SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______to _______
Commission file number: 333-17079
A. Full title of the plan and the address of the plan, if different from that of
the issuer named below:
THE PROFIT SHARING PLAN OF QUEST DIAGNOSTICS INCORPORATED
B. Name of issuer of the securities held pursuant to the plan and the address of
its principal executive office:
QUEST DIAGNOSTICS INCORPORATED
ONE MALCOLM AVENUE
TETERBORO, NEW JERSEY 07608
The Profit Sharing Plan of Quest Diagnostics Incorporated
Index to Financial Statements and Additional Information
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Page
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Financial Statements
Report of Independent Accountants 1
Statements of Net Assets Available for Benefits at December 31, 2001 and 2000 2
Statement of Changes in Net Assets Available for Benefits for the Year Ended
December 31, 2001 3
Notes to Financial Statements 4-10
Additional Information*
Schedule I - Schedule of Assets (Held at End of Year)
at December 31, 2001 11
Signatures 12
* Other schedules required by Section 2520.103-10 of the Department of
Labor's Rules and Regulations for Reporting and Disclosure under ERISA have
been omitted because they are not applicable.
Exhibit
Exhibit 23 - Consent of Independent Accountants
Report of Independent Accountants
To the Participants and Administrator of
The Profit Sharing Plan of Quest Diagnostics Incorporated
In our opinion, the accompanying statements of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of The Profit Sharing Plan of Quest Diagnostics Incorporated (the "Plan") at
December 31, 2001 and 2000, and the changes in net assets available for benefits
for the year ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Plan's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets (held
at end of year) at December 31, 2001 is presented for the purpose of additional
analysis and is not a required part of the basic financial statements but is
supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ PricewaterhouseCoopers LLP
New York, New York
June 21, 2002
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The Profit Sharing Plan of Quest Diagnostics Incorporated
Statements of Net Assets Available for Benefits
December 31, 2001 and 2000
2001 2000
Assets
Investments, at Fair Value $ 818,972,509 $ 867,423,184
Investment Contracts, at Contract Value - 1,167,037
Participant Loans 27,231,351 22,525,682
---------------- ----------------
Total Investments 846,203,860 891,115,903
---------------- ----------------
Cash and Cash Equivalents 10,407,097 3,249,074
Other Assets 1,416,235 1,005,896
---------------- ----------------
Net Assets Available for Benefits $ 858,027,192 $ 895,370,873
================ ================
The accompanying notes are an integral part of these financial statements.
2
The Profit Sharing Plan of Quest Diagnostics Incorporated
Statement of Changes in Net Assets Available for Benefits
For the Year Ended December 31, 2001
2001
Additions to Net Assets Attributed to:
Investment Income (Loss):
Interest and Dividends $ 18,855,967
Net Depreciation in Fair Value of Investments (118,722,446)
-----------------
Investment (Loss) (99,866,479)
-----------------
Contributions:
Employer 32,307,307
Participants 79,189,748
----------------
Total Contributions 111,497,055
----------------
Total Additions 11,630,576
----------------
Deductions from Net Assets Attributed to:
Benefits Paid to Participants 48,817,710
Other Fees 156,547
----------------
Total Deductions 48,974,257
----------------
Net Decrease (37,343,681)
Net Assets Available for Benefits:
Beginning of Year 895,370,873
----------------
End of Year $ 858,027,192
================
The accompanying notes are an integral part of these financial statements
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The Profit Sharing Plan of Quest Diagnostics Incorporated
Notes to Financial Statements
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1. Description of the Plan
Background - The Profit Sharing Plan of Quest Diagnostics Incorporated (the
"Plan"), is a defined contribution plan established by Quest Diagnostics
Incorporated (the "Company" or the "Plan Sponsor") to provide its eligible
employees with retirement benefits. The Plan is subject to the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA"). The following
description of the Plan provides only general information. Participants should
refer to the Summary Plan Description for a more complete description of the
Plan's provisions.
Eligibility and Participant Contributions - All employees who have completed six
months of service are eligible to participate in the Plan. Eligible employees
electing to participate in the Plan ("Participants") may elect to make a
contribution to the Plan through pre-tax payroll deductions of between 1% and 4%
of their compensation (their "Basic Contribution"). Effective June 24, 2002, the
maximum Basic Contribution was increased from 4% to 6%. Prior to January 1,
2002, Participants could also elect to make a supplemental contribution of
between 1% and 11% of their pre-tax compensation (their "Supplemental
Contribution"), subject to certain limitations set forth in section 415(d) of
the Internal Revenue Code. For the period of January 1, 2002 through June 23,
2002, the maximum Supplemental Contribution was increased from 11% to 31%.
Effective June 24, 2002, Participants may elect to make a Supplemental
Contribution of between 1% and 29%. Participants' contributions are generally
remitted within two-to-three weeks from when the payroll deductions are made.
Company Matching Contributions -The Company matches 100% of the Participants'
Basic Contribution in cash. The Company may make additional contributions at the
discretion of the Company's Board of Directors. Company Contributions are
remitted at the same time that the corresponding Participants' contributions are
made.
Vesting - Participants immediately vest in their voluntary contributions and
Company Contributions plus actual earnings thereon.
Investment Options - Participants may elect to have their voluntary
contributions and the Company Contributions invested in any or all of the open
investment funds. Prior to January 1, 2002, any portion of the Company
Contributions in the form of common stock of the Company had to be invested in
the Quest Stock Fund and could not be diversified into other funds until a
Participant reached age 55. Effective January 1, 2002, these trading
restrictions have been eliminated. Contributions and transfers into the Covance
Stock Fund and the Corning Stock Fund are prohibited. Participants are permitted
to transfer money invested in these funds into other funds.
Distribution Options - On termination of service, Participants may elect to have
their benefit distributions paid in the form of a lump sum distribution, an
annuity contract, or by monthly, quarterly or annual installments. For
Participants who do not make a distribution election, and who have reached the
age of 65 or whose individual account does not exceed $5,000, a lump sum
distribution may be made automatically. Effective January 1, 2002, regardless of
a Participant's age, a lump sum distribution may be made automatically for
Participants who do not make a distribution election and whose individual
account does not exceed $5,000.
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The Profit Sharing Plan of Quest Diagnostics Incorporated
Notes to Financial Statements
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Withdrawals - Withdrawals may be made for qualified emergencies and hardships,
as defined in the Internal Revenue Code. Depending upon the type of withdrawal
and the status of the contribution, penalties upon withdrawal may apply.
Effective January 1, 2002, Participants may also begin to make withdrawals at
age 59 1/2. Participant benefit claims which have been processed and approved
but not paid (i.e., distributions payable) are recorded as a reduction to net
assets available for plan benefits when paid.
Reconciliation of Financial Statements to Form 5500
The following is a reconciliation of net assets available for benefits per the
financial statements to the Form 5500:
December 31,
---------------------------------------------------
2001 2000
----------------------- ------------------------
Net assets available for benefits per the financial statements $ 858,027,192 $ 895,370,873
Amounts allocated to withdrawing Participants (497,487) (924,146)
-------------------- ------------------
Net assets available for benefits per the Form 5500 $ 857,529,705 $ 894,446,727
=================== ==================
The following is a reconciliation of benefits paid to Participants per the
financial statements to the Form 5500:
Year Ended
December 31, 2001
----------------------------
Benefits paid to Participants per the financial statements $ 48,817,710
Add: Amounts allocated to withdrawing Participants at
December 31, 2001 497,487
Less: Amounts allocated to withdrawing Participants at
December 31, 2000 (924,146)
---------------
Benefits paid to Participants per the Form 5500 $ 48,391,051
===============
Plan Administration - The Plan Administrator is the Employee Benefits
Administration Committee, which is appointed by the Company's Board of
Directors. The Plan's trustee and recordkeeper is Fidelity Management Trust
Company.
Loans to Participants - Participants are permitted to obtain loans that have as
collateral their account values in amounts not less than $1,000 and not greater
than the lesser of (1) $50,000, subject to certain limitations as defined by the
Plan, or (2) 50% of the Participants' vested portion of their account values.
These loans bear interest at prevailing market interest rates at the time the
loans are issued.
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The Profit Sharing Plan of Quest Diagnostics Incorporated
Notes to Financial Statements
--------------------------------------------------------------------------------
Tax Status - The Internal Revenue Service has determined and informed the
Company by letter dated May 17, 2002, that the Plan is designed in accordance
with applicable sections of the Internal Revenue Code. The Plan has subsequently
been amended. However, the Plan Sponsor and the Plan's tax counsel believe that
the Plan is currently designed and being operated in compliance with the
applicable requirements of the Internal Revenue Code. Therefore, no provision
for income taxes has been included in the Plan's financial statements.
Termination - The Company intends to continue the Plan indefinitely, but
reserves the right to change or discontinue the Plan at its discretion.
2. Summary of Significant Accounting Policies
Method of Accounting - The Plan maintains its financial records on the accrual
basis of accounting.
Benefits - Benefits are recorded when paid.
Valuation of Investments - Investments in mutual funds, common stock and
common/collective trusts are stated at fair value as determined by quoted market
prices. Investment contracts are stated at contract value, which represents
contributions and interest earned less benefit payments. Participants' loans are
valued at cost which approximates fair value.
Administrative Expenses - Administrative expenses and accounting fees of the
Plan are paid by the Company.
Security Transactions and Investment Income - Realized and unrealized gains
(losses) on securities are included in Net Appreciation/(Depreciation) in Fair
Value of Investments in the Statement of Changes in Net Assets Available for
Benefits.
Dividend income is recorded on the ex-dividend date. Interest income from other
investments is recorded as earned on the accrual basis.
Cash and Cash Equivalents - Cash and cash equivalents include highly-liquid
investments with maturities of three months or less.
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities (if any) at the date of the financial statements and the reported
amounts of additions to and deductions from net assets during the reporting
period. Actual results could differ from those estimates.
Risks and Uncertainties - The Plan provides for Participant-directed investment
of their voluntary contributions and the Company Contributions in a number of
investment funds. Certain underlying investment securities are exposed to
various risks, such as interest rate, market and credit risk. Due to the level
of risk associated with certain investment securities and the level of
uncertainty related to
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The Profit Sharing Plan of Quest Diagnostics Incorporated
Notes to Financial Statements
--------------------------------------------------------------------------------
changes in the value of investment securities, it is at least reasonably
possible that changes in risks in the near term could materially affect
Participants' account balances and the amounts reported in the Statements of Net
Assets Available for Benefits and the Statement of Changes in Net Assets
Available for Benefits.
3. Net Depreciation in Fair Value of Investments
For the year ended December 31, 2001, the Plan's investments (including gains
and losses on investments bought and sold, as well as held during the year)
(depreciated) in value as follows:
Type of investment 2001
Mutual Funds $ (45,911,680)
Common Stock (72,810,766)
--------------
Net Depreciation in Fair Value of Investments $(118,722,446)
==============
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The Profit Sharing Plan of Quest Diagnostics Incorporated
Notes to Financial Statements
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4. Investments
The following presents investments that represented 5 percent or more of the
Plan's net assets available for benefits at December 31, 2001 and 2000:
2001 2000
Quest Diagnostics Incorporated Common Stock
Nonparticipant-Directed Portion of Investment
(1,619,242 and 1,025,185 shares, respectively) $ 116,165,484 $ 145,576,331
Participant-Directed Portion of Investment (1,768,293
and 781,741 shares, respectively)
126,754,651 111,007,161
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Total Investment in Quest Diagnostics Incorporated
Common Stock 242,920,135 256,583,492
Fidelity Magellan (1,667,952 and 1,585,390 shares,
respectively) 173,834,044 189,137,078
Fidelity Puritan (7,792,798 and 5,723,441 shares,
respectively) 137,698,743 107,772,399
Corning Incorporated Common Stock (1,764,357 shares) * 93,180,104
Fidelity Managed Income Portfolio (104,268,962 and
86,131,983 shares, respectively) 104,268,692 86,131,983
Fidelity Contrafund (1,159,055 and 1,116,581 shares,
respectively) 49,572,762 54,902,283
* Investment did not represent 5 percent of the Plan's net assets available
for benefits at December 31, 2001.
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The Profit Sharing Plan of Quest Diagnostics Incorporated
Notes to Financial Statements
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5. Nonparticipant-Directed Investments
Net assets available for benefits at December 31, 2001 and 2000 related to
nonparticipant-directed investments were as follows:
2001 2000
Assets
Investments, at Fair Value:
Common Stock $ 116,165,484 $ 145,576,331
Cash 4,105,550 -
Other Assets 675,683 560,443
--------------- ---------------
Net Assets Available for Benefits $ 120,946,717 $ 146,136,774
=============== ===============
Changes in net assets available for benefits for the year ended December 31,
2001 related to nonparticipant-directed investments were as follows:
2001
Additions to Net Assets Attributed to:
Investment Income:
Interest and Dividends $ 65,113
Net Appreciation in Fair Value of Investments 1,363,541
---------------
Investment Income 1,428,654
Deductions from Net Assets Attributed to:
Benefits Paid to Participants 7,293,723
Other Fees 7,171
Interfund Transfers 19,317,817
---------------
Total Deductions 26,618,711
---------------
Net Decrease (25,190,057)
Net Assets Available for Benefits:
Beginning of Year 146,136,774
---------------
End of Year $ 120,946,717
===============
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The Profit Sharing Plan of Quest Diagnostics Incorporated
Notes to Financial Statements
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6. Subsequent Event
Effective October 1, 2002, the Quest Diagnostics Incorporated Employee Stock
Ownership Plan (the "ESOP") will be merged into the Plan. At that time, all
Participant accounts in the ESOP will be merged into their existing Plan
account. For those Participants who do not already have a Plan account,
one will be established. The ESOP investments will be placed into the Plan's
Company stock fund. Once the plans are merged, there will be no investment
restrictions. ESOP contributions will continue to be subject to their
three-year vesting requirements.
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The Profit Sharing Plan of Quest Diagnostics Incorporated Schedule I
Schedule of Assets (Held at End of Year)
December 31, 2001
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Current
Identity of Issue Description Shares/Units Cost Value
----------------- ----------- ------------ ---- ------
Quest Diagnostics Incorporated** Common Stock 3,387,535 $ 76,858,313 $ 242,920,135
Fidelity Magellan Fund Mutual Fund 1,667,952 166,976,836 173,834,044
Fidelity Puritan Mutual Fund 7,792,798 147,471,322 137,698,743
Fidelity Managed Income Common/Collective
Portfolio Trust 104,268,692 104,268,692 104,268,692
Fidelity Contrafund Mutual Fund 1,159,055 58,529,955 49,572,762
Fidelity Equity-Income Fund Mutual Fund 500,977 25,123,390 24,432,646
Spartan US Equity Index Mutual Fund 432,989 19,746,414 17,596,677
Fidelity Growth & Income Fund Mutual Fund 432,544 18,447,489 16,168,486
Corning Incorporated Common Stock 1,719,863 12,899,668 15,341,178
Fidelity Low Priced Stock Mutual Fund 488,444 12,037,980 13,393,130
Fidelity Diversified International Mutual Fund 679,445 14,304,615 12,963,803
Fidelity US Bond Index Mutual Fund 499,492 5,381,683 5,394,532
Covance Inc. Common Stock 133,749 1,900,283 3,035,899
Fidelity Over-the-Counter
Portfolio Mutual Fund 75,450 2,841,796 2,351,782
Participant Loans** *** - 27,231,351
Fidelity Institutional Money Market
Cash Portfolio Fund 10,407,097 10,407,097 10,407,097
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$ 677,195,533 $ 856,610,957
=============== ================
** "Party-in-interest" to the Plan.
*** Rates approximate prime plus 1%; maturities vary by participant.
11
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the plan
sponsor of The Profit Sharing Plan of Quest Diagnostics Incorporated has duly
caused this annual report to be signed on its behalf by the undersigned,
hereunto duly authorized.
June 21, 2002
The Profit Sharing Plan of
Quest Diagnostics Incorporated
By: /s/ Robert A. Hagemann Vice President and Chief Financial Officer
----------------------
Robert A. Hagemann Quest Diagnostics Incorporated
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