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, 2003
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 Registered Public Accounting Firm 1
Statements of Net Assets Available for Benefits at December 31, 2003 and 2002 2
Statement of Changes in Net Assets Available for Benefits for the Year Ended
December 31, 2003 3
Notes to Financial Statements 4-7
Additional Information *
Schedule H, line 4i - Schedule of Assets (Held at End of Year)
at December 31, 2003 8-9
Signature 10
* 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 Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
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, 2003 and 2002, and the changes in net assets available for benefits
for the year ended December 31, 2003 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 the standards of the
Public Company Accounting Oversight Board (United States) and auditing standards
generally accepted in the United States of America. Those standards 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, 2003 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
Stamford, Connecticut
June 23, 2004
1
The Profit Sharing Plan of Quest Diagnostics Incorporated
Statements of Net Assets Available for Benefits
December 31, 2003 and 2002
2003 2002
-------------- ------------
Assets
Investments, at Fair Value $1,237,202,875 $887,053,639
Participant Loans 41,670,117 33,448,232
-------------- ------------
Total Investments 1,278,872,992 920,501,871
-------------- ------------
Cash and Cash Equivalents 7,896,280 10,246,644
Other Assets 18,011 136,587
-------------- ------------
Net Assets Available for Benefits $1,286,787,283 $930,885,102
============== ============
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, 2003
2003
--------------
Additions to Net Assets Attributed to:
Investment Income:
Interest and Dividends $ 23,980,916
Net Appreciation in Fair Value of Investments 215,079,897
--------------
Investment Income 239,060,813
--------------
Contributions:
Employer 55,836,117
Participants 90,050,255
--------------
Total Contributions 145,886,372
--------------
Transfers from Other Plans 44,180,888
--------------
Total Additions 429,128,073
--------------
Deductions from Net Assets Attributed to:
Benefits Paid to Participants 72,930,697
Other Fees 295,195
--------------
Total Deductions 73,225,892
--------------
Net Increase 355,902,181
Net Assets Available for Benefits:
Beginning of Year 930,885,102
--------------
End of Year $1,286,787,283
==============
The accompanying notes are an integral part of these financial statements.
3
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.
Effective January 31, 2003, the AML 401(k) Plan ("AML-East Plan") was merged
into the Plan. Effective February 2, 2003, the APL Healthcare Group Inc. Profit
Sharing and 401(k) Plan ("AML-West Plan") was merged into the Plan. Effective
June 2, 2003, the Clinical Diagnostic Services 401(k) Plan ("CDS Plan") was
merged into the Plan. Participant account balances totaling $22,669,619,
$18,897,272 and $1,124,199 were transferred from the AML-East Plan, AML-West
Plan and the CDS Plan, respectively, into the Plan. In addition, there were
outstanding participant loans totaling $1,489,798 transferred into the Plan from
the AML-East and AML-West Plans. The assets from the AML-East, AML-West and CDS
Plans were liquidated and the money was transferred to the investments in the
Plan with similar investment objectives, unless redirected by the participant.
Eligibility and Participant Contributions - All eligible employees who have
completed one month of service may participate in the Plan. The maximum Basic
Contribution is 6%. Participants may elect to make a Supplemental Contribution
of between 1% and 29%. Catch-up contributions (as defined in the Internal
Revenue Code) are permissible for eligible participants. Participants'
contributions are generally remitted within one-to-two weeks from when the
payroll deductions are made.
Company Matching Contributions - The Company matches 100% of the participants'
Basic Contribution in cash after the participant completes twelve months of
service with the Company. 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. "Prior Employer Match
Sub-Account" contributions merged into the Plan from the AML-East and AML-West
Plans are subject to three-year vesting requirements as follows: 25% after one
year of vesting service, 50% after two years of vesting service and 100% after
three years of vesting service.
Investment Options - Participants may elect to have their voluntary
contributions and the Company contributions invested in any or all of the open
investment funds, most of which are managed by Fidelity Management & Research
Company. Participants may elect to have their voluntary contributions and the
Company contributions invested in common shares of the Company. 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. Effective March 1, 2002, the Managed Income Portfolio II Class
2 fund was added to the Plan, with the assets from the Managed Income Portfolio
4
The Profit Sharing Plan of Quest Diagnostics Incorporated
Notes to Financial Statements - continued
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fund transferred into the Managed Income Portfolio II Class 2 fund over the
twelve-month period ended March 1, 2003. With the addition of the Managed Income
Portfolio II Class 2 fund, all new contributions to the Managed Income Portfolio
fund were prohibited. Effective June 1, 2003, the following funds were added to
the Plan: Fidelity Freedom 2000, Fidelity Freedom 2010, Fidelity Freedom 2020,
Fidelity Freedom 2030, Fidelity Freedom 2040 and Fidelity Freedom Income.
Distribution Options - Participants can elect to have their benefit
distributions paid in the form of a lump sum distribution or by monthly,
quarterly or annual installments.
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.
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
benefits when paid.
Forfeitures - Forfeited nonvested accounts are used to reduce future employer
contributions.
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 are Fidelity Management Trust
Company and Fidelity Investments Institutional Operations Company, Inc.,
respectively.
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 participant's vested portion of their account value.
These loans bear interest at prevailing market interest rates at the time the
loans are issued.
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.
Participants will become fully vested in their rights under the Plan if it is
terminated or if Company contributions are completely discontinued.
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.
5
The Profit Sharing Plan of Quest Diagnostics Incorporated
Notes to Financial Statements - continued
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Valuation of Investments - Investments in mutual funds, common stock and
common/collective trusts are stated at fair value as determined by quoted market
prices. Participants' loans are valued at cost, which approximates fair value.
Administrative Expenses - Accounting fees and certain administrative expenses of
the Plan are currently paid by the Company.
Other Fees - Loan origination and certain distribution fees are charged against
participant accounts. Effective October 1, 2003, trustee fees for the Quest
Diagnostics Incorporated Stock Fund are charged against participant accounts
holding Quest Diagnostics common stock.
Security Transactions and Investment Income - Realized and unrealized gains
(losses) on securities are included in Net Appreciation in Fair Value of
Investments in the Statement of Changes in Net Assets Available for Benefits.
Purchases and sales of securities are recorded on a trade-date basis. 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 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.
6
The Profit Sharing Plan of Quest Diagnostics Incorporated
Notes to Financial Statements - continued
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3. Net Appreciation in Fair Value of Investments
For the year ended December 31, 2003, the Plan's investments (including gains
and losses on investments bought and sold, as well as held during the year)
appreciated in value as follows:
Type of investment 2003
------------
Mutual Funds $122,005,077
Common Stock 93,074,820
------------
Net Appreciation in Fair Value of Investments $215,079,897
============
4. Investments
The following presents investments that represented 5 percent or more of the
Plan's net assets available for benefits at December 31, 2003 and 2002:
2003 2002
------------ ------------
Quest Diagnostics Incorporated (4,787,180 and 5,293,644
shares, respectively) $349,990,730 $301,208,344
Fidelity Puritan (14,155,879 and 10,337,761 shares,
respectively) 261,459,088 163,233,247
Fidelity Magellan (1,848,465 and 1,665,292 shares,
respectively) 180,668,922 131,491,486
Fidelity Managed Income Portfolio II Class 2
(143,122,316 and 114,185,038 shares, respectively) 143,122,316 114,185,038
Fidelity Contrafund (1,474,845 and 1,241,167 shares,
respectively) 72,783,594 47,909,044
5. Subsequent Event
Effective February 2, 2004, the Unilab 401(k) Plan (the "Unilab Plan") was
merged into the Plan. Participant account balances totaling $62,955,647 were
transferred from the Unilab Plan into the Plan. In addition, there were
outstanding participant loans totaling $1,912,265 transferred into the Plan from
the Unilab Plan. The assets from the Unilab Plan were liquidated and the money
was transferred to the investments in the Plan with similar investment
objectives, unless redirected by the participant. "Prior Unilab Employer
Contributions" merged into the Plan from the Unilab Plan are subject to
four-year vesting requirements as follows: 10% after one year of vesting
service, 20% after two years of vesting service, 50% after three years of
vesting service and 100% after four years of vesting service. Subsequent to the
plan merger, participants will immediately vest in their voluntary contributions
and Company contributions plus actual earnings thereon.
7
The Profit Sharing Plan of Quest Diagnostics Incorporated Schedule H, line 4i
Schedule of Assets (Held at End of Year)
December 31, 2003
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Current
Identity of Issue Description Shares/Units Cost Value
----------------- ----------- ------------ ---- -------
Quest Diagnostics Incorporated* Common Stock 4,787,180 $137,032,007 $349,990,730
Fidelity Puritan Mutual Fund 14,155,879 248,803,008 261,459,088
Fidelity Magellan Mutual Fund 1,848,465 177,449,918 180,668,922
Fidelity Managed Income Common/Collective
Portfolio II Class 2 Trust 143,122,316 143,122,316 143,122,316
Fidelity Contrafund Mutual Fund 1,474,845 69,023,417 72,783,594
Fidelity Low-Priced Stock Mutual Fund 1,151,057 31,610,472 40,263,979
Fidelity Equity-Income Mutual Fund 772,196 35,344,304 38,416,733
Fidelity Diversified International Mutual Fund 1,201,309 23,924,915 28,975,566
Spartan U.S. Equity Index Mutual Fund 708,838 27,903,275 27,935,318
Fidelity Growth & Income Mutual Fund 733,199 26,935,163 26,123,893
Fidelity U.S. Bond Index Mutual Fund 2,199,042 24,481,895 24,607,276
Corning Stock Common Stock 1,638,742 10,383,483 17,092,079
Fidelity Over-the-Counter
Portfolio Mutual Fund 195,992 5,980,204 6,363,848
Fidelity Freedom 2010 Mutual Fund 419,883 5,263,658 5,466,870
Fidelity Freedom 2020 Mutual Fund 399,807 4,840,819 5,205,481
Fidelity Freedom 2030 Mutual Fund 238,412 2,809,654 3,087,439
Covance Stock Common Stock 111,062 1,516,692 2,976,462
8
The Profit Sharing Plan of Quest Diagnostics Incorporated Schedule H, line 4i
Schedule of Assets (Held at End of Year) - continued
December 31, 2003
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Current
Identity of Issue Description Shares/Units Cost Value
----------------- ----------- ------------ ---- -------
Fidelity Freedom 2040 Mutual Fund 152,571 1,080,784 1,153,436
Fidelity Freedom 2000 Mutual Fund 91,827 1,060,293 1,081,717
Fidelity Freedom Income Mutual Fund 38,605 425,264 428,128
Participant Loans* ** -- 41,670,117
Fidelity Institutional Money Market
Cash Portfolio Fund 7,896,280 7,896,280 7,896,280
------------ --------------
$986,887,821 $1,286,769,272
============ ==============
* "Party-in-interest" to the Plan.
** Rates approximate prime plus 1%; maturities vary by participant.
9
Signature
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 24, 2004
The Profit Sharing Plan of
Quest Diagnostics Incorporated
By: /s/ Robert A. Hagemann
------------------------------------
Robert A. Hagemann
Member of the Quest Diagnostics Incorporated Employee Benefits
Administration Committee, Plan Administrator
10