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, 2002
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 Auditors 1
Statements of Net Assets Available for Benefits at December 31, 2002 and 2001 2
Statement of Changes in Net Assets Available for Benefits for the Year Ended
December 31, 2002 3
Notes to Financial Statements 4-9
Additional Information *
Schedule I - Schedule of Assets (Held at End of Year)
at December 31, 2002 10
Signatures 11
* 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.
Exhibits
Exhibit 23 - Consent of Independent Auditors
Exhibit 99.1 - Statement Pursuant to 18 U.S.C. 'SS' 1350
Report of Independent Auditors
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, 2002 and 2001, and the changes in net assets available for benefits
for the year ended December 31, 2002 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, 2002 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 audit 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 20, 2003
The Profit Sharing Plan of Quest Diagnostics Incorporated
Statements of Net Assets Available for Benefits
December 31, 2002 and 2001
2002 2001
Assets
Investments, at Fair Value $887,053,639 $818,972,509
Participant Loans 33,448,232 27,231,351
------------ ------------
Total Investments 920,501,871 846,203,860
------------ ------------
Cash and Cash Equivalents 10,246,644 10,407,097
Other Assets 136,587 1,416,235
------------ ------------
Net Assets Available for Benefits $930,885,102 $858,027,192
============ ============
The accompanying notes are an integral part of 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, 2002
2002
Additions to Net Assets Attributed to:
Investment Income (Loss):
Interest and Dividends $ 15,729,527
Net Depreciation in Fair Value of Investments (150,664,180)
-------------
Investment (Loss) (134,934,653)
-------------
Contributions:
Employer 42,833,811
Participants 82,492,333
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Total Contributions 125,326,144
-------------
Transfer from Employee Stock Ownership Plan 140,246,536
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Total Additions 130,638,027
-------------
Deductions from Net Assets Attributed to:
Benefits Paid to Participants 57,589,774
Other Fees 190,343
-------------
Total Deductions 57,780,117
-------------
Net Increase 72,857,910
Net Assets Available for Benefits:
Beginning of Year 858,027,192
-------------
End of Year $ 930,885,102
=============
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 October 1, 2002, the Quest Diagnostics Incorporated Employee Stock
Ownership Plan (the "ESOP") was merged into the Plan. Participant account
balances totaling $140,246,536, were transferred from the ESOP into the Plan. At
that time, all participant accounts in the ESOP were merged into their existing
Plan account. For those participants who did not already have a Plan account,
one was established. The ESOP investments were placed into the Plan's Quest
Diagnostics Incorporated Stock Fund and were then eligible to be re-invested
in accordance with the terms of the Plan.
Eligibility and Participant Contributions - Effective July 1, 2002, all
eligible employees who have completed one month of service may participate in
the Plan. Prior to July 1, 2002, all eligible employees who had completed six
months of service were eligible to participate in the Plan. Prior to June 24,
2002, eligible employees electing to participate in the Plan ("Participants")
could 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%. Effective August 2,
2002, catch-up contributions (as defined in the Internal Revenue Code) became
permissible for eligible Participants. Participants' contributions are
generally remitted within two-to-three weeks from when the payroll deductions
are made.
Company Matching Contributions - Effective July 1, 2002, the Company matches
100% of the Participants' Basic Contribution in cash after the Participant
completes twelve months of service with the Company. Prior to July 1, 2002, the
service requirement was six months. 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. ESOP contributions merged
into the Plan are subject to their three-year vesting requirements.
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 Diagnostics Incorporated Stock Fund and could not be diversified into
other
4
The Profit Sharing Plan of Quest Diagnostics Incorporated
Notes to Financial Statements
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funds until a Participant reached age 55. Effective January 1, 2002, these
investment restrictions were 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. Effective
March 1, 2002, the Managed Income Portfolio II Fund was added to the Plan, with
the assets from the Managed Income Portfolio Fund scheduled to transfer into the
Managed Income Portfolio II Fund over a period of twelve months. With the
addition of the Managed Income Portfolio II Fund, all new contributions to the
Managed Income Portfolio Fund were prohibited.
Distribution Options - Prior to November 1, 2002, upon termination of service,
Participants could 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. Effective November 1, 2002, the annuity distribution option was
generally eliminated from the Plan.
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,
--------------------------------------
2002 2001
--------------------------------------
Net assets available for benefits per the financial statements $930,885,102 $858,027,192
Amounts allocated to withdrawing Participants - (497,487)
------------ ------------
Net assets available for benefits per the Form 5500 $930,885,102 $857,529,705
============ ============
5
The Profit Sharing Plan of Quest Diagnostics Incorporated
Notes to Financial Statements
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The following is a reconciliation of benefits paid to Participants per the
financial statements to the Form 5500:
Year Ended
December 31, 2002
-----------------
Benefits paid to Participants per the financial statements $57,589,774
Add: Amounts allocated to withdrawing Participants at
December 31, 2002 -
Less: Amounts allocated to withdrawing Participants at
December 31, 2001 (497,487)
-----------
Benefits paid to Participants per the Form 5500 $57,092,287
===========
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.
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.
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.
6
The Profit Sharing Plan of Quest Diagnostics Incorporated
Notes to Financial Statements
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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 Depreciation 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.
3. Net Depreciation in Fair Value of Investments
For the year ended December 31, 2002, 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 2002
Mutual Funds $ (81,600,218)
Common Stock (69,063,962)
-------------
Net Depreciation in Fair Value of Investments $(150,664,180)
=============
7
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, 2002 and 2001:
2002 2001
Quest Diagnostics Incorporated Common Stock
Nonparticipant-Directed Portion of Investment
(1,619,242 shares at December 31, 2001) $ - * $116,165,484
Participant-Directed Portion of Investment (5,293,644
and 1,768,293 shares, respectively) 301,208,344 126,754,651
------------- -------------
Total Investment in Quest Diagnostics Incorporated
Common Stock 301,208,344 242,920,135
Fidelity Puritan (10,337,761 and 7,792,798 shares,
respectively) 163,233,247 137,698,743
Fidelity Magellan (1,665,292 and 1,667,952 shares,
respectively) 131,491,486 173,834,044
Fidelity Managed Income Portfolio II (114,185,038 shares
at December 31, 2002) 114,185,038 N/A
Fidelity Managed Income Portfolio (104,268,962 shares at
December 31, 2001) ** 104,268,692
Fidelity Contrafund (1,241,167 and 1,159,055 shares,
respectively) 47,909,044 49,572,762
* Investment restrictions on the Quest Diagnostics Incorporated Stock Fund were
eliminated effective January 1, 2002.
** Investment did not represent 5 percent of the Plan's net assets available for
benefits at December 31, 2002.
8
The Profit Sharing Plan of Quest Diagnostics Incorporated
Notes to Financial Statements
--------------------------------------------------------------------------------
5. Nonparticipant-Directed Investments
Net assets available for benefits at December 31, 2001 related to
nonparticipant-directed investments were as follows:
2001
Assets
Investments, at Fair Value:
Common Stock $116,165,484
Cash 4,105,550
Other Assets 675,683
------------
Net Assets Available for Benefits $120,946,717
============
Changes in net assets available for benefits for the year ended December 31,
2002 related to nonparticipant-directed investments were as follows:
2002
Deductions from Net Assets Attributed to:
Interfund Transfers 120,946,717
--------------
Total Deductions 120,946,717
--------------
Net Decrease (120,946,717)
Net Assets Available for Benefits:
Beginning of Year 120,946,717
--------------
End of Year $ -
==============
9
The Profit Sharing Plan of Quest Diagnostics Incorporated Schedule I
Schedule of Assets (Held at End of Year)
December 31, 2002
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Current
Identity of Issue Description Shares/Units Cost Value
----------------- ----------- ------------ ---- --------
Quest Diagnostics Incorporated* Common Stock 5,293,644 $154,401,312 $301,208,344
Fidelity Puritan Mutual Fund 10,337,761 186,971,921 163,233,247
Fidelity Magellan Fund Mutual Fund 1,665,292 163,310,420 131,491,486
Fidelity Managed Income Common/Collective
Portfolio II Trust 114,185,038 114,185,038 114,185,038
Fidelity Contrafund Mutual Fund 1,241,167 60,393,428 47,909,044
Fidelity Equity-Income Fund Mutual Fund 545,362 26,530,395 21,634,504
Fidelity Low Priced Stock Mutual Fund 798,397 20,835,620 20,095,663
Fidelity US Bond Index Mutual Fund 1,523,153 16,741,552 17,120,243
Spartan US Equity Index Mutual Fund 534,363 22,645,045 16,645,395
Fidelity Growth & Income Fund Mutual Fund 517,715 20,695,643 15,691,936
Fidelity Diversified International Mutual Fund 825,457 16,744,698 14,164,835
Fidelity Managed Income Common/Collective
Portfolio Trust 11,860,710 11,860,710 11,860,710
Corning Incorporated Common Stock 1,677,598 11,711,166 5,552,849
Covance Inc. Common Stock 122,695 1,723,957 3,017,070
Fidelity Over-the-Counter
Portfolio Mutual Fund 135,645 4,236,288 3,243,275
Participant Loans* ** - 33,448,232
Fidelity Institutional Money Market
Cash Portfolio Fund 10,246,644 10,246,644 10,246,644
------------ ------------
$843,233,837 $930,748,515
============ ============
* "Party-in-interest" to the Plan.
** Rates approximate prime plus 1%; maturities vary by participant.
10
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 27, 2003
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
11
STATEMENT OF DIFFERENCES
The section symbol shall be expressed as...................................'SS'