recorded. For further details, see Note 19 to the audited consolidated financial statements in the Company’s 2022 Annual Report on Form 10-K.
Certain Legal Matters
The Company may incur losses associated with these proceedings and investigations, but it is not possible to estimate the amount of loss or range of loss, if any, that might result from adverse judgments, settlements, fines, penalties, or other resolution of these proceedings and investigations based on the stage of these proceedings and investigations, the absence of specific allegations as to alleged damages, the uncertainty as to the certification of a class or classes and the size of any certified class, if applicable, and/or the lack of resolution of significant factual and legal issues. The Company has insurance coverage rights in place (limited in amount; subject to deductible) for certain potential costs and liabilities related to these proceedings and investigations.
401(k) Plan Lawsuit
In 2020, two putative class action lawsuits were filed in the U.S. District Court for New Jersey against the Company and other defendants with respect to the Company’s 401(k) plan. The complaint alleges, among other things, that the fiduciaries of the 401(k) plan breached their duties by failing to disclose the expenses and risks of plan investment options, allowing unreasonable administration expenses to be charged to plan participants, and selecting and retaining high cost and poor performing investments. In October 2020, the court consolidated the two lawsuits under the caption In re: Quest Diagnostics ERISA Litigation and plaintiffs filed a consolidated amended complaint. In May 2021, the court denied the Company's motion to dismiss the complaint. Discovery is proceeding.
AMCA Data Security Incident
On June 3, 2019, the Company reported that Retrieval-Masters Creditors Bureau, Inc./American Medical Collection Agency (“AMCA”) had informed the Company and Optum360 LLC that an unauthorized user had access to AMCA’s system between August 1, 2018 and March 30, 2019 (the “AMCA Data Security Incident”). Optum360 provides revenue management services to the Company, and AMCA provided debt collection services to Optum360. AMCA first informed the Company of the AMCA Data Security Incident on May 14, 2019. AMCA’s affected system included financial information (e.g., credit card numbers and bank account information), medical information and other personal information (e.g., social security numbers). Test results were not included. Neither Optum360’s nor the Company’s systems or databases were involved in the incident. AMCA also informed the Company that information pertaining to other laboratories’ customers was also affected. Following announcement of the AMCA Data Security Incident, AMCA sought protection under the U.S. bankruptcy laws. The bankruptcy proceeding has been dismissed.
Numerous putative class action lawsuits were filed against the Company related to the AMCA Data Security Incident. The U.S. Judicial Panel on Multidistrict Litigation transferred the cases that were then still pending to, and consolidated them for pre-trial proceedings in, the U.S. District Court for New Jersey. In November 2019, the plaintiffs in the multidistrict proceeding filed a consolidated putative class action complaint against the Company and Optum360 that named additional individuals as plaintiffs and that asserted a variety of common law and statutory claims in connection with the AMCA Data Security Incident. In January 2020, the Company moved to dismiss the consolidated complaint; the motion to dismiss was granted in part and denied in part. Plaintiffs filed an amended complaint, which the Company also moved to dismiss. The motion is pending. Plaintiffs also filed a motion to further amend the complaint. The Company opposed the motion. Discovery is proceeding.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(unaudited)
(in millions, unless otherwise indicated)
In addition, the Company has been notified that numerous state attorney general offices were investigating or otherwise seeking information and/or documents, and that certain U.S. senators were seeking information, from the Company related to the AMCA Data Security Incident.
ReproSource Fertility Diagnostics, Inc.
ReproSource Fertility Diagnostics, Inc. (“ReproSource”), a subsidiary of the Company, is subject to two putative class action lawsuits in the U.S. District Court for Massachusetts: Bickham v. ReproSource Fertility Diagnostics, Inc. and Gordon v. ReproSource Fertility Diagnostics, Inc. The class actions are related to a data security incident that occurred in August 2021 in which an unauthorized party may have accessed or acquired protected health information and personally identifiable information of ReproSource patients. The complaints generally allege that ReproSource, among other claims, failed to adequately safeguard customers’ private information. The Company moved to dismiss both complaints. A third putative class action pertaining to the same data security incident, Trouville v. ReproSource Fertility Diagnostics, Inc., was filed in California state court. The Company removed the case to federal court and moved to dismiss and/or transfer it to U.S. District Court for Massachusetts.
Cole, et. al v. Quest Diagnostics Incorporated
The Company is subject to a putative class action entitled Cole, et al. v Quest Diagnostics Incorporated, which was filed in the U. S. District Court for the Eastern District of California, for allegedly conspiring with Facebook to track customers’ internet communications on Company web platforms without authorization, in violation of the California Invasion of Privacy Act and the California Confidentiality of Medical Information Act. The complaint alleged that the Company’s actions were an invasion of privacy and contributed to a loss of value in plaintiffs’ personally identifiable information. The Company moved to dismiss the case or, in the alternative, transfer venue to the U.S. District Court for New Jersey. Subsequently, plaintiffs filed an amended complaint. The Company filed a motion to dismiss the amended complaint, which is pending.
Other Legal Matters
In the normal course of business, the Company has been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with the Company's activities as a provider of diagnostic testing, information and services. These actions could involve claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages, and could have an adverse impact on the Company's client base and reputation.
The Company is also involved, from time to time, in other reviews, investigations and proceedings by governmental agencies regarding the Company's business which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief.
The federal or state governments may bring claims based on the Company's current practices, which it believes are lawful. In addition, certain federal and state statutes, including the qui tam provisions of the federal False Claims Act, allow private individuals to bring lawsuits against healthcare companies on behalf of government or private payers. The Company is aware of lawsuits, and from time to time has received subpoenas, related to billing or other practices based on the False Claims Act or other federal and state statutes, regulations or other laws. The Company understands that there may be other pending qui tam claims brought by former employees or other "whistleblowers" as to which the Company cannot determine the extent of any potential liability.
Management cannot predict the outcome of such matters. Although management does not anticipate that the ultimate outcome of such matters will have a material adverse effect on the Company's financial condition, given the high degree of judgment involved in establishing loss estimates related to these types of matters, the outcome of such matters may be material to the Company's consolidated results of operations or cash flows in the period in which the impact of such matters is determined or paid.
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(unaudited)
(in millions, unless otherwise indicated)
These matters are in different stages. Some of these matters are in their early stages. Matters may involve responding to and cooperating with various government investigations and related subpoenas. As of June 30, 2023, the Company does not believe that material losses related to legal matters are probable.
Reserves for legal matters totaled $7 million and $2 million as of June 30, 2023 and December 31, 2022, respectively.
Reserves for General and Professional Liability Claims
As a general matter, providers of clinical testing services may be subject to lawsuits alleging negligence or other similar legal claims. These suits could involve claims for substantial damages. Any professional liability litigation could also have an adverse impact on the Company's client base and reputation. The Company maintains various liability insurance coverages for, among other things, claims that could result from providing, or failing to provide, clinical testing services, including inaccurate testing results, and other exposures. The Company's insurance coverage limits its maximum exposure on individual claims; however, the Company is essentially self-insured for a significant portion of these claims.
The Company is subject to a series of individual claims brought by persons in Ireland related to allegations stemming from pap smear screening services performed by the Company. In general, claimants have alleged that the results of certain pap smear screening tests performed by the Company and other providers, pursuant to a program coordinated by the Irish government, were incorrect for individuals who were later diagnosed with cervical cancer. The Irish government and an independent scoping inquiry commissioned by the Irish government found that the Company’s performance of its screening services for the Irish cervical cancer screening program were in accordance with both Ireland’s requirements and international standards. The Company has settled claims made by certain individuals, is a party in multiple lawsuits and may be served as a party in additional lawsuits. The Company does not believe that the resolution of existing or future claims will have a material adverse effect on its financial position or liquidity, but the ultimate outcomes of these claims are unpredictable and subject to significant uncertainties.
Reserves for such matters, including those associated with both asserted and incurred but not reported claims, are established on an undiscounted basis by considering actuarially determined losses based upon the Company's historical and projected loss experience. Such reserves totaled $161 million and $169 million as of June 30, 2023 and December 31, 2022, respectively.
While the basis for claims reserves is actuarially determined losses based upon the Company's historical and projected loss experience, the process of analyzing, assessing and establishing reserve estimates relative to these types of claims involves a high degree of judgment. Although the Company believes that its present reserves and insurance coverage are sufficient to cover currently estimated exposures, it is possible that the Company may incur liabilities in excess of its recorded reserves or insurance coverage. Changes in the facts and circumstances associated with claims could have a material impact on the Company’s results of operations (principally costs of services), cash flows and financial condition in the period that reserve estimates are adjusted or paid.
12. 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, customers, 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 2023 and 2022.
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.
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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(unaudited)
(in millions, unless otherwise indicated)
As of June 30, 2023, substantially all of the Company’s services were provided within the United States, and substantially all of the Company’s assets were located within the United States.
The following table is a summary of segment information for the three and six months ended June 30, 2023 and 2022. Segment asset information is not presented since it is not used by the CODM at the operating segment level. Operating earnings (loss) of each segment represents net revenues less directly identifiable expenses to arrive at operating income (loss) for the segment. General corporate activities included in the table below are comprised of general management and administrative corporate expenses, amortization and impairment of intangible assets and other operating income and expenses, net of certain general corporate activity costs that are allocated to the DIS and DS businesses. The accounting policies of the segments are the same as those of the Company as set forth in Note 2 to the audited consolidated financial statements contained in the Company’s 2022 Annual Report on Form 10-K and Note 2 to the interim unaudited consolidated financial statements.

| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Net revenues: |  |  |  |  |  |  |
DIS business | $ | 2,268 |  |  | $ | 2,384 |  |  | $ | 4,527 |  |  | $ | 4,925 |
All other operating segments | 70 |  |  | 69 |  |  | 142 |  |  | 139 |
Total net revenues | $ | 2,338 |  |  | $ | 2,453 |  |  | $ | 4,669 |  |  | $ | 5,064 |
Operating earnings (loss): |  |  |  |  |  |  |
DIS business | $ | 410 |  |  | $ | 442 |  |  | $ | 784 |  |  | $ | 1,004 |
All other operating segments | 10 |  |  | 6 |  |  | 18 |  |  | 13 |
General corporate activities | (72) |  |  | (60) |  |  | (149) |  |  | (116) |
Total operating income | 348 |  |  | 388 |  |  | 653 |  |  | 901 |
Non-operating expense, net | (31) |  |  | (65) |  |  | (59) |  |  | (126) |
Income before income taxes and equity in earnings of equity method investees | 317 |  |  | 323 |  |  | 594 |  |  | 775 |
Income tax expense | (75) |  |  | (77) |  |  | (140) |  |  | (187) |
Equity in earnings of equity method investees, net of taxes | 7 |  |  | 4 |  |  | 12 |  |  | 35 |
Net income | 249 |  |  | 250 |  |  | 466 |  |  | 623 |
Less: Net income attributable to noncontrolling interests | 14 |  |  | 16 |  |  | 29 |  |  | 34 |
Net income attributable to Quest Diagnostics | $ | 235 |  |  | $ | 234 |  |  | $ | 437 |  |  | $ | 589 |

The approximate percentage of net revenues by major service for the three and six months ended June 30, 2023 and 2022 were as follows:

| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Routine clinical testing and other services | 51 | % |  | 45 | % |  | 50 | % |  | 43 | %
COVID-19 testing services | 2 |  |  | 14 |  |  | 3 |  |  | 19 |
Gene-based and esoteric (including advanced diagnostics) testing services | 38 |  |  | 32 |  |  | 37 |  |  | 30 |
Anatomic pathology testing services | 6 |  |  | 6 |  |  | 7 |  |  | 5 |
All other | 3 |  |  | 3 |  |  | 3 |  |  | 3 |
Net revenues | 100 | % |  | 100 | % |  | 100 | % |  | 100 | %

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(unaudited)
(in millions, unless otherwise indicated)
13. REVENUE RECOGNITION
DIS
Net revenues in the Company’s DIS business accounted for over 95% of the Company’s total net revenues for the three and six months ended June 30, 2023 and 2022 and are primarily comprised of a high volume of relatively low-dollar transactions. The DIS business, which provides clinical testing services and other services, satisfies its performance obligations and recognizes revenues primarily upon completion of the testing process (when results are reported) or when services have been rendered. The Company estimates the amount of consideration it expects to be entitled to receive from customer groups in exchange for providing services using the portfolio approach. These estimates include the impact of contractual allowances (including payer denials), and patient price concessions. The portfolios determined using the portfolio approach consist of the following groups of customers: healthcare insurers, government payers (Medicare and Medicaid programs), client payers and patients.
For further details regarding revenue recognition in the Company's DIS business, see Note 3 to the audited consolidated financial statements in the Company's 2022 Annual Report on Form 10-K.
DS
The Company’s DS businesses primarily satisfy their performance obligations and recognize revenues when delivery has occurred or services have been rendered.
Net Revenue and Net Accounts Receivable by Customer Type
The approximate percentage of net revenue by type of customer was as follows:

| Three Months Ended June 30, |  | Six Months Ended June 30, |
| 2023 |  | 2022 |  | 2023 |  | 2022 |  |
Healthcare insurers: |  |  |  |  |  |  |  |  |
Fee-for-service | 37 | % |  | 38 | % |  | 37 | % |  | 38 | % |  |
Capitated | 3 |  |  | 3 |  |  | 3 |  |  | 3 |  |  |
Total healthcare insurers | 40 |  |  | 41 |  |  | 40 |  |  | 41 |  |  |
Government payers | 12 |  |  | 11 |  |  | 12 |  |  | 11 |  |  |
Client payers | 33 |  |  | 34 |  |  | 33 |  |  | 33 |  |  |
Patients (including coinsurance and deductible responsibilities) | 12 |  |  | 11 |  |  | 12 |  |  | 12 |  |  |
Total DIS | 97 |  |  | 97 |  |  | 97 |  |  | 97 |  |  |
DS | 3 |  |  | 3 |  |  | 3 |  |  | 3 |  |  |
Net revenues | 100 | % |  | 100 | % |  | 100 | % |  | 100 | % |  |

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QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(unaudited)
(in millions, unless otherwise indicated)
The approximate percentage of net accounts receivable by type of customer was as follows:

| June 30, 2023 |  | December 31, 2022
Healthcare Insurers | 27 | % |  | 28 | %
Government Payers | 7 |  |  | 6 |
Client Payers | 42 |  |  | 44 |
Patients (including coinsurance and deductible responsibilities) | 20 |  |  | 18 |
Total DIS | 96 |  |  | 96 |
DS | 4 |  |  | 4 |
Net accounts receivable | 100 | % |  | 100 | %

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our Company
Diagnostic Information Services
Quest Diagnostics empowers people to take action to improve health outcomes. We use our extensive database of clinical lab results to derive diagnostic insights that reveal new avenues to identify and treat disease, inspire healthy behaviors and improve healthcare management. Our diagnostic information services business ("DIS") provides information and insights based on an industry-leading menu of routine, non-routine and advanced clinical testing and anatomic pathology testing, and other diagnostic information services. We provide services to a broad range of customers, including patients, clinicians, hospitals, independent delivery networks ("IDNs"), health plans, employers, consumers, and accountable care organizations ("ACOs"). We offer the broadest access in the United States to diagnostic information services through our nationwide network of laboratories, patient service centers and phlebotomists in physician offices and our connectivity resources, including call centers and mobile paramedics, nurses and other health and wellness professionals. We are the world's leading provider of diagnostic information services. We provide interpretive consultation with one of the largest medical and scientific staffs in the industry. Our DIS business makes up greater than 95% of our consolidated net revenues.
We assess our revenue performance for the DIS business based upon, among other factors, volume (measured by test requisitions) and revenue per requisition. Each requisition accompanies patient specimens, indicating the test(s) to be performed and the party to be billed for the test(s). Revenue per requisition is impacted by various factors, including, among other items, the impact of fee schedule changes (i.e., unit price), test mix, payer mix, and the number of tests per requisition. Management uses number of requisitions and revenue per requisition data to assist with assessing the growth and performance of the business, including understanding trends affecting number of requisitions, pricing and test mix. Therefore, we believe that information related to changes in these metrics from period to period are useful information for investors as it allows them to assess the performance of the business.
Diagnostic Solutions
In our Diagnostic Solutions ("DS") businesses, which represent the balance of our consolidated net revenues, we offer a variety of solutions for life insurers and healthcare organizations and clinicians. We are the leading provider of risk assessment services for the life insurance industry. In addition, we offer healthcare organizations and clinicians robust information technology solutions.
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Second Quarter Highlights

| Three Months Ended June 30,
| 2023 |  | 2022 |
| (dollars in millions, except per share data)
Net revenues | $2,338 |  | $2,453 |
Base business revenues (a) | $2,297 |  | $2,098 |
COVID-19 testing revenues | $41 |  | $355 |
DIS revenues | $2,268 |  | $2,384 |
Revenue per requisition change | (4.9)% |  | (2.6)% |
Requisition volume change | 0.2% |  | (1.4)% |
Organic requisition volume change | (0.3)% |  | (2.4)% |
DS revenues | $70 |  | $69 |
Operating income | $348 |  | $388 |
Net income attributable to Quest Diagnostics | $235 |  | $234 |
Diluted earnings per share | $2.05 |  | $1.96 |
Net cash provided by operating activities | $444 |  | $402 |
Capital expenditures | $104 |  | $76 |

(a) Excludes COVID-19 testing.
The impacts that the COVID-19 pandemic had on our DIS revenues, including requisition volume and revenue per requisition are discussed further below under "Results of Operations".
For further discussion of the year-over-year changes for the three months ended June 30, 2023 compared to the three months ended June 30, 2022, see "Results of Operations" below.
Acquisition of select assets of the laboratory services business of New York-Presbyterian
On April 17, 2023, we completed the acquisition of select assets of the laboratory services business of New York-Presbyterian, which serves providers and patients in New York, as well as the Tri-State Area and beyond, in an all-cash transaction for $275 million. The acquired business is included in our DIS business.
For further details, see Note 5 to the interim unaudited consolidated financial statements.
Acquisition of Haystack Oncology, Inc.
On June 20, 2023, we acquired Haystack Oncology, Inc. ("Haystack"), an early-stage oncology company focused on minimal residual disease testing to aid in the detection of residual or recurring cancer and better inform therapy decisions. The acquisition was an all-cash transaction for $392 million, net of $1 million of cash acquired, which consisted of cash consideration of $304 million and contingent consideration initially estimated at $88 million. Under the contingent consideration obligation, the seller can receive up to $100 million of additional consideration dependent upon the achievement of certain revenue benchmarks through 2028 and up to an additional $50 million of consideration dependent upon us receiving reimbursement coverage from the Centers for Medicare and Medicaid Services. The acquired business is included in our DIS business.
For further details, see Notes 5 and 6 to the interim unaudited consolidated financial statements.
Invigorate Program
We are engaged in a multi-year program called Invigorate, which is designed to reduce our cost structure and improve our performance. We currently aim annually to achieve savings and productivity improvements of approximately 3% of our costs, which we believe will help offset pressures from the current inflationary environment.
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Invigorate has consisted of several flagship programs, with structured plans in each, to drive savings and improve performance across the customer value chain. These flagship programs include: organization excellence; information technology excellence; procurement excellence; field and customer service excellence; lab excellence; and revenue services excellence. In addition to these programs, we have identified key themes to change how we operate including reducing denials and patient price concessions; further digitizing our business; standardization; automation and artificial intelligence; optimization and selecting and retaining talent. We believe that our efforts to standardize our information technology systems, equipment and data also foster our efforts to strengthen our foundation for growth and support the value creation initiatives of our clinical franchises by enhancing our operational flexibility, empowering and enhancing the customer experience, facilitating the delivery of actionable insights and bolstering our large data platform.
For the six months ended June 30, 2023, we incurred $26 million of pre-tax charges in connection with our Invigorate program and other restructuring activities, including $16 million of employee separation costs, with the remainder primarily consisting of integration costs. Most of the charges will result in cash expenditures. Additional restructuring charges may be incurred in future periods, including as we identify additional opportunities to achieve further savings and productivity improvements.
Critical Accounting Policies
There have been no significant changes to our critical accounting policies from those disclosed in our 2022 Annual Report on Form 10-K.
Impact of New Accounting Standards
The adoption of new accounting standards, if any, is discussed in Note 2 to the interim unaudited consolidated financial statements.
The impact of recent accounting pronouncements not yet effective on our consolidated financial statements, if any, is also discussed in Note 2 to the interim unaudited consolidated financial statements.
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Results of Operations
The following tables set forth certain results of operations data for the periods presented:

| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2023 |  | 2022 |  | $ Change |  | % Change |  | 2023 |  | 2022 |  | $ Change |  | % Change
| (dollars in millions, except per share amounts)
Net revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
DIS business | $ | 2,268 |  |  | $ | 2,384 |  |  | $ | (116) |  |  | (4.9) | % |  | $ | 4,527 |  |  | $ | 4,925 |  |  | $ | (398) |  |  | (8.1) | %
DS businesses | 70 |  |  | 69 |  |  | 1 |  |  | 1.6 |  |  | 142 |  |  | 139 |  |  | 3 |  |  | 2.0 |
Total net revenues | $ | 2,338 |  |  | $ | 2,453 |  |  | $ | (115) |  |  | (4.7) | % |  | $ | 4,669 |  |  | $ | 5,064 |  |  | $ | (395) |  |  | (7.8) | %
Operating costs and expenses and other operating income: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of services | $ | 1,546 |  |  | $ | 1,611 |  |  | $ | (65) |  |  | (4.0) | % |  | $ | 3,106 |  |  | $ | 3,257 |  |  | $ | (151) |  |  | (4.6) | %
Selling, general and administrative | 416 |  |  | 422 |  |  | (6) |  |  | (1.3) |  |  | 855 |  |  | 847 |  |  | 8 |  |  | 1.0 |
Amortization of intangible assets | 28 |  |  | 27 |  |  | 1 |  |  | 1.7 |  |  | 54 |  |  | 54 |  |  | — |  |  | 0.2 |
Other operating expense, net | — |  |  | 5 |  |  | (5) |  |  | NM |  | 1 |  |  | 5 |  |  | (4) |  |  | NM
Total operating costs and expenses, net | $ | 1,990 |  |  | $ | 2,065 |  |  | $ | (75) |  |  | (3.7) | % |  | $ | 4,016 |  |  | $ | 4,163 |  |  | $ | (147) |  |  | (3.5) | %
Operating income | $ | 348 |  |  | $ | 388 |  |  | $ | (40) |  |  | (10.1) | % |  | $ | 653 |  |  | $ | 901 |  |  | $ | (248) |  |  | (27.5) | %
Other income (expense): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest expense, net | $ | (37) |  |  | $ | (36) |  |  | $ | (1) |  |  | 3.7 | % |  | $ | (72) |  |  | $ | (73) |  |  | $ | 1 |  |  | (2.0) | %
Other income (expense), net | 6 |  |  | (29) |  |  | 35 |  |  | NM |  | 13 |  |  | (53) |  |  | 66 |  |  | NM
Total non-operating expense, net | $ | (31) |  |  | $ | (65) |  |  | $ | 34 |  |  | NM |  | $ | (59) |  |  | $ | (126) |  |  | $ | 67 |  |  | NM
Income tax expense | $ | (75) |  |  | $ | (77) |  |  | $ | 2 |  |  | (3.8) | % |  | $ | (140) |  |  | $ | (187) |  |  | $ | 47 |  |  | (25.4) | %
Effective income tax rate | 23.5 | % |  | 23.9 | % |  |  |  |  |  | 23.5 | % |  | 24.2 | % |  |  |  |
Equity in earnings of equity method investees, net of taxes | $ | 7 |  |  | $ | 4 |  |  | $ | 3 |  |  | 42.3 | % |  | $ | 12 |  |  | $ | 35 |  |  | $ | (23) |  |  | (67.6) | %
Net income attributable to Quest Diagnostics | $ | 235 |  |  | $ | 234 |  |  | $ | 1 |  |  | — | % |  | $ | 437 |  |  | $ | 589 |  |  | $ | (152) |  |  | (25.8) | %
Diluted earnings per common share attributable to Quest Diagnostics' common stockholders | $ | 2.05 |  |  | $ | 1.96 |  |  | $ | 0.09 |  |  | 4.6 | % |  | $ | 3.83 |  |  | $ | 4.88 |  |  | $ | (1.05) |  |  | (21.5) | %
NM - Not Meaningful |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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

| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Net revenues: |  |  |  |  |  |  |
DIS business | 97.0 | % |  | 97.2 | % |  | 97.0 | % |  | 97.3 | %
DS businesses | 3.0 |  |  | 2.8 |  |  | 3.0 |  |  | 2.7 |
Total net revenues | 100.0 | % |  | 100.0 | % |  | 100.0 | % |  | 100.0 | %
Operating costs and expenses and other operating income: |  |  |  |  |  |  |
Cost of services | 66.1 | % |  | 65.7 | % |  | 66.5 | % |  | 64.3 | %
Selling, general and administrative | 17.8 |  |  | 17.2 |  |  | 18.3 |  |  | 16.7 |
Amortization of intangible assets | 1.2 |  |  | 1.0 |  |  | 1.2 |  |  | 1.1 |
Other operating expense, net | — |  |  | 0.3 |  |  | — |  |  | 0.1 |
Total operating costs and expenses, net | 85.1 | % |  | 84.2 | % |  | 86.0 | % |  | 82.2 | %
Operating income | 14.9 | % |  | 15.8 | % |  | 14.0 | % |  | 17.8 | %

Operating Results
Results for the three months ended June 30, 2023 were affected by certain items that on a net basis decreased diluted earnings per share by $0.25 as follows:
•pre-tax amortization expense of $28 million recorded in amortization of intangible assets or $0.18 per diluted share;
•pre-tax charges of $7 million recorded in selling, general and administrative expenses, or $0.05 per diluted share, primarily associated with workforce reductions and integration costs incurred in connection with further restructuring and integrating our business; and
•pre-tax charges of $6 million recorded in selling, general and administrative expenses, or $0.04 per diluted share, primarily representing the impairment of a corporate facility that is currently held for sale; partially offset by
•excess tax benefits associated with stock-based compensation arrangements of $2 million, or $0.02 per diluted share, recorded in income tax expense.
Results for the six months ended June 30, 2023 were affected by certain items that on a net basis decreased diluted earnings per share by $0.51 as follows:
•pre-tax amortization expense of $54 million recorded in amortization of intangible assets or $0.35 per diluted share;
•pre-tax charges of $26 million ($10 million in cost of services and $16 million in selling, general and administrative expenses), or $0.17 per diluted share, primarily associated with workforce reductions and integration costs incurred in connection with further restructuring and integrating our business;
•pre-tax charges of $6 million recorded in selling, general and administrative expenses, or $0.04 per diluted share, primarily representing the impairment of a corporate facility that is currently held for sale, and
•pre-tax charges of $3 million in equity in earnings of equity method investees, net of tax, or $0.02 per diluted share, representing net losses associated with changes in the carrying value of our strategic investments; partially offset by
•excess tax benefits associated with stock-based compensation arrangements of $7 million, or $0.07 per diluted share, recorded in income tax expense.
For both the three and six months ended June 30, 2023, the year-over-year change in diluted weighted average common shares outstanding was principally driven by share repurchases, which positively benefited the year-over-year comparison of diluted earnings per share.
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Results for the three months ended June 30, 2022 were affected by certain items that on a net basis decreased diluted earnings per share by $0.40 as follows:
•pre-tax amortization expense of $27 million recorded in amortization of intangible assets or $0.17 per diluted share;
•pre-tax charges of $21 million ($12 million in other income (expense), net and $9 million in equity in earnings of equity method investees, net of taxes), or $0.13 per diluted share, representing net losses associated with changes in the carrying value of our strategic investments;
•pre-tax charges of $12 million ($4 million in cost of services and $8 million in selling, general and administrative expenses), or $0.08 per diluted share, primarily associated with workforce reductions, systems conversions and integration incurred in connection with further restructuring and integrating our business; and
•pre-tax charges of $8 million ($2 million in selling, general and administrative expenses and $6 million in other operating expense, net), or $0.05 per diluted share, primarily representing a loss associated with the increase in the fair value of the contingent consideration accruals associated with previous acquisitions, and costs associated with donations, contributions and other financial support through Quest for Health Equity (our initiative with the Quest Diagnostics Foundation to reduce health disparities in underserved communities); partially offset by
•excess tax benefits associated with stock-based compensation arrangements of $4 million, or $0.03 per diluted share, recorded in income tax expense.
Results for the six months ended June 30, 2022 were affected by certain items that on a net basis decreased diluted earnings per share by $0.70 as follows:
•pre-tax amortization expense of $54 million recorded in amortization of intangible assets or $0.33 per diluted share;
•pre-tax charges of $37 million ($28 million in other income (expense), net and $9 million in equity in earnings of equity method investees, net of taxes), or $0.23 per diluted share, representing net losses associated with changes in the carrying value of our strategic investments;
•pre-tax charges of $24 million ($7 million in cost of services and $17 million in selling, general and administrative expenses), or $0.15 per diluted share, primarily associated with workforce reductions, systems conversions and integration incurred in connection with further restructuring and integrating our business; and
•pre-tax charges of $10 million ($4 million in selling, general and administrative expenses and $6 million in other operating expense, net), or $0.06 per diluted share, primarily representing a loss associated with the increase in the fair value of the contingent consideration accruals associated with previous acquisitions, and costs associated with donations, contributions and other financial support through Quest for Health Equity; partially offset by
•excess tax benefits associated with stock-based compensation arrangements of $9 million, or $0.07 per diluted share, recorded in income tax expense.
Net Revenues
Net revenues for the three months ended June 30, 2023 decreased by 4.7% compared to the prior year period.
DIS revenues for the three months ended June 30, 2023 decreased by 4.9% compared to the prior year period.
For the three months ended June 30, 2023:
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•The decrease in DIS revenues compared to the prior year period was driven by a decrease in COVID-19 testing, partially offset by growth in the base business (which excludes COVID-19 testing) and, to a lesser extent, the impact of recent acquisitions. For the three months ended June 30, 2023, recent acquisitions contributed approximately 0.5% to DIS revenues.
•DIS volume increased by 0.2% compared to the prior year period driven by growth in the base business and the impact of recent acquisitions (which contributed approximately 0.5% to DIS volume), substantially offset by a decrease in COVID-19 testing.
•Revenue per requisition decreased by 4.9% compared to the prior year period driven by the decrease in COVID-19 molecular testing.
•DIS revenues in the base business (including the impact of recent acquisitions) increased by 9.7% compared to the prior year period.
•Testing volume in the base business (including the impact of recent acquisitions) was up 7.4% compared to the prior year period.
•Revenue per requisition in the base business increased by 2.5% compared to the prior year period principally due to an increase in the number of tests per requisition, changes in test mix and benefits recognized associated with certain value-based arrangements.
DS revenues for the three months ended June 30, 2023 increased by 1.6% compared to the prior year period primarily due to higher revenues associated with our risk assessment services offered to the life insurance industry.
Net revenues for the six months ended June 30, 2023 decreased by 7.8% compared to the prior year period.
DIS revenues for the six months ended June 30, 2023 decreased by 8.1% compared to the prior year period.
For the six months ended June 30, 2023:
•The decrease in DIS revenues compared to the prior year period was driven by a decrease in COVID-19 testing, partially offset by growth in the base business (which excludes COVID-19 testing) and, to a lesser extent, the impact of recent acquisitions. For the six months ended June 30, 2023, recent acquisitions contributed approximately 0.3% to DIS revenues.
•DIS volume decreased by 1.8% compared to the prior year period driven by a decrease in COVID-19 testing, partially offset by growth in the base business and the impact of recent acquisitions, which contributed approximately 0.3% to DIS volume.
•Revenue per requisition decreased by 6.3% compared to the prior year period driven by the decrease in COVID-19 molecular testing.
•DIS revenues in the base business (including the impact of recent acquisitions) increased by 10.0% compared to the prior year period.
•Testing volume in the base business (including the impact of recent acquisitions) was up 7.6% compared to the prior year period. We believe that our base testing volume was negatively impacted in the first half of 2022 by the surge in COVID-19 associated with the spread of the Omicron variant. We estimate that the recovery of our base testing volumes due to the easier compare accounted for approximately 2% of our total base testing volume growth during the first half of 2023.
•Revenue per requisition in the base business increased by 2.4% compared to the prior year period principally due to an increase in the number of tests per requisition, changes in test mix and benefits recognized associated with certain value-based arrangements.
DS revenues for the six months ended June 30, 2023 increased by 2.0% compared to the prior year period primarily due to higher revenues associated with our risk assessment services offered to the life insurance industry.
Cost of Services
Cost of services consists principally of costs for obtaining, transporting and testing specimens as well as facility costs used for the delivery of our services.
For the three months ended June 30, 2023, cost of services decreased by $65 million compared to the prior year period. The decrease was primarily driven by lower collection and supplies expenses associated with reduced COVID-19 testing volumes.
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For the six months ended June 30, 2023, cost of services decreased by $151 million compared to the prior year period. The decrease was primarily driven by lower collection and supplies expenses associated with reduced COVID-19 testing volumes, partially offset by higher compensation and benefits costs (primarily related to wage increases).
Selling, General and Administrative Expenses ("SG&A")
SG&A consist principally of the costs associated with our sales and marketing efforts, billing operations, credit loss expense and general management and administrative support as well as administrative facility costs.
SG&A decreased by $6 million for the three months ended June 30, 2023 compared to the prior year period. Higher costs associated with changes in the value of our deferred compensation obligations ($23 million) were more than offset by a decrease in other SG&A costs primarily driven by reductions in headcount and marketing expenses.
SG&A increased by $8 million for the six months ended June 30, 2023 compared to the prior year period primarily due to higher costs associated with changes in the value of our deferred compensation obligations ($38 million), which were partially offset by a decrease in other SG&A costs primarily driven by reductions in headcount and marketing expenses.
The changes in the value of our deferred compensation obligations is largely offset by changes in the value of the associated investments, which are recorded in other income (expense), net. For further details regarding our deferred compensation plans, see Note 18 to the audited consolidated financial statements included in our 2022 Annual Report on Form 10-K.
Amortization Expense
For both the three and six months ended June 30, 2023, amortization expense was principally consistent with the prior year periods.
Other Operating Expense, Net
Other operating expense, net includes miscellaneous income and expense items and other charges related to operating activities.
For both the three and six months ended June 30, 2022, other operating expense, net primarily represents a loss associated with the increase in the fair value of the contingent consideration accruals associated with previous acquisitions.
Interest Expense, Net
For both the three and six months ended June 30, 2023, interest expense, net was principally consistent with the prior year periods.
Other Income (Expense), Net
Other income (expense), net represents miscellaneous income and expense items related to non-operating activities, such as gains and losses associated with investments and other non-operating assets.
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For the three months ended June 30, 2023, other income (expense), net included $6 million of gains associated with investments in our deferred compensation plans.
For the six months ended June 30, 2023, other income (expense), net included $13 million of gains associated with investments in our deferred compensation plans.
For the three months ended June 30, 2022, other income (expense), net included $17 million of losses associated with investments in our deferred compensation plans and $12 million of losses associated with changes in the carrying value of our strategic investments.
For the six months ended June 30, 2022, other income (expense), net included $28 million of losses associated with changes in the carrying value of our strategic investments and $25 million of losses associated with investments in our deferred compensation plans.
Income Tax Expense
Income tax expense for the three months ended June 30, 2023 and 2022 was $75 million and $77 million, respectively.
The effective income tax rates for the three months ended June 30, 2023 and 2022 were 23.5% and 23.9%, respectively. The effective income tax rates benefited from $2 million and $4 million of excess tax benefits associated with stock-based compensation arrangements for the three months ended June 30, 2023 and 2022, respectively.
Income tax expense for the six months ended June 30, 2023 and 2022 was $140 million and $187 million, respectively. The decrease in income tax expense for the six months ended June 30, 2023 compared to the prior year period was primarily driven by a decrease in income before income taxes and equity in earnings of equity method investees.
The effective income tax rates for the six months ended June 30, 2023 and 2022 were 23.5% and 24.2%, respectively. The effective income tax rates benefited from $7 million and $9 million of excess tax benefits associated with stock-based compensation arrangements for the six months ended June 30, 2023 and 2022, respectively.
Equity in Earnings of Equity Method Investees, Net of Taxes
Equity in earnings of equity method investees, net of taxes increased by $3 million for the three months ended June 30, 2023 compared to the prior year period.
Equity in earnings of equity method investees, net of taxes decreased by $23 million for the six months ended June 30, 2023 compared to the prior year period primarily due to lower demand for COVID-19 testing services at our diagnostic information services joint venture.
Quantitative and Qualitative Disclosures About Market Risk
We address our exposure to market risks, principally the risk of changes in interest rates, through a controlled program of risk management that includes the use of derivative financial instruments. We do not hold or issue derivative financial instruments for speculative purposes. We seek to mitigate the variability in cash outflows that result from changes in interest rates by maintaining a balanced mix of fixed-rate and variable-rate debt obligations. In order to achieve this objective, we have historically entered into interest rate swap agreements. Interest rate swap agreements involve the periodic exchange of payments without the exchange of underlying principal or notional amounts. Net settlements are recognized as an adjustment to interest expense, net. We believe that our exposures to foreign exchange impacts and changes in commodity prices are not material to our consolidated results of operations, financial position or cash flows.
As of June 30, 2023 and December 31, 2022, the fair value of our debt was estimated at approximately $4.0 billion and $3.7 billion, respectively, principally using quoted prices in active markets and yields for the same or similar types of borrowings, taking into account the underlying terms of the debt instruments. As of June 30, 2023 and December 31, 2022, the estimated fair value was less than the carrying value of the debt by $280 million and $318 million, respectively. A hypothetical 10% increase in interest rates (representing 52 basis points as of June 30, 2023 and 51 basis points as of December 31, 2022) would potentially reduce the estimated fair value of our debt by approximately $115 million and $120 million as of June 30, 2023 and December 31, 2022, respectively.
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Borrowings under our secured receivables credit facility and our senior unsecured revolving credit facility are subject to variable interest rates. As of June 30, 2023, interest on our secured receivables credit facility is based on either commercial paper rates for highly rated issuers, or the Term Secured Overnight Financing Rate ("Term SOFR"), plus a spread. As of June 30, 2023, interest on our senior unsecured revolving credit facility is based on certain published rates plus an applicable margin based on changes in our public debt ratings. As such, our borrowing cost under this credit arrangement is subject to fluctuations in interest rates and changes in our public debt ratings. As of June 30, 2023, the borrowing rates under these debt instruments were: for our secured receivables credit facility, commercial paper rates for highly-rated issuers or adjusted Term SOFR, plus a spread of 0.725% to 0.80%; and for our senior unsecured revolving credit facility, adjusted Term SOFR, plus 1.00%. As of June 30, 2023, there was $320 million borrowed under the secured receivables credit facility and there were no borrowings under the senior unsecured revolving credit facility.
Based on our net exposure to interest rate changes, a hypothetical 10% change to the variable rate component of our variable rate indebtedness would not materially change our annual interest expense.
For further details regarding our outstanding debt, see Note 7 to the interim unaudited consolidated financial statements and Note 14 to the audited consolidated financial statements included in our 2022 Annual Report on Form 10-K. For details regarding our financial instruments and hedging activities, see Note 8 to the interim unaudited consolidated financial statements and Note 16 to the audited consolidated financial statements included in our 2022 Annual Report on Form 10-K.
Risk Associated with Investment Portfolio
Our investment portfolio primarily includes equity investments comprised mostly of strategic holdings in companies concentrated in the life sciences and healthcare industries. Equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) with readily determinable fair values are measured at fair value in prepaid expenses and other current assets in our consolidated balance sheet with changes in fair value recorded in current earnings in our consolidated statement of operations. Equity investments that do not have readily determinable fair values (which consist of investments in preferred and common shares of private companies) are measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes.
We regularly evaluate equity investments that do not have readily determinable fair values to determine if there are any indicators that the investments are impaired. The carrying value of our equity investments that do not have readily determinable fair values was $5 million as of June 30, 2023. In conjunction with the preparation of our June 30, 2023 financial statements, we considered whether the carrying values of our investments were impaired and concluded that no such impairment existed.
We do not hedge our equity price risk. The impact of an adverse movement in equity prices on our holdings in privately held companies cannot be easily quantified as our ability to realize returns on investments depends on, among other things, the enterprises’ ability to raise additional capital or derive cash inflows from continuing operations or through liquidity events such as initial public offerings, mergers or private sales.
Liquidity and Capital Resources

| Six Months Ended June 30,
| 2023 |  | 2022 |  | Change
| (dollars in millions)
Net cash provided by operating activities | $ | 538 |  |  | $ | 882 |  |  | $ | (344) |
Net cash used in investing activities | (840) |  |  | (251) |  |  | (589) |
Net cash provided by (used in) financing activities | 113 |  |  | (713) |  |  | 826 |
Net change in cash and cash equivalents and restricted cash | $ | (189) |  |  | $ | (82) |  |  | $ | (107) |

Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly-liquid short-term investments with original maturities, at the time of acquisition, of three months or less. Cash and cash equivalents as of June 30, 2023 totaled $126 million, compared to $315 million as of December 31, 2022.
As of June 30, 2023, approximately 31% of our $126 million of consolidated cash and cash equivalents were held outside of the United States.
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Cash Flows from Operating Activities
Net cash provided by operating activities for the six months ended June 30, 2023 and 2022 was $538 million and $882 million, respectively. The $344 million decrease in net cash provided by operating activities for the six months ended June 30, 2023, compared to the prior year period, was primarily a result of:
•lower operating income in 2023 as compared to 2022; and
•a year-over-year change in the timing and extent of the collection of COVID-19 testing revenues.
Days sales outstanding, a measure of billing and collection efficiency, was 47 days as of each of June 30, 2023, December 31, 2022 and June 30, 2022.
Cash Flows from Investing Activities
Net cash used in investing activities for the six months ended June 30, 2023 and 2022 was $840 million and $251 million, respectively. This $589 million increase in net cash used in investing activities for the six months ended June 30, 2023, compared to the prior year period, was primarily a result of increased cash used for business acquisitions (see above for further discussion) and, to a lesser extent, increased capital expenditures.
Cash Flows from Financing Activities
Net cash provided by (used in) financing activities for the six months ended June 30, 2023 and 2022 was $113 million and $(713) million, respectively. This $826 million change in net cash provided by (used in) financing activities for the six months ended June 30, 2023, compared to the prior year period, was primarily a result of the six months ended June 30, 2023 including $320 million of net borrowings under our secured receivables credit facility and the six months ended June 30, 2022 including $573 million of share repurchases.
During the six months ended June 30, 2023, we borrowed $1.0 billion under our secured receivables credit facility, $0.7 billion of which was repaid prior to June 30, 2023. Additionally, during the six months ended June 30, 2023, we borrowed $125 million under our senior unsecured revolving credit facility, which was repaid prior to June 30, 2023.
During the six months ended June 30, 2022, there were no borrowings or repayments under our secured receivables credit facility or senior unsecured revolving credit facility.
Dividend Program
During each of the first and second quarters of 2023, our Board of Directors declared a quarterly cash dividend of $0.71 per common share. During each of the four quarters of 2022, our Board of Directors declared a quarterly cash dividend of $0.66 per common share.
Share Repurchase Program
In February 2023, our Board of Directors increased the size of our share repurchase program by $1 billion. As of June 30, 2023, $1.3 billion remained available under our share repurchase authorization. The share repurchase authorization has no set expiration or termination date.
Share Repurchases
For the six months ended June 30, 2023, we repurchased no shares of our common stock.
For the six months ended June 30, 2022, we repurchased 4.0 million shares of our common stock for $550 million.
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Equity Method Investees
Our equity method investees primarily consist of a diagnostic information services joint venture and an investment in a fund that purchases strategic holdings in private companies in the healthcare industry. Such investees are accounted for under the equity method of accounting. Our investment in equity method investees is less than 5% of our consolidated total assets. Our proportionate share of income before income taxes associated with our equity method investees is less than 5% of our consolidated income before income taxes and equity in earnings of equity method investees. We have no material unconditional obligations or guarantees to, or in support of, our equity method investees and their operations.
In conjunction with the preparation of our June 30, 2023 financial statements, we considered whether the carrying values of our equity method investments were impaired and concluded that no such impairment existed.
Requirements and Capital Resources
We estimate that we will invest approximately $400 million during 2023 for capital expenditures, to support and grow our existing operations, principally related to investments in laboratory equipment and facilities, including laboratory automations and information technology to support our diagnostic offerings.
As of June 30, 2023, we had $885 million of borrowing capacity available under our existing credit facilities, including $135 million available under our secured receivables credit facility and $750 million available under our senior unsecured revolving credit facility. There were $320 million of borrowings under the secured receivables credit facility as of June 30, 2023 and there were no borrowings under the senior unsecured revolving credit facility as of June 30, 2023. In support of our risk management program, $70 million in letters of credit under the secured receivables credit facility were outstanding as of June 30, 2023. For further details regarding our credit facilities, see Note 7 to the interim unaudited consolidated financial statements and Note 14 to the audited consolidated financial statements in our 2022 Annual Report on Form 10-K.
Our secured receivables credit facility is subject to customary affirmative and negative covenants, and certain financial covenants with respect to the receivables that comprise the borrowing base and secure the borrowings under the facility. Our senior unsecured revolving credit facility is also subject to certain financial covenants and limitations on indebtedness. As of June 30, 2023, we were in compliance with all such applicable financial covenants.
We believe that our cash and cash equivalents and cash from operations, together with our borrowing capacity under our credit facilities, will provide sufficient financial flexibility to fund seasonal and other working capital requirements, capital expenditures, debt service requirements and other obligations, cash dividends on common shares, share repurchases and additional growth opportunities, including acquisitions, for the foreseeable future. However, should it become necessary, we believe that our credit profile should provide us with access to additional financing in order to fund normal business operations, make interest payments, fund growth opportunities and satisfy upcoming debt maturities.
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Forward-Looking Statements
Some statements and disclosures in this document are forward-looking statements. Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as “may,” “believe,” “will,” “expect,” “project,” “estimate,” “anticipate,” “plan” or “continue.” These forward-looking statements are based on our current plans and expectations and are subject to a number of risks and uncertainties that could cause our plans and expectations, including actual results, to differ materially from the forward-looking statements. Risks and uncertainties that may affect our future results include, but are not limited to, adverse results from pending or future government investigations, lawsuits or private actions, the competitive environment, the complexity of billing, reimbursement and revenue recognition for clinical laboratory testing, changes in government regulations, changing relationships with customers, payers, suppliers and strategic partners and other factors discussed in our most recently filed Annual Report on Form 10-K and subsequently filed Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, including those discussed in the “Business,” “Risk Factors,” “Cautionary Factors that May Affect Future Results” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of those reports.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Item 4. Controls and Procedures
Management, including our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended). Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.
During the second quarter of 2023, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 11 to the interim unaudited consolidated financial statements for information regarding the status of legal proceedings involving the Company.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The table below sets forth the information with respect to purchases made by or on behalf of the Company of its common stock during the second quarter of 2023.

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) |  |
April 1, 2023 – April 30, 2023 |  |  |  |  |  |  |  |  |  |
Share Repurchase Program (A) |  | — |  |  | $ | — |  |  | — |  |  | $ | 1,310,909 |  |  |
Employee Transactions (B) |  | — |  |  | $ | — |  |  | N/A |  | N/A |  |
May 1, 2023 - May 31, 2023 |  |  |  |  |  |  |  |  |  |
Share Repurchase Program (A) |  | — |  |  | $ | — |  |  | — |  |  | $ | 1,310,909 |  |  |
Employee Transactions (B) |  | 1,475 |  |  | $ | 131.33 |  |  | N/A |  | N/A |  |
June 1, 2023 – June 30, 2023 |  |  |  |  |  |  |  |  |  |
Share Repurchase Program (A) |  | — |  |  | $ | — |  |  | — |  |  | $ | 1,310,909 |  |  |
Employee Transactions (B) |  | — |  |  | $ | — |  |  | N/A |  | N/A |  |
Total |  |  |  |  |  |  |  |  |  |
Share Repurchase Program (A) |  | — |  |  | $ | — |  |  | — |  |  | $ | 1,310,909 |  |  |
Employee Transactions (B) |  | 1,475 |  |  | $ | 131.33 |  |  | N/A |  | N/A |  |

(A)In February 2023, our Board of Directors increased the size of our share repurchase program by $1 billion. Since the share repurchase program’s inception in May 2003, our Board of Directors has authorized $13 billion of share repurchases of our common stock through June 30, 2023. 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.
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Item 5. Other Information
None.
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Item 6.Exhibits
Exhibits:

10.1 | Amended and Restated Quest Diagnostics Incorporated Employee Long-Term Incentive Plan as amended March 31, 2023
10.2 | Amended and Restated Employee Stock Purchase Plan, as amended, effective May 16, 2023
22 | Subsidiary Guarantors of Securities
31.1 | Rule 13a-14(a) Certification of Chief Executive Officer
31.2 | Rule 13a-14(a) Certification of Chief Financial Officer
32.1 | Section 1350 Certification of Chief Executive Officer
32.2 | Section 1350 Certification of Chief Financial Officer
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-20230630.xsd
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document - dgx-20230630_cal.xml
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document - dgx-20230630_def.xml
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document - dgx-20230630_lab.xml
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document - dgx-20230630_pre.xml
104 | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
July 27, 2023
Quest Diagnostics Incorporated

By | /s/ James E. Davis
| James E. Davis
| Chairman, Chief Executive Officer
| and President
By | /s/ Sam A. Samad
| Sam A. Samad
| Executive Vice President and
| Chief Financial Officer

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